New tax credits for students

Beginning in calendar year 1998, many families will be able to claim a federal tax credit for postsecondary educational expenses. For eligible students, the Hope tax credit provides up to $1,500 for the first two years of postsecondary education. The Lifetime Learning Tax Credit is more widely applicable and equals 20 percent of qualified expenditures, up to $5,000 per family.

The law requires colleges to provide information to families for every student who pays tuition, which means colleges will have to gather and compile data that they do not currently collect. While these tax credits will make it easier for students and their families to pay for college, institutions must bear all the costs associated with the new reporting requirements.

Colleges will be responsible for reporting limited information beginning in January 1999. More extensive information will be required in future years.

The higher education associations are working on several fronts to help colleges comply with the new requirements, or to eliminate the burden altogether.

The associations are working to repeal the reporting requirements in favor of "self-reporting" by families that claim the credit. Legislation to accomplish this goal has been introduced with bipartisan support by Congressman Dan Manzullo (R-IL) and Senator Susan Collins (R-ME). While it has considerable support in both houses, the Clinton administration is opposed and Congress has shown little willingness to force the issue.

Congress has, however, approved legislation that would reduce the reporting requirements modestly and has urged the Treasury Department to delay implementation of expanded reporting requirements. The Internal Revenue Service agreed to delay the expanded requirements for at least one year. While this recent development is welcome news, it does not mean that the reporting burden has been eliminated.

"Complying with the reporting requirements will be a significant burden for many colleges and universities at the same time that it provides a real and substantial benefit to families," notes Stanley O. Ikenberry, president of the American Council on Education. "The higher education associations will work extensively to minimize the burden imposed on colleges, but all schools must undertake the efforts necessary to comply with the law."

Copyright American Council on Education Fall 1998
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