Coverage of legislation and regulatory activity that affects higher education
By Liz Clark
The fiscal cliff compromise, passed by Congress on New Year's Day, extends numerous tax provisions that had been set to expire, including a number that are NACUBO priorities. The success in protecting these important programs is due in no small part to the NACUBO members who weighed in with Washington policy makers over the past year to bring attention to higher education-related tax and budgetary concerns.
Key Provisions Preserved
The compromise bill, the American Taxpayer Relief Act of 2012 (H.R. 8), includes the following key higher education provisions:
- The American Opportunity Tax Credit (AOTC), which had been scheduled to revert to the less-generous Hope Scholarship at the end of 2012, has been extended for five years. The AOTC provides a 100 percent tax credit for the first $2,000 of certain higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses. The tax credit is partially refundable and is available for up to four years of college. It is phased out beginning at $80,000 for single filers and $160,000 for joint filers. According to the Joint Committee on Taxation, this provision would reduce revenues by $53.1 billion and increase outlays by $14.1 billion over 10 years.
- Employer-Provided Educational Assistance (Sec. 127) benefits, which were set to expire on Dec. 31, 2012, have been made a permanent part of the U.S. tax code. Section 127 allows an employer to offer an employee up to $5,250 per year in tax-free educational assistance for undergraduate or graduate-level courses. This benefit covers tuition, fees, books, supplies, and equipment; the provision is estimated to cost $11.5 billion over 10 years.
- The expanded student loan interest deduction (SLID) has also been made permanent. Certain individuals who have paid interest on qualified education loans may claim an above-the-line deduction of up to $2,500 for such interest expenses. Prior to 2001, this benefit was allowed for only 60 months and had lower income thresholds. The bill makes permanent the income phaseout at $70,000 ($110,000 for single filers and $140,000 for joint filers). This provision is estimated to cost $9.7 billion over 10 years.
- The bill permanently extends expanded Coverdell Education Savings Accounts (ESAs). A Coverdell ESA is an account that allows parents and students to save for education expenses. While the contributions to a Coverdell account are not deductible, the amounts deposited grow tax free until distributed. The student will not owe taxes on the distributions if they are less than the student's qualified educational expenses. If the provision had not been extended, on January 1, Coverdell ESAs would have reverted from allowing annual contributions of up to $2,000 to allowing only $500. This provision is estimated to cost $271 million over 10 years.
- The above-the-line tuition deduction for qualified tuition and related expenses has been extended for one year, to the end of 2013. This deduction enables taxpayers with a modified adjusted gross income of $65,000 a year or less ($130,000 for married couples filing jointly) to deduct up to $4,000 annually in tuition and related expenses. Individuals with a modified adjusted gross income of more than $65,000 but not more than $80,000 (or more than $130,000 but not more than $160,000 for married couples filing jointly) are eligible for an annual deduction of up to $2,000. This provision is estimated to cost $1.7 billion over 10 years.
- The Individual Retirement Account (IRA) charitable rollover has been extended through Dec. 31, 2013. Individuals are also allowed to make a rollover during January 2013 for retroactive 2012 tax purposes. The IRA charitable rollover allows individuals 70½ and older to donate up to $100,000 from their IRAs and Roth IRAs to public charities, including colleges and universities, without having to count the distributions as taxable income. The IRA rollover provision had expired on Dec. 31, 2011. This provision is estimated to cost $1.3 billion over 10 years.
Limitations on Deductions
The success in protecting these important programs is due in no small part to the NACUBO members who weighed in with Washington policy makers over the past year to bring attention to higher education-related tax and budgetary concerns.
Lawmakers did not include any new limitations on personal deductions or exemptions, but in the same measure they did reinstate two previously existing limitations: (1) the Pease limitation on itemized deductions (named after former Congressman Don Pease, who originated this concept); and (2) the personal exemption phaseout (PEP). These limitations affect taxpayers with adjusted gross incomes over $250,000 for individuals and $300,000 for joint filers.
As budget talks continue in Washington, NACUBO remains concerned about the possibility of further limitations, particularly to the charitable deduction. Given the federal deficit situation, legislators are likely to consider various spending cuts as well as new revenue sources. Among the ideas that have been offered is a proposal to limit itemized deductions, including the tax deduction for charitable donations. Some have proposed eliminating or limiting tax-exempt interest for municipal bonds. Lawmakers are likely to seek alternative sources of revenue in the budget battles ahead and they may seek further limitations on the amount that can be claimed in deductions.NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553, @lizclarknacubo
The release in May 2012 of a U.S. Public Interest Research Group report drew public interest in debit card practices on college campuses. The report acknowledged that a well-structured debit card program can provide benefits, but it claims these arrangements may also subject students to high fees, which can consume the resources they need for education expenses.
In response to the continued public interest in student debit cards, as well as to the growth in recent years of campus-based banking options for students, NACUBO recommends to colleges and universities some best practices based on the association's survey (conducted in July 2012) of student debit card options on college and university campuses.
