House and Senate Recovery Packages Would Improve Higher-Education Tax Credits

PDF of this report (10pp.)

By Gillian Brunet, Robert Greenstein and Chye-Ching Huang

Revised February 2, 2009

Key Findings

  • The House economic recovery package would help make college affordable, or more affordable, for millions of low- and moderate-income students by strengthening the Hope Tax Credit. This would also help boost U.S. competitiveness by enabling workers to obtain education and skills to improve their productivity. The Senate Finance Committee package is similar.
  • Currently, education tax credits are not available to the students who most need them to afford college: those with low or moderate incomes. The House and Senate packages would extend the Hope Credit to 3.8 million low-income students by making it partially refundable.
  • The package also would expand the maximum credit from $1,800 to $2,500 and modestly broaden the education-related expenses it can offset. This would help millions of students from moderate- and middle-income families who already qualify for the credit.
  • These improvements are particularly important given the current recession. When the labor market is weak, one of the best long-term investments the nation can make is upgrading the skills of its workforce. The more people who go to college and improve their skills, the better positioned the nation will be when the economy begins to rebound.
  • The modest increase in Pell Grants in the House and Senate packages are not a substitute for improving the Hope Credit. Even with the Pell Grant increase, the large majority of low-income students will have substantial unmet financial need.

The economic recovery package passed by the House last week[1] contains a measure that both would extend the Hope tax credit to nearly 4 million low-income students and make the credit more valuable to millions of middle-income students.  The Senate Finance Committee has included a similar proposal in its economic recovery package. 

The House measure would increase the credit’s maximum size from $1,800 to $2,500, allow it to be claimed for a maximum of four years instead of the current maximum of two years, enable students from families with that do not earn enough to owe income tax to qualify for a credit of up to $1,000, and somewhat broaden the education-related expenses that the credit can offset.  The Senate proposal is similar, except that low-income students could qualify for a credit of up to $750, rather than $1,000.  These changes would help make college affordable, or more affordable, for millions of low- and moderate-income students. 

Helping low- and moderate-income students afford college is particularly important during a recession.  When the labor market is weak and many individuals are unable to find work, one of the best long-term investments the nation can make is in upgrading the skills of its workforce.  The more people who go to college during the downturn and improve their skills, the better positioned the nation will be when the economy rebounds.

Click here to read the full-text PDF of this report (10pp.)

End Notes:

[1] H.R. 1., American Recovery and Reinvestment Act of 2009.

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