The Trump administration’s plans to reform the federal tax code is bound to have an impact on higher education and the mixture of credits, deductions and savings incentives the government currently offers.
That’s the easy prediction. But from there, it’s mostly an educated guess as to what shape or form those changes will take.A nine-page Treasury Department document released in late September sketches the Republican framework and principles for altering the tax code, including making the tax system simple, fair and easy to understand.But it offers few specifics on education other than the following wording at the bottom of page 5:”The framework retains tax benefits that encourage work, higher education and retirement security. The (congressional) committees are encouraged to simplify these benefits to improve their efficiency and effectiveness.”What does this mean?Mark Kantrowitz, a higher education expert and publisher of the Cappex financial aid website, believes the wording suggests plans to retain education tax benefits but perhaps to consolidate them as well.According to a February 2016 report from the congressional Joint Committee on Taxation, there are 14 federal education-related credits, deductions, exclusions and other incentives designed to make college more affordable. That doesn’t include federal financial aid programs, such as Pell Grants and work-study programs.The committee estimated that just the tax programs, excluding financial aid, represent, in the government’s perspective, more than $165 billion in “foregone” federal revenue between 2015 and 2019.Kantrowitz said some of these federal programs overlap and should be simplified. For example, he pointed out that the American Opportunity Tax Credit, the Lifetime Learning Tax Credit and the tuition and fees deduction could be replaced with a single higher education tax credit.Congress also could decide to limit this new credit’s use to the first four years of undergraduate study, as a way to find some savings, experts said.Indeed, simplifying these tax programs was a talking point for Donald Trump during the 2016 presidential campaign.Other education tax benefits to keep an eye on during the reform debate include the tax-free status of state-sponsored 529 college savings plans, Coverdell education savings accounts and prepaid tuition plans.The College Savings Foundation, an organization that supports 529 plans, released a statement saying it hopes the tax reform framework “commits to retaining the tax benefits that encourage (saving for) higher education.”About 13 million 529 accounts have been opened since the legislation creating them was passed about 20 years ago. But while earnings grow tax-free and users don’t have to pay taxes on withdrawals used for allowable college costs, they still are considered widely underused.The foundation has endorsed legislative proposals, including H.R. 529, which would encourage more employers to offer and contribute to employee payroll deductions into 529 plans just like they do with 401(k) retirement plans. The bill would also allow savers to use money from their 529 funds penalty free to pay off student loans or make charitable contributions to another 529.Supporters have been lobbying for these enhancements for several years, without much luck in either the Senate or the House. But they are not giving up the fight.There’s also likely to be debate in Congress over the student loan interest deduction. The maximum federal deduction of $2,500 has not changed since 2001, according to a recent report from the Pew Charitable Trusts. But between 2007 and 2016, the report noted, student loan debt has ballooned by well over 100 percent, and the “cost” to the federal government of the deduction has more than doubled.The deduction applies to federal, state and private higher education loans and is open to all eligible taxpayers who pay interest on student debt, even if they do not itemize deductions.The Pew report said that in the past there has not been a “concerted effort” to integrate all aspects of federal support for higher education into tax reform debates.As a result, the report cautioned, getting lawmakers to “focus on the student loan interest deduction and think about it as part of a larger system of support for higher education that includes spending and tax programs will not happen automatically.”Contact Steve Rosen: email@example.com or write to him c/o The Kansas City Star, 1729 Grand Blvd., Kansas City, Mo., 64108.