A tax credit proposed by President Barack Obama could help finance all four years of college and save families thousands. He is currently calling Congress to action to make the credit permanent, something he hopes will create the highest number of proportionate college graduates in the world.
The American Opportunity Tax Credit
As a part of the 2011 budget, the president wants to keep the American Opportunity Tax Credit, which has already been in effect since February of last year and applied to the 2009 and 2010 tax periods. The tax credit replaced the Hope Scholarship credit and offered a maximum benefit of $2,500 per student each year to help reimburse tuition paid.
In addition to offering a larger amount than the Hope Scholarship credit, it expanded the income levels to taxpayers with a modified adjusted gross income of $80,000 or less ($160,000 for joint filers). It also based the $2,500 on 100 percent of the first $2,000 of tuition, fees and course materials (computers included) during the taxable year, plus 25 percent of the next $2,000 in college and post-secondary costs.
Expansion Could Help Millions
If Congress agrees to make the tax credit permanent, millions of college students and their parents could reduce their student loans or avoid them altogether. This is partially because if the credit is more than the liability, the difference would be refundable to taxpayers, giving parents or students more to add to their bank accounts after filing their taxes–a definite bonus.
A report from the Treasury Department shows the credit has already been beneficial. In the 2009 tax year, 4.5 million students received an average $800 tax refund ($3.6 billion in total) as a result of the credit.
With the expansions of the Pell Grant and Lifetime Learning Credit, expanding this credit could provide millions of dollars in free money to college students and their parents. This means more students have access to quality education and fewer workers go into debt trying to finance college.
