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In 1997 the federal government, by enacting the Taxpayer Relief Act, inaugurated a systemic change in the way it supports students in their postsecondary education and training. Whereas other federal student aid programs use grants, scholarships and loans to help students and their families finance college, the new law makes college more affordable by providing new federal income tax credits, savings incentives, and deductions for interest paid on student loans. Taken together, these federal income tax policies represent one of the largest efforts in recent history to finance college attendance in the United States. Their cost to the federal government--once all the credits, incentives, and deductions are fully used by taxpayers--is projected to approximately equal the cost of all other existing federal financial aid programs combined. This policy guide examines the implications of these federal tax provisions for state higher education policy. It describes the two federal tax credits designed to help students and their families meet the current expenses of college: the HOPE Scholarship and Lifetime Learning tax credits. This guide also explains the new tax incentives concerning college savings, and the new provisions regarding student loans. Section one describes the existing federal student aid programs and the federal tuition tax provisions, which eligible students and their families can begin claiming in 1998. It also identifies which students will be eligible, based on family income, age, and state of residence. Section two describes several state policy options in response to the new federal tax credits. Section three makes recommendations regarding state policy. Analytic and comparative tables are located in an appendix. |
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