Edinboro, Pa.   -  U.S. Rep. Phil English (R-Pa.) will introduce legislation that will help increase American’s access to higher education when he returns to Washington this week.  The Higher Education Affordability and Equity Act of 2007 would strengthen and improve the tax treatment of education savings and loan programs.  English was joined by students and representatives from Edinboro University during his announcement today at the school’s main campus in Edinboro, Pa.

“As college tuitions across the country continue to rise, we need to act now to make sure all Americans have access to higher education, and that families regardless of their means, are able to afford the costs of college,” said English, Ranking Member of the Select Revenue Measures Subcommittee. “By reducing the tax burden associated with saving and paying for college, we can make it possible for many to realize their educational opportunities.”

“We're particularly delighted that Congressman English has chosen the campus of Edinboro University to announce this sponsorship of national legislation to make higher education more affordable to a great many current and future students,” President Pogue said. “Dealing with the cost of higher education, particularly among traditionally underserved segments of our society, is one of the greatest challenges facing our nation's colleges and universities.  We know first hand the importance of making higher education affordable to all our citizens.  We see the faces of traditional and non-traditional students struggling with finances while working hard toward their college educations.”

The Higher Education Affordability and Equity Act (HEAEA) would: allow a taxpayer making less than $100,000 to deduct the full amount of their student loan interest; allow tax-free treatment of scholarships including room and board, whereas currently only tuition and fees are tax-exempt; increase allowable contributions to Educational Savings Accounts from $2,000 to $5,000 annually; expand the coverage of the Hope Scholarship Tax Credit to include expenses such as books and equipment, currently the credit only covers tuition; and make permanent a number of previously enacted tax provisions for college savings                                                                                 

“College savings are an essential component for many families to pursue a degree,” English said. “This bill will help parents to save for college by giving them significantly more incentive to set aside money in Private Tuition Accounts and Coverdell Education Savings Accounts.”

A longtime advocate of breaking down the barriers to college savings, English has introduced and helped develop innovative legislation to make higher education more affordable.  Since being elected to office in 1994, several of English’s key education initiatives have been enacted in law.  Such proposals include the expansion of the deductibility of interest payments on student loans, extending the income tax deduction for qualified higher education expenses and permitting the current tax-free treatment of withdraws from Section 529 plans, like the Pennsylvania Tuition Account Program (TAP) permanent, among others.

"Education is an essential investment in the next generation and in our economy,” English said. “The federal government needs to take an active role in allowing working families to pursue higher education and realize the American dream." 

Summary of the Higher Education Affordability and Equity Act of 2007 follows:

SUMMARY
The Higher Education Affordability and Equity Act of 2007

BACKGROUND
The Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) made several changes to the Internal Revenue Code which governs the taxation of the various college savings vehicles.  These include qualified tuition programs (QTPs), 529 plans, including prepaid tuition accounts and savings accounts, and Coverdell Education Savings Accounts (ESAs).  The modifications included in Title IV of EGTRRA were limited in their scope and effective temporarily.  The proposed legislation aims to expand and make permanent the higher education affordability provisions of EGTRRA, as well as make other improvements in the tax treatment of various college aid and savings in order to increase education affordability in America.

PROPOSAL
Section 1.  Short title: Higher Education Affordability and Equity Act of 2005 (HEAEA)

Section 2.  Expand the interest deduction for student loans by repealing the dollar limitation and increasing the phase-out beginning point.
Under current law, a taxpayer can deduct a maximum $2,500 in student loan interest which is reduced gradually for taxpayers whose income is between $50,000 and $65,000.  The proposal repeals the $2,500 dollar limit and increases the phase-out point to begin at $100,000 and end at $115,000.

Section 3.  Deduction for qualified higher education expenses made permanent. 
Currently, an above-the-line deduction may be taken for expenses paid by the taxpayer during a taxable year for qualified higher education.  In 2004 and 2005, taxpayers with adjusted gross income that does not exceed $65,000 ($130,000 for joint returns)
are entitled to a maximum deduction of $4,000 and taxpayers with adjusted gross income that does not exceed $80,000 ($160,000 for joint returns) are entitled to a maximum deduction of $2,000.  Current law expires at the end of 2005.  The proposal leaves in place permanently the 2005 levels.

Section 4.  Increase allowable contributions to ESAs from $2,000 to $5,000.

Section 5.  Allow room and board to be treated like tuition scholarships for tax purposes. Currently, amounts received as a scholarship or fellowship grant are excluded from income and are not subject to tax if the recipient is a student at a primary, secondary, or postsecondary educational institution and the funds are used for the payment of tuition and required fees, books, supplies, and equipment.  However, amounts used for living expenses, including room and board, are not excludable from income and are therefore subject to tax. The proposal changes the definition to include room and board.

Section 6.  Expansion of Hope Scholarship Tax Credit.
The Hope Scholarship Credit provides up to $1,500 in annual tax relief to defray the cost of the first 2 years of undergraduate studies.  Currently, the Hope Credit only covers tuition. The proposal expands the credit to include certain additional expenses, such as fees, books, supplies and equipment.  It also excludes Federal Pell Grant and Supplemental Educational Opportunity Grant payments as mandatory reductions to expenses eligible for the Hope Credit so that financially needy students do not have their reduced by the amounts received.

Section 7.  Make permanent the education affordability provisions included in EGTRRA.
The following provisions were enacted as a part of Title IV of EGTRRA.  The proposal makes them permanent by repealing their December 31, 2010 sunset.
Education IRAs (now known as Coverdell ESAs):             

o Annual limit on contributions is $2,000 (Sec. 4 of the bill increases this to $5,000);
o Qualified education expenses includes elementary and secondary school expenses;
o No marriage penalty for income limit eligibility;
o Same student can claim HOPE credit or Lifetime Learning credit while excluding from income IRA account distributions;
o Same student can contribute to an education IRA and a qualified State tuition program in the same year.
Private Prepaid Tuition Programs:
o Qualified tuition program (QTP) includes prepaid tuition programs established and maintained by one or more eligible educational institutions that satisfy the requirements under §529;
o Higher education expenses includes expenses for the special needs of a student;
o Distributions from QTPs are excluded from income if used to pay for higher ed expenses;
o Same student can claim HOPE credit or Lifetime Learning credit while excluding from income QTP distributions;
o Allow a student one rollover per year from one QTP to another;
o Distributions not used for higher education expenses are given the same additional tax that applies to education IRAs;
o Assets of QTPs of private institutions must be held in trust.
Exclusion for Employer-provided Educational Assistance: employed-provided assistance for education as applied to undergraduate and graduate education is excluded from gross income.
Treatment of National Health Service Corps Scholarship Program and Armed Forces Scholarship Program: amounts received under either program are eligible for tax-free treatment as qualified scholarships.

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