Upon the early-January release of the guidance, NACUBO President and CEO John Walda remarked, “Higher education institutions are constantly exploring ways to offer improved service to students and their parents, as well as finding cost savings for the institution, and campus debit cards have evolved to provide an administratively efficient, cost-effective, customer-oriented product. At the same time, colleges and universities need to ensure that students' consumer interests are protected as they shift more financial transactions to third parties.”
Survey Identifies Opportunities
NACUBO's student debit card survey found that, of the institutions responding, 26 percent reported that they contract with a third-party vendor to process credit balance refunds; a third of those that do not are considering doing so in the future. Only 12 percent indicated that they have a relationship with a bank, which is not involved in the credit balance refund process, but allows students to tie bank accounts to the institution's primary campus identification (ID) card. However, nearly 14 percent of institutions that do not have an existing banking-ID card relationship are considering it for the future.
NACUBO's survey also found that many schools use a competitive bidding process, and are already making the effort to negotiate good terms for students, be it for processing refunds or for arranging campus card-affiliated personal banking choices.
Need for Direction
Recognizing the need for best practices to be developed and shared broadly, NACUBO worked on guidance details developed with significant input from its recently established Student Financial Services Council. This voluntary group of NACUBO members hails from business offices at colleges and universities across the country and across sectors.
Following are the group's ideas for safeguarding student finances for campuses offering student debit card options:
- Keep students first. In ongoing efforts to hold down tuition and administrative expenses, college administrators seek cost savings in a number of ways, including automating manual processes, contracting with private operators for support functions, and establishing new revenue streams. Institutions should put students' interests at the forefront, making business decisions to enhance services available to students—and not doing so at their expense.
- Encourage students to use financial institutions. Many students enrolling for the first time at a college or university have not yet established personal checking or savings accounts. However, those with bank accounts can typically better manage their money, do not have to carry large amounts of cash, and can benefit from the convenience of debit cards and transaction records. Additionally, most bank accounts are insured and offer fraud protection. Therefore, institutions should encourage students to use financial institutions.
- Offer choices. Students have the right to choose their banking relationships, and this should be unambiguous in campus communications, which should also clearly state that students who already have accounts can use them. Some students may not have or be eligible for a traditional bank account, so they may prefer a campus-affiliated debit card option. Institutions should ensure that students have sufficient information available to allow them to be informed consumers.
- Encourage electronic refunds. Electronic transactions have become the norm in all aspects of consumer finance—from government payments to retail transactions—because they are faster, safer, less expensive, and more convenient. Schools should encourage students to receive their refunds electronically.
- Utilize a competitive process and limit exclusivity. The financial services arena is a fast-changing world for both the industry and consumers, with new options regularly emerging in the marketplace. Students and institutions should not be limited by outmoded choices. When seeking a vendor for financial services, institutions should use a competitive selection or bidding process. Institutions should also limit contracts to no more than five years.
- Engage students in the vendor selection process. Students are directly affected by campus contracts with financial institutions for student services, but are not always part of the decision-making process when a vendor is selected. Institutions should encourage student involvement in the process, which can include focus groups, representation on a selection committee, or consultation through student government.
- Comply with federal and state regulations. Colleges and universities take seriously their compliance with the U.S. Department of Education's regulatory and administrative requirements for the Title IV federal student aid programs. Institutions should take steps to ensure that administrators, staff, and vendors comply with all applicable federal and state regulations.
- Negotiate low- or no-fee options and convenient services for students. Just as colleges and universities strive to provide high-quality academic experiences for their students, they must ensure that school-sanctioned services are also good consumer values. For example, school-endorsed financial institutions should provide adequate ATM access on campus or ensure that banking facilities are readily accessible on or near campus, offer low-cost student account options, educate students to be informed consumers of financial services, and publish clear and transparent fee schedules.
Examples of fees and services institutions should pay particular attention to include:
- Account fees—set-up, requesting a card, monthly service, minimum balance.
- Spend fees—making a credit card or debit transaction at a point of sale.
- Cash fees—ATM fees, available surcharge-free networks, cash back at point of sale.
- Deposit fees—depositing money by ATM, ACH (automated clearinghouse), direct deposit, teller.
- Help fees and services—online help, voice help, live agent and/or teller options, balance inquiry.
- Caution fees—inactivity, replacement, overdraft.
- Bill payment options and fees—online pay anyone.
- Avoid unscrupulous marketing. Institutions should use great discretion when agreeing to a communication plan to ensure that students are presented with a fair explanation of services and not with misleading, biased, or aggressive marketing schemes.
- Make contracts transparent. Institutions should publicly disclose the terms of any agreements with third parties issuing debit cards to students.
NACUBO's student debit card survey found that, of the institutions responding, 26 percent reported that they contract with a third-party vendor to process credit balance refunds; a third of those that do not are considering doing so.