That Was Close: College Students Benefit From Fiscal Cliff Deal

The deal hammered out by President Obama and Congress avoids cuts to education programs - at least, for now

By Kevin Walker
Posted January 03, 2013 02:00 PM

Fiscal Cliff Deal Effect on College Students
Fiscal Cliff Deal Effect on College Students
President Obama signed the “fiscal cliff” deal late on Wednesday, raising taxes on wealthier Americans while preserving tax breaks for the middle and lower class.

The deal is good news for debt-ridden college students –even if it’s only temporary good news.

College students had reason to be concerned. Education programs were among those targeted by automatic spending cuts that would have gone into effect without the deal. The final “fiscal cliff” package delays cutting benefits for college students and preserves tax relief for them, as well.

In a statement after the deal was reached, President Obama said, “Under this law, more than 98% of Americans and 97% of small businesses will not see their income taxes go up. Millions of families will continue to receive tax credits to help raise their kids and send them to college.”

Still, there will be a need for more deals down the road to maintain government aid and tax relief for college students. By March 1, Congress will have to negotiate a final budget for 2013 or face the prospect of “sequestration,”automatic, across-the-board spending cuts that will trigger this spring if a deal is not reached, including some that affect education spending.

Here are some of the major higher education-related issues affected by the deal hammered out by Obama and Congress, as reported in Education Week, Inside Higher Education and The New York Times, as well as in news releases from federal government agencies.

American Opportunity Tax Credit.This tax credit, which was part of Obama’s 2009 Stimulus package, allows a $2,500 tax credit for higher education-related expenses. It is available for individuals making less than $80,000 and couples making less than $160,000. The tax credit was extended by five years as part of the deal.

That’s good news for almost half of all American college students. According to a 2011 report from the National Center for Education Statistics, 47% of all college students take advantage of federal tax credits for education.

Student Loan Interest Deduction. The “fiscal cliff” deal eliminated a five-year limit for claiming a tax credit through the Student Loan Interest Deduction, which allows students a tax credit of up to $2,500 for interest paid on a student loan.

Tuition and Fees Deduction. This deduction allows students to deduct up to $4,000 in tuition expenses. The deal extends the deduction through 2013.

Pell Grants, the federal student loan program for low income Americans, was not affected. However, financial aid expert Mark Kantrowitz told the New York Times that the maximum amount allowed per grant could be cut by $400 if a budget deal is not reached by March 1.

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