Obama Announces Plans for Free Community College
January 12, 2015
Recently, President Obama announced his proposal to make community college education free for those willing to work for it (https://www.youtube.com/watch?v=d-QDfEMXAgk). Now, of course, details are preliminary about who would be covered and how the government would pay for the program. And, we can argue about the need to record the announcement aboard Air Force One. Absent in the announcement is that we already have the American Opportunity Tax Credit (http://www.irs.gov/uac/American-Opportunity-Tax-Credit). It was part of the American Recovery and Reinvestment Act of 2009. Now, if you search back to some of President Obama’s original proposals from 2009 address to Congress (not a State of the Union since he was just took office), his goal was to have a volunteer component to the original American Opportunity Tax Credit. Further, the Treasury Department went through and evaluated the volunteering component and found it technically possible but very costly to administer (http://www.treasury.gov/resource-center/tax-policy/Documents/Report-Coordinating-AOTC-Federal-Pell-Grant-5-5-2014.pdf).
In short, the credit offers a refundable dollar-for-dollar reduction of tax on the first $2,000 of tuition paid for the first four years of college. And then there’s a second tier of a 25% credit for the next $2,000 of tuition paid. Subject to some limitations, etc. Now, my quick Google search indicates that the average community college costs about $2,800 per year nationwide. So, the big announcement is that the President wants to save students $600 on average and require them to get average grades (2.5 GPA) and volunteer as well.
I’m not going to speak to the merits of the bill directly or the politics of the bill. But I will speak to this part of it – we have a tuition credit program. It was passed by the current administration six years ago. We are excited about yet another college program that is extraordinarily similar to the one we have on the books. You have asked me – why is our tax code so complex? This is one reason. Legislative redundancy for the sake of a popularity contest. We passed a bill six years ago that basically makes community college basically free. We now fast forward to today and President Obama says he wants another program to make community college free. Now, I’ll retreat a little bit and say, this proposal is specifically for community college and this one, participants have to “work” for it by way of volunteering and maintaining a GPA of 2.5. I say “work” for it in quotes because enforcing compliance would result in more forms and reporting on behalf of a nonprofit as well as a university to report out a student’s GPA and volunteer hours. So now the government knows your GPA and the organizations you feel called to service. To me, this program is maligned from its onset just for its redundancy.
Besides this program it is also relevant to mention the following other federal programs:
- Tuition and fees may be deductible given caps and limitations. If you don’t qualify for the credit, this presents a slightly different option with a similar outcome
- Student loan interest is deductible given caps and income limitations
- Section 529 college savings plans
- Ability to withdraw funds penalty-free from your qualified retirement accounts
- Student grants and loans available outside of the income tax code (i.e. Pell Grants, Stafford loans, etc)
- Perhaps there’s more?
Don’t get me wrong – I am a fervent supporter of education and making education affordable. But, we have multiple programs in the tax code that are in place. Do we need another? So, as you’re watching the State of the Union in the coming weeks, ask yourself what are new proposals and what are ones that are recycled.