If no agreement is reached on budget issues by December 31, many educational tax benefits will tumble over the “fiscal cliff”.
According to the New America Foundation’s Ed Money Watch, among the deductions that will expire or revert to lower levels are six that totaled $23 billion in 2012: the American Opportunity Tax Credit (AOTC); the exclusion from taxable income of employer-provided educational assistance; the exemption allowing parents to claim students aged 19-23 as dependents; the student loan interest rate deduction; several health care-related scholarships; and the Coverdell account provision allowing families to invest up to $2,000 annually in to an investment account for a child’s educational expenses with no taxes on earnings or withdrawals.
According to this chart from Ed Money Watch, many of these changes will affect low- and middle-income families.
Recession and higher unemployment
I suspect that many people are “blissfully ignorant” of these and other implications of the upcoming fiscal cliff. For college students, the loss of these tax breaks is probably less likely to hurt them than would the lower GDP and rising unemployment brought on by higher taxes.
- Political outlook for the Pell Grant and other federal college aid (Cost of College)
- The fiscal cliff – higher taxes may not be so bad if you’re seeking college financial aid (Cost of College)