With his signature Tuesday, President Clinton made far-reaching changes in the costs of college education.
Suddenly, a mind can be a terrible tax deduction to waste.
The tax-cutting law will allow parents and students - including older students who are already working - to use some college costs to reduce their federal tax bills. The law - signed along with the budget-balancing bill Tuesday - will also allow parents and students to spend part of their Individual Retirement Accounts (IRAs) on education without paying a penalty for withdrawing the money.
Expectations are high for the effects of the new law: “Millions of young Americans will be able to go on to college,” Clinton said Tuesday. “Millions of Americans not so young will be able to go back to school to get the education and training they need to succeed in life.”
On a practical plane, the immediate effects of the new law won’t be counted in millions of students. Instead, the effects will be counted in the few thousands of dollars that each student and family can consider for tax reductions when they begin preparing their tax returns in the spring of 1999.
The tax reductions - worth up to $40 billion over five years - gave Republican lawmakers some room to brag Tuesday alongside Clinton. U.S. Rep. John Linder, R-Ga., chairman of the National Republican Congressional Committee, said the tuition breaks help prove that the GOP fulfilled its promise of middle-income tax relief.
None of the lawmakers mentioned that the tax credits will do very little to help the poorest families send their children to college.
“You have to have some sort of tax liability before this does you any good,” said Judy Kiesling, vice president of H&R; Block Tax Services Inc. “For low-income people who qualify for the earned-income tax credit or child-care credit, this (tuition) credit isn’t going to do them any good … They’re not going to be able to afford the tuition.”
Indeed, the most widely touted tax benefits in the new law - the so-called Hope scholarships and the life-time learning benefits - are geared toward people who can afford to pay the tuition upfront and wait a year or more to reap the reward on their tax returns. And tax deductions for interest on student loans last five years - half of the typical 10 years that it takes students to pay off loans.
“True financial aid is not a significant part of this budget agreement,” said Lawrence Burt, director of student financial services at the University of Texas. “Educational finance is a significant part.”
Because direct financial aid is such a small part of the new law, students and their parents may find more help from their tax planners than from student aid offices, Burt said.
H&R; Block knows that: Kiesling said the company’s tax preparers will receive their first fact sheet on the new law today , although most of the new deductions and credits will apply to spending on education that begins Jan. 1, 1998. That means most tax refunds or reductions won’t show up until 1999.