New College Education Tax Breaks Gaining Favor on Capitol Hill
New college education tax breaks are gaining favor on Capitol Hill as lawmakers seek to build on President Bush’s new tax reduction plan.
While Bush would focus on cutting income tax liability, nine senators came before the powerful Senate Finance Committee last month seeking support for highly targeted education deductions. Among the most popular options is expanding the current student loan interest deduction, through which recent graduates get a tax break against their loan payments.
A plan from Sens. Charles E. Grassley, R-Iowa, and Max Baucus, D-Mont., would expand the deduction, which currently is limited to only five years after a student begins repayment. Students may take much more time to repay loans, given escalating
tuition costs.
Another option, Setting Aside for a Valuable Education, or the SAVE Act, would make all tuition savings plans tax free and allow private colleges to create their own prepaid tuition programs, similar to those for many public institutions. “We must still continue to encourage parents to adopt a long-term savings approach for their children’s future education,” says Sen. Mitch McConnell, R-Ky., the program’s sponsor.
President Bush and other senators also want to expand education savings accounts, through which families can make annual contributions to a tax-free pot of money for college. The current maximum contribution is $500 annually, but participants at the Finance Committee hearing would increase that figure to as much as $5,000.
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