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Congress wants to consolidate the many education tax breaks

School is out for the summer, but education remains the hot topic.

Starbucks earlier this month announced a partnership with Arizona State University under with the beverage company will cover the tuition costs for its workers who take ASU online classes.

And this past week both the House and Senate tax-writing committees examine ways that the Internal Revenue Code could better help students -- and their families -- foot the ever-growing higher education costs.

Just as college expenses keep increasing, so do tax breaks to help cover them.

The Senate Finance Committee conducted a hearing June 24 on, in Chairman Sen. Ron Wyden's (D-Ore.) words, the "mindlessly-complicated tar pit" known as the tax code and ways to simplify it.

Last week's Finance Committee hearing focused on, again quoting Wyden, "one byzantine part of the tax code that's ripe for improvement: how the tax code incentivizes higher education."

SFC Chairman Ron Wyden opens hearing on educational tax break simplification 062414Senate Finance Committee Chairman Sen. Ron Wyden (D-Ore.) opens June 24 hearing on simplifying the tax code, specifically the many educational tax breaks. Click image to view, in a separate screen, the full hearing. Note: Set aside two hours, 20 minutes.

In connection with the hearing, the Joint Committee on Taxation prepared a 45-page document on current educational tax benefits. Among the more than two dozen tax statutes examined in the publication are: 

  • the Hope credit and its replacement, through 2017, the American Opportunity credit;
  • the Lifetime Learning credit;
  • the above-the-line deduction for certain higher education expenses, which technically expired Dec. 31, 2013, but is expected to be renewed;
  • the $5,250 income exclusion for employer-provided educational assistance;
  • section 529 qualified tuition programs;
  • the Coverdell education savings account;
  • the exclusion of interest earned on education savings bonds;
  • the above-the-line deduction for student loan interest; and
  • the gift tax exclusion for educational expenses.

Too much help to help? But rather than helping, the many educational tax benefits are often a hindrance to students and families looking for college funding help.

"The crazy quilt of tax benefits and aid programs on the books today doesn't get that job done,” said Wyden. "And as a result, there are millions of Americans who want to get a college degree, but can't."

Wyden said it takes at least 36 calculations for a family to navigate the overlapping web of tax incentives for higher education in the code today. Each incentive has its own definition of qualified expenses, student eligibility and income thresholds.

"Students and parents shouldn't be expected to wade through this mess," said Wyden. "The Finance Committee can make the menu simple, get it down to three credits or deductions that are user-friendly and get students the help they need."

Ranking Member Sen. Orrin Hatch (R-Utah) agreed, citing academic analysis that "education tax incentives represent the greatest increase in federal funding for higher education since the GI Bill. But no one can tell you what they are, how they work, or how they interact. Planning to pay for college around these tax breaks is essentially impossible for middle-income families."

There is a lot of agreement that the education tax incentives are very complex and, at a minimum, should be consolidated and reformed, said Hatch.

New American Opportunity credit: The Ways and Means Committee didn't just talk about educational tax break reform. The House tax-writing panel passed, as I discussed last week at my other tax blog, a revamped version of the American Opportunity tax credit.

Bankrate Taxes Blog iconWays and Means members, at least all the Republicans, agreed just a day after the Senate Finance hearing to merge several popular educational tax breaks. The end result would be a revised and permanent version of the American Opportunity tax credit.

The House bill has a Democratic co-sponsor, but he joined all his Party colleagues on the panel in opposing the bill. The reason was financial. Ways and Means Democrats objected that the bill did not include ways to pay for the new tax credit.

Given the bipartisan support on both sides of Capitol Hill to make educational tax benefits easier, I suspect the dollar issues eventually will be resolved by lawmakers.

Also last week over at, I looked at the role taxes play in retirement.

I usually post my additional tax thoughts over at Bankrate Taxes Blog on Tuesday and Thursday. This past week, it happened to be on Monday and Thursday.

Regardless of which days of the week they show up there, you can always check here at the ol' blog the following weekend for a synopsis and links.

You also might find these items of interest: 


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