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Business and Policy Areas
Business and Policy Areas

Education Tax Bill Expected from Senate Finance Committee

October 2, 2007

For several months, Senate Finance Committee (SFC) staff have been working on a higher education tax bill that, among other things, would consolidate the Lifetime Learning tax credit and the above-the-line tuition deduction into a single credit. The intent is to simplify and increase the higher education tax benefits for students and their families. While details are still under development, the committee is considering variables such as the maximum value of the credit; eligible college expenses; income caps for eligibility; and the extent to which credit should be refundable. These items will greatly influence the cost of the bill; and, given congressional budget rules, the bill’s final price tag must be fully offset.

Other provisions under consideration include:

  • expansion of the definition of "qualified tuition and related expenses" to include room and board;
  • extension of the IRA charitable rollover provision (set to expire at the end of this year) for an additional two years;
  • extension of tax-free, employer-provided tuition benefits (set to expire at the end of 2010); and
  • expansion of the student loan interest deduction.

A great deal of the offsets will come from sources outside of higher education, but the committee may propose revenue-raising or policy initiatives directly involving colleges and universities. Whether or not it generates part of the offset, one item in particular will be extremely problematic for the many institutions with endowments of more than $500 million. The SFC members, like those on the education committees, are feeling the public pressure to do something proactively to address rising college costs.

Witnesses at a recent SFC hearing discussed the "hoarding of wealth" by higher education institutions with the largest endowments. Contrasting multi-billion dollar endowments with ever-rising tuition prices, several committee members indicated an interest in addressing what is perceived as inadequate spending from endowments in comparison to historically high rates of return from endowment investments. They are considering a proposal that would require colleges and universities with endowments of more than $500 million to spend a minimum of 5 percent of their endowment funds annually. This is similar to the 5 percent pay-out rule currently in place for private foundations.  Also, committee staff are examining endowment provisions that would apply to colleges and universities that raise tuition above certain benchmarks.

The committee currently hopes to mark up a bill later this month, but the schedule remains fluid.  Given limited room left on the congressional calendar this year, it is unclear whether full consideration of a committee bill will take place prior to adjournment in November or early December.

September 26 Senate Finance Hearing on Offshore Tax Issues