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Budget Deal: What it means for higher education students and families

Madison – The recent budget agreement signed by President Clinton will affect higher education students in a variety of ways. The bill, aimed at balancing the federal budget by 2002, provides tax credits and deductions to help people pay for college. It is estimated that the tax breaks are worth $40 billion over 5 years.

Below are the highlights on those directly benefiting students and families in financing their education:

HOPE Scholarship Tax Credit – will be worth up to $1,500 a year for the first two years of college: 100% tax credit for up to $1,000 of tuition and fee expenses and 50% of the next $1,000 will be allowed. The credits will be phased-out between $40,000 and $50,000 for single individuals, and between $80,000 and $100,000 for married couples. It is effective for tuition paid after December 31, 1997.

According to a fact sheet released by the Democratic Policy Committee (DPC), where South Dakota Senator Tom Daschle is chairman, an estimated 14,000 students in South Dakota would receive the HOPE scholarship.

Lifetime Learning Tax Credit – may be used toward the third and fourth year of undergraduate study or for graduate work. The Lifetime Learning tax credit is a 20% nonrefundable tax credit on the first $5,000 of tuition and fee expenses until the year 2002. In 2003, the credit is increased to 20% of the first $10,000 of tuition expenses. Tuition expenses eligibility for both credits are reduced by grants, scholarships, and employer-provided educational assistance. It is effective for tuition and fees paid after June 30, 1998.

Again, according to the DPC, an estimated 17,000 students in South Dakota will be effected by the Lifetime Learning Tax Credit.

Student Loan Interest Deduction – an above-the-line deduction for interest paid on student loans will be allowed. The deduction will be limited to $2,500 (phased up from $1,000 in 1998) for each of the first 5 years of repayment. The deduction will be available for single individuals with incomes not exceeding $55,000 and married couples with incomes not exceeding $75,000. The deduction will be effective for interest payments due after December 31, 1997.

Employer-Provided Education – Workers may deduct up to $5,250 a year in tuition paid by their employers for undergraduate study through June 30, 2000. This deduction is effective July 1, 1997.

Penalty-Free Withdrawals from Individual Retirement Accounts (IRAs) for Education – This allows families to withdraw money for college, without penalty, from IRAs for undergraduate and graduate education expenses (tuition, books, room and board). Effective for taxable years beginning after December 31, 1997.

According to Rosie Jamison, Director of Financial Aid at Dakota State University, there are several related issues that will be benefiting students as well.

"The maximum pell grant amount rose from $2,470 in 1996-97 to $2,700 in 1997-98," she said. "This amount of increase in one year is welcomed with the maximum award covering the amount of our public university full-time tuition and fee cost for the year."

Federal work study dollars allocated to universities also increased this year. This has been timely since the second increase to the Federal Minimum Wage effective in September moves from $4.75 to $5.15 per hour. "The additional allocation DSU and other institutions received allows us to continue to assist the same number of students assisted in the past and even increases those benefiting from work opportunities while in school with more earnings." Federal Work Study positions are currently on and off campus and in the future, student employees may participate in the Federal Work Study "America Reads Program." This community service program evolves around Clinton’s plan to have everyone in America able to read by third grade.

Perhaps a more wide spread impact on area students is the additional relief funding provided to South Dakota, North Dakota, and parts of Minnesota due to the adverse weather. This funding will assist anyone adversely affected by the winter of ’96 and spring of ’97.

"I urge anyone who was affected to apply. Schools will be taking applications from families who have had their income reduced and/or expenses increased due to the adverse weather over the past 9 months," said Jamison.

Applications are available at school Financial Aid Offices or Enrollment Services. Adverse weather funding is in the form of Federal grants, work study, and low interest loans.

"The government has looked very favorable to higher education funding this year, and with the recent tax credits and deductions, students and families will see even more benefits in the upcoming years," concluded Jamison.

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