New college tax credit will help current and future college students

Washington, D.C. -- The school year is winding down for nearly 10,000 high school seniors across Hawaii—a time of both jubilation and tribulation, as a majority of them, along with their families, celebrates graduation and sets aside the money needed to pay for the next step: a college education.

Economic recovery funds are helping to make college more affordable for many of those families by offering new tax credits to college-bound high school students, as well as current college students, whose families meet certain income requirements.

The recovery legislation replaces the Hope Scholarship tax credit of up to $1,800 with a new $2,500 American Opportunity Tax Credit for college students which is available for both this year and in 2010. The credit covers up to the first $2,000 in eligible expenses for attending college, such as tuition, fees and books, and then 25 percent of the next $2,000 in eligible expenses.

“Making college more affordable during these economic times is of particular importance,” says Rep. Neil Abercrombie. “Education is a key to success for our children, public and private sectors, and economic productivity. And, in these tough times, one of the best investments an unemployed person can make is in education. This new tax credit helps to improve the chances of success for all of us.”
 
The new credit also is 40 percent refundable, which means taxpayers who have little or no tax liability will still benefit from the credit. As a result, more than 4 million low-income students who haven’t had any access to higher education tax credits in the past, will be able to use this credit.

The income limitations for the new credit are higher, phasing out for incomes above $80,000 for individuals and $160,000 for couples filing jointly, up from $50,000 and $100,000 under the Hope credit. Families may claim the American Opportunity Tax Credit when they file their 2009 tax returns in 2010 and the following year.

“Our future success as a state and nation will be determined in large part by what we can accomplish in our schools and classrooms. But increasing financial obstacles must be addressed so higher education will be accessible and affordable to all who seek it, especially in this increasingly competitive and globalized economy,” Abercrombie said.

The economic recovery law includes other provisions that will help to achieve that goal, as it also:

• encourages use of savings for educational costs by allowing the purchase of computers and computer equipment to be considered a qualified expense under 529 college savings plans;
• provides more than $17 billion nationwide to increase the maximum federal Pell Grant award to $5,350 in 2009-2010 and to $5,550 in 2010-2011; and
• promotes student employment by providing $200 million for the Federal Work Study program.

The need for greater accessibility to a college education is growing. Hawaii State Department of Education surveys taken near the end of each school year from 2006 to 2008 show that an increasing majority of public high school seniors planned to attend college and work after graduation. The surveys found that the percentage of college-bound seniors increased steadily each year, from 63 percent in 2006 to 68 percent in 2008.

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