House, Senate Tax Bills Offer Differing Proposals on Higher Ed

November 13, 2017

By Carrie Warick, Director of Policy and Advocacy

Over the past two weeks, Congressional Republicans have released two different plans to fulfill their pledge to cut taxes and simplify the tax system: one in the House and one in the Senate. Both bills are named the Tax Cuts and Jobs Act, but the content that affects higher education differs in several places.

At the big-picture level, both bills add approximately $1.5 trillion to the deficit over the next decade. In a time of fiscal austerity, adding to the deficit could set up future fights about government programs and their funding levels. Republicans argue that their plan makes the tax code simpler, but NCAN has long held that simple should not equal less. Unfortunately, in certain areas related to higher education, the simplification of the tax code could lead to fewer benefits for Americans trying to pay for college.

In the House bill, the piece that will most affect our students is the elimination of the student loan interest rate deduction, which currently can be used in addition to the standard deduction. In the Senate bill, which keeps the student loan deduction, the most alarming change is the complete elimination of the state and local tax deduction, which could discourage states and local municipalities from collecting tax dollars needed to fund higher education.

Early estimates from the American Council on Education state that together, all changes to higher education-related taxes in the House bill will save the government $65 billion over the next 10 years – which is another way of saying that Americans pursuing higher education will pay $65 billion more for it. Expect to hear a lot about the student loan interest rate deduction in the coming debates, especially with Senate Minority Leader Charles Schumer (D – NY) including it on his list of items Democrats most object to in the tax plan. 

The Senate bill keeps, or does not change, several of the current higher education tax benefits as outlined in the table below, and also greatly decreases the dollar amount taken away from students through changes to tax proposals.  


House Tax Proposal

Senate Tax Proposal

Student Loan Interest Deduction

Eliminated

No Change

State and Local Tax Deduction

Decreased

Eliminated

Charitable Giving Deductions

No Change

No Change

Tax Breaks On Tuition Discounts

Eliminated

No Change

Higher Education Tax Credits

Combined

No Change

Excise Tax on College Endowments

Created

Created

Student Loan Forgiveness for Death or Disability

Created

No Change

529 and Coverdell Accounts

Combined

No Change

Use of 529 for K12 Purposes

Created

No Change

With large differences in the two bills beyond higher education, the House and the Senate will need to reconcile them before a final version is sent to the president’s desk. This process is known as “going to conference,” where a conference committee from both chambers will negotiate compromises, or trade-offs, in areas of the bills that are different. It is also possible that one chamber just decides to vote on the other chamber’s bill as-is, though both chambers have wings of their party they must appease. Republicans have announced a goal of passing tax reform by the end of this year, with most provisions implemented in 2018 (for taxes filed in 2019). However, they must also finish the fiscal year 2018 government funding, which ends Dec. 8. Related to that deadline, Democrats are insisting that a solution for Dreamers is included in that legislation. It will be a very busy two months ahead for Congress. 

By the end of this week, the Senate bill will have gone through the committee “mark up” process where most amendments are made. Afterward, it will be more clear what the final two bills will look like, and NCAN will look for opportunities to voice any support or opposition for the proposals as needed. If you have particular feedback on either of the tax bills, or areas where you’d like to see NCAN take a position, please email me.

Student Loan Interest Deduction

The House bill includes a proposal to eliminate the student loan interest deduction. Currently, tax filers can take this deduction “above the line,” meaning they can still benefit from it while using the standard tax deduction. This deduction is currently targeted at low- and middle-income earners with an income eligibility phase-out. The Senate bill does eliminate this deduction.

State and Local Tax Deduction

Both chambers recommend changes to the State and Local Tax Deduction, known as SALT, which allows taxpayers to deduct a portion of the taxes they pay on income and property at the state and local level from their federal taxes. In the House plan, taxpayers would still be able to deduct up to $10,000 in property taxes, but the Senate plan eliminates this ability entirely. State and local tax dollars are used to pay for public schools and public colleges. If this deduction is eliminated, it is possible that there will be pressure to cut state and local taxes, or opposition to any new taxes.

Charitable Giving Deductions

Changes to the standard deduction for single filers, joint filers, and head of household filers could affect how Americans approach their charitable giving. While charitable donations are still a tax deduction for individuals or families who itemize their deductions, there is disagreement about how the increase in the standard deduction will impact giving. Supporters of this change argue that taxpayers will pay less overall and therefore have more to donate. Detractors say fewer Americans will give because the higher standard deduction will negate their motivation to itemize deductions when charitable giving decreases one's tax liability in the current tax system.

Tax Breaks On Tuition Discounts

The new House tax bill eliminates the tax break on tuition-related expenses. This includes employer reimbursed tuition, discounts colleges give their employees on tuition for themselves or their families, and the break on tuition provided through graduate assistantships and fellowships. Under the new tax bill, recipients of those benefits would need to pay tax on them as though they were income. The Senate bill keeps this provision.

Higher Education Tax Credits

The House version of the Tax Cuts and Jobs Act eliminates both the Hope Scholarship Credit and the Lifetime Learning Credit, “consolidating” them into the American Opportunity Tax Credit, saving $17 billion over the next 10 years. The new AOTC would provide a 100-percent tax credit for the first $2,000 in certain higher education-related expenses, and then would provide a 25-percent tax credit for the next $2,000. Families would be able to claim the AOTC for up to five years, but the benefit is cut in half in the second year. Additionally, part-time learners or those in non-degree programs who can currently use the Lifetime Learning Credit would not have access to the AOTC. The Senate bill does not make any changes to the higher education tax credits.

Excise Tax on College Endowments

Approximately 65 private colleges could face a 1.4-percent excise tax on their endowments under both bills. Colleges that would qualify to pay the tax under the new tax bill are private institutions enrolling more than 500 students, with over $250,000 in endowment dollars per student. However, the tax bill defines full-time enrollment differently than the Higher Education Act, so the exact number of qualifying institutions is still an estimate. Public colleges are exempt. The House bill proposal originally included closer to 200 schools, but amendments were made in committee following the introduction of the bill.

Student Loan Forgiveness for Death or Disability 

A new education tax benefit is included in the House bill only. Student loan borrowers whose debt is forgiven due to death or disability will no longer have to pay income tax on that benefit.

529 and Coverdell Accounts

The House bill would require that Coverdell Education Savings Accounts be rolled into 529 plans. The Senate bill would not change these savings accounts.

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