College Tax Credit Expiring If Congress Does Nothing

November 29, 2010 | By: TaxCure Staff

tax credits for collegeFew Americans these days dispute the fact that times are tougher and continued education is imperative to take advantage of new opportunities as they emerge. The cost of college tuition nationwide has gone up, closing the door for many students who cannot afford the exorbitant amounts without serious financial aid. It is this fact that has led to the availability of various tax credits that were conceived specifically to assist with the payment of high education.

It is the issue of college tax credits that has gotten the attention of more media sources as one such credit is set to expire at the end of 2010. The end of the credit is not welcome by many parents who see tax credits as another aspect along with scholarships and grants that will help their children succeed in gaining access to quality secondary education.

It is about fulfilling dreams in some ways, while also saving money on the hefty bills and loans that accompany education in this country.

The American Opportunity Tax Credit is facing the chopping block this year just like the home-buyer tax credit. It was included as a portion of the stimulus package in 2009 and was created to provide a tax credit of up to $2,500 for each student this year. The way it breaks down is that you can claim 100% of the first $2,000 you spend on college costs that meet qualifications and another 25% on the subsequent $2,000. Another big plus of this credit is that low-income families that don’t currently own federal taxes can get a government check valued at $1,000, which is issued to refund up to 40% of the total credit.

These are just a few basic benefits offered by the tax credit which is set to expire on December 31, 2010. This has many voicing their desire for Congress to move forward and extend this tax credit in order to further increase the numbers of students who can benefit. It makes higher education more affordable and helps defray the costs or totally eliminate them in some cases.

President Obama has been pretty vocal about his position on the credit. He has stated openly that he wants the American Opportunity Credit to become a permanent fixture in law so that it coincides with the belief that all Americans have the right to access secondary education. The Treasury Department itself has stated that the credit has increased tax cuts for higher education by 90%, thus, allowing more students (and parents) to fulfill their educational dreams.

There are concerns that Congress will let the credit expire, though some are hopeful that they will sign an extension into law next year and make the benefits retroactive. Others believe that Congress will ignore the President’s plea and let the credit lapse entirely. It may be cost-prohibitive. One figure released has estimated the cost for extending the credit over the next decade to be around $58 billion. Few on Capitol Hill want to make any moves that could be construed as adding to the nation’s already staggering deficit.