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Last night, President Obama delivered his State of the Union Address to the nation. As anticipated, the President proposed several higher education initiatives as part of his domestic agenda, referred to throughout the Address as his “middle-class economics” plan.
Here are some of the President’s proposals that relate to higher education:
Free community college
The President proposed eliminating tuition for community college for students who attend at least half-time and maintain a 2.5 GPA. If passed by Congress, the proposal is estimated to cost $60 billion over the next decade. More here.
Tax code changes
The President is proposing a number of changes to the tax code. Those specifically related to higher education include the consolidation of tax benefits through a streamlined, permanent American Opportunity Tax Credit (AOTC) that would adjust with inflation. Under current law, the AOTC is scheduled to expire after 2017. This change would consolidate the Lifetime Learning Credit and the tuition and fees deduction into the AOTC and increase the refundable portion of the AOTC to $1,500. Additionally, the proposal expands access to AOTC eligibility to part-time students and increases the number of years that families can claim the AOTC credit from four to five. The President’s plan also calls for exempting Pell Grants from taxation and the AOTC calculation.
President Obama called for the consolidation of education savings incentives— redirecting those savings to increase the AOTC. Specifically, the President’s plan rolls back tax cuts for 529 education savings plans that were enacted in 2001 for new contributions. He also called for repealing tax incentives going forward for the Coverdell education savings program.
Other tax code items in the State of the Union that relate to higher education include:
- Eliminating taxes on student loan debt forgiveness under Pay-As-You-Earn and other income-based repayment plans. Currently, borrowers who choose to repay their student loans with Pay-As-You-Earn may face a tax bill when they qualify for debt forgiveness after twenty years of repayments. The President’s plan proposes eliminating taxes on student loan debt forgiveness under Pay-As-You-Earn. The Pay-As-You-Earn program essentially limits student loan payments to no more than 10 percent of discretionary income and provides qualification for loan forgiveness after 20 years.
- Repealing the student loan interest deduction for new borrowers. The President’s plan repeals the student loan interest deduction for new borrowers only—maintaining the deduction for current borrowers. According to the White House, the deduction “provides very limited assistance ($100 on average) to a broad group of borrowers,” and many eligible borrowers fail to claim it. The President’s plan would direct savings from this proposal to his proposed increased American Opportunity Tax Credit.
The Tennessee Delegation Responds
Republican Senator Lamar Alexander, Chairman of the Senate Committee on Health, Education, Labor and Pensions issued the following statement:
“Unfortunately, much of what I heard from President Obama tonight are partisan proposals that don’t have any chance of becoming law – and that he intends to pursue despite the message the American people sent him in November by electing a Republican Congress. We need to hear more about proposals that Congress might actually work on with the president: to expand free trade so we can sell more Tennessee products overseas, simplify student aid forms so more community college students can take advantage of Tennessee Promise, preventing cyberattacks and fixing No Child Left Behind. I’d like to hear talk more about 21st-century cures, helping to get treatments, medical devices and medicines through the U.S. Food and Drug administration more rapidly, which would help virtually all Americans. This is something that both Republicans in Congress and the president believe is important.”
Republican Senator Bob Corker, Chairman of the Senate Foreign Relations Committee, stated:
“Tennesseans are ready for both the Congress and the White House to govern responsibly and finally focus on growing our economy, repairing our fiscal house and strengthening our nation’s role in the world. It is my hope the President will recognize that the only way to solve some of the big issues we face and create a stronger, more prosperous nation for future generations is to roll up his sleeves, provide leadership and work with this new Congress. If he does that, I think we can begin to deliver real, long-lasting results for hardworking American families.”
For a more comprehensive roundup of responses, click here.