Putting Education Reform To The Test

Federal Fiscal Deal Includes Tax Breaks For College

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Congress avoided diving off the so-called 'fiscal cliff,' but they only put off the deadline on spending decisions until March.

Lawmakers extended college tax breaks in the federal fiscal deal struck late Tuesday, but punted on long-term spending decisions such as federal education funding and financial aid programs, such as Pell Grants for low-income students.

The New America Foundation’s Ed Money Watch blog has a nice breakdown of what was included in the so-called “fiscal cliff” deal.

The highlights:

  • The American Opportunity Tax Credit has been extended until 2017 — This allows students to take a $2,500 credit up to four years for qualified college expenses. The credit was set to expire this year. Extending it has a cost of $67.3 billion over 10 years.
  • Student Loan Interest Deduction — Can deduct up to $2,500 in student loan interest annually. The deduction is now permanent. The income limit for the deduction was scheduled to be reduced, and a 60-month time limit would be imposed. The estimated cost is $9.7 billion over 10 years.
  • Coverdell Savings Accounts — Allows for up to $2,000 annual contribution to pay for higher education and K-12 costs. The deal makes the program permanent.

You can see the full chart here.

But it’s important to remember that the deal only delays the deadline on the budget-cutting portion of the ‘fiscal cliff’ until March.

Education Week says most school districts wouldn’t feel the federal cuts right away, but Head Start and other programs would:

If the sequestration cuts do end up going through in March, most school districts wouldn’t feel the pinch until the start of the 2013-14 school year, because of the way that key programs, such as Title I grants for districts and special education aid, are funded. That gives districts a planning window to figure out how to implement the cuts without hurting student achievement—and it gives Congress and the Obama administration more time to work out a deal.

But other programs, such as the Head Start preschool program for low-income children, which is administered by the U.S. Department of Health and Human Services, would be cut right away. And the impact-aid program would feel the sequestration sting in April, when districts receive their next payments. That program helps districts with a large federal presence, such as a military base. More on the cuts here.

Stay tuned…


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