While the public has, at times, largely vilified the stimulus, many people may not realize it has sent people back to school. The American Opportunity Tax Credit, an educational tax credit, was one of the programs that went in the American Recovery and Reinvestment Act last year.
For the 2009 and 2010 tax years, students were eligible for a tax credit of up to $2,500. This money could be put toward tuition, books or other school expenses.
According to a report prepared by the Treasury Department, 12.5 million students have already taken advantage of this tax break.
The AOTC took the place of the Hope Tax Credit, which was also an education tax credit.
The Hope credit was a tax break of only $1,800, while the American Opportunity credit is $2,500. Also, the Hope credit was only available for two years of college, whereas the new tax credit can be used for all four years of college.
It is also much more generous in its eligibility. The older tax credit had an income phase-out limit of between $100,000 and $120,000 (for couples filing the joint taxes) whereas the AOTC raised that to $160,000 and $180,000 (again, for joint filers). The last benefit is that the AOTC can cover the cost of books.
This tax credit can also serve as a supplement to Pell Grants if the student’s tuition and fees exceed that of the Pell Grant. This includes everyone who attends ASU. The maximum amount for Pell Grants in 2009 was $5,350, which is nowhere near enough to cover the $8,100 in tuition that in-state freshman at ASU pay, let alone the near $20,000 that out-of-state students must pay.
However, the extra $2,500 that the AOTC provides is almost enough money to provide in-state freshman just enough money to cover tuition. Combined, they total $7,850, which puts them only several hundred dollars away from finishing one year of college. That total will most likely cover the tuition for upperclassmen, as their tuition is lower than underclassmen.
For out-of-state students, $7,850 is a much more attractive number than either $2,500 or $5,350.
The disappointing part is that this has largely gone unnoticed by the American public. A CBS/New York Times poll released earlier this year shows that more Americans think President Barack Obama raised taxes rather than lowered them. Twenty-four percent of poll respondents were under the impression that Obama hiked taxes rather than cut them. Only 12 percent of those polled believed our president had cut taxes. The Recovery Act contained a mixed bag of tax cuts and tax credits and the AOTC was only one of them.
At a time when a college degree is crucial, we must make this tax credit permanent. A bachelor’s degree can provide shelter in rough economic times; college graduates are faring much better in this economy, according to the most recent statistics released by the Bureau of Labor Statistics. With an unemployment rate at an even 10 percent, those people who only finished high school are having a much harder time than college graduates, who have an unemployment rate of 4.4 percent.
People lament that the American Dream is dead, but by extending this tax credit we can expand the longevity of the American Dream. This special part of our country’s vision has evolved. A college education is imperative and this country’s education policies and funding must reflect that.
Seize the opportunity to comment to andrew.hedlund@asu.edu
