In August, President Clinton signed the massive new balanced budget
agreement with $40 billion in education tax credits. Now the task its
to help colleges, students and parents figure out their roles in the
The agreement includes a HOPE Scholarship with a full tax credit on
the first $1,000 of tuition and a 50-percent credit on the next $1,000,
for total aid of $1,500. The credit applies during a student’s first
two years in college. Smaller credits for upper-level study, tax
deductions for student-loan interest and tax-free treatment of prepaid
tuition programs are other elements of this package, estimated to cost
about $40 billion.
Here is a look at key questions about HOPE’s operation, based on
the legislation and guidance from White House, congressional and
When does HOPE start?
The credit takes effect in tax year 1998 for education expenses paid
after Jan. 1. However, families and/or students will not get the actual
credits until they file 1998 tax returns, which are due April 15, 1999.
Who is eligible?
Single-parent families earning up to $40,000 a year and couplets
earning up to $80,000 a would get the full HOPE credit. Families still
would receive some help up to $50,000 a year for one-parent households
and 5100,000 for two-parent households. Higher-earning families would
receive no benefits.
What expenses are covered?
Mainly tuition and fees. Many lawmakers wanted to include books but
failed to get such aid into the final agreement. At some lower-cost
institutions, “tuition is low but books are expensive,” said Ruth
Flower, government relations director for the American Association of
University Professors. In fact, books may equal or exceed tuition costs
for students in states such as California.
What role will colleges have in the program?
To be determined, pending talks between the U.S. Education
Department and the Treasury Department about paperwork requirements and
Will HOPE change the way students pay tuition?
Probably not. Students still will have to pay up front and then file
for the HOPE credit later, officials say. But some colleges might
consider creating a foundation or other means to help students with
“bridge” funding between tuition payment deadlines and tax season, said
Ray Taylor, executive director of the Association of Community College
“Any college that is providing well-run services should advise
students, at the very least,” ACCT’s Taylor said. Most colleges and
universities already offer help with financial-aid forms and could
provide similar services with the new tax credits.
What about families with more than one child in college?
Such families can get a separate HOPE Scholarship for each child, officials say.
Can students still receive Pell Grants?
Yes. Students can receive aid from both Pell and the HOPE Scholarship programs.
What about adults returning to college?
Adults with a degree who enroll at a community college are not
eligible for HOPE but can get other benefits. Adult learners, along
with college juniors, seniors and graduate students, can get a
20-percent credit on the first $5,000 in education expenses, for a
credit of up to $1,000 a year, analysts say.
This provision does not begin until June 30, 1998 — six months
after HOPE’s starting date — but it has the same income guidelines as
the HOPE program.
Are there any hidden costs or hassles?
Possibly. Low- and middle-income families may get so many tax
breaks — chiefly the education credits and the new $500-per-child
credits also in the package — that they will require calculation of
alternative minimum tax. Individuals and families who take a large
number of credits and deductions must fill out these forms to help the
government assess whether they pay enough tax.
“Strategies are going to change for taxpayers. There’s no doubt
about it,” said one ACCT official. “H.R. Block and others will be very
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