From the Princeton Weekly Bulletin October 13, 1997
Bill provides tax relief
for studentsMany Princeton students and their families, along with members of the faculty and staff, will get help in paying for college and graduate school as a result of the landmark tax bill passed by Congress and signed by President Clinton over the summer. The bill provides new tuition tax credits, education IRAs and interest deductions for certain student loans, and extends favorable tax treatment for employee education assistance, graduate student tuition waivers, and tuition benefits for children of faculty and staff, among other provisions. Out of a total five-year net tax reduction estimated at $95 billion, the bill provides some $40 billion for students in higher education and their families.
Tuition tax credits
Specific provisions of special interest to Princeton include the following.
Hope credit . This is a nonrefundable 100 percent credit for the first $1,000 of tuition and fees and a 50 percent credit for the second $1,000 (up to a maximum credit of $1,500) for the first and second years of college that President Clinton proposed in his 1996 Commencement address at Princeton. The credit will be available for college enrollment after January 1, 1998. It is phased out for joint filers with incomes between $80,000 and $100,000 and for single filers between $40,000 and $50,000.
Lifelong Learning credit. This is a nonrefundable 20 percent credit for up to $5,000 in tuition and fees (i.e., a maximum credit of $1,000), increasing to a 20 percent credit for up to $10,000 (maximum credit of $2,000) after 2002. This credit is available beginning July 1, 1998, for undergraduate expenses incurred after the first two years, for graduate study and for postsecondary vocational education. There is no limit on the number of years this credit can be claimed. It is phased out at the same income limits as the Hope Credit.
Education IRA/Penalty-free IRA withdrawal. Taxpayers can deposit up to $500 a year for each child under age 18 into a new Education IRA where earnings accumulate tax-free, and no taxes are due upon withdrawal to pay for college. The income phase-out is $150,000 to $160,000 for joint filers and $95,000 to $110,000 for single filers. The bill also permits penalty-free withdrawals from IRAs for under-graduate and graduate education, and postsecondary vocational expenses for the taxpayer and spouse, child or grandchild. Both IRA provisions are effective January 1, 1998.
An individual who benefits from a distribution out of an Education IRA in a given year will not be permitted to take advantage of the Hope Credit or the Lifelong Learning Credit that same year. However, a tax return covering several individuals (such as a spouse and dependents) could elect a Hope Credit for anyone in the first two years of college, a Lifelong Learning Credit for anyone eligible for it and Education IRA distributions for anyone who is not claiming either of the credits. In other words, one return can claim all three benefits, but any individual can claim only one in a given year. The one other stipulation is that the Lifelong Learning Credit annual maximum is per return, so it remains the same regardless of the number of students.Other provisions
Student loan interest deduction . This is an above-the-line deduction of student loan interest for the first 60 months in which interest is due on any student loan. The maximum deduction is $1,000 in 1998, increasing in $500 increments each year until reaching $2,500. The income phase-out is $60,000 to $75,000 for joint filers and $40,000 to $55,000 for single filers.
Employee educational assistance. The bill extends through May 31, 2000 the current tax exemption for up to $5,250 a year in employer-provided educational benefits for undergraduate courses taken by employees.
Last spring, 139 members of Princeton's maintenance, support and administrative staffs received this form of educational assistance, 91 for courses at the undergraduate level (which would remain eligible for tax-free reimbursement) and 48 for graduate level courses (which will now be taxable).
The bill excluded a provision originally in the House version that would have taxed tuition waivers for graduate student assistants in research and teaching and tuition benefits for children of faculty and staff. These benefits will remain tax-free. Many Princeton graduate students receive such waivers (if they also receive stipends, those are already taxable).
Last year Princeton provided grants equal to one-half of each child's undergraduate tuition and fees up to a maximum grant of $8,000 to 323 employees, including 63 faculty; 100 members of the clerical, maintenance and support staffs; 106 members of the administrative staffs; and 54 members of the library, research and technical staffs.Full relief intended
Now that the tuition credits are available, colleges and universities have to decide how--or whether--they will take them into account in assessing financial need and providing financial aid.
According to Don Betterton, director of Undergraduate Financial Aid, "Princeton has decided not to make any upward adjustment in its assessment of a family's ability to con-tribute toward student expenses as a result of these credits, so students and families will get the full relief that Congress and the President intended.
"We appreciate the financial sacrifices that many students and their families make, especially in the income ranges affected by these new credits, and we are very pleased that this additional assistance will now be available to them."
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