Issue Briefs

Tax Benefits for Students and Families

NAICU strongly supports the current three-tiered structure of higher education tax benefits, including benefits that help families save for college, pay tuition, and repay student loans. 

About

There are a variety of tax benefits available that help students and families save for college, pay tuition, and repay student loans, including:

  • Internal Revenue Code (IRC) Section 529 plans and Coverdell Education Savings Accounts (ESAs) provide tax-favored savings options.
  • The American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit, tax-free scholarships and grants, and IRC Section 127 employer-provided education assistance provide assistance for paying tuition and repaying student loans.
  • The Student Loan Interest Deduction (SLID) helps students repay loans. 

Importance of the Tax Benefits

Higher education tax benefits encourage families to save for college, thereby giving private colleges the ability to concentrate their institutional aid on the neediest students. These benefits help middle class and low-income students and families pay tuition via refundable and non-refundable credits, allow aid used for tuition to be tax free, and are a benefit for working students.

Pandemic stimulus legislation and recent reconciliation legislation signed into law by President Trump expanded and made permanent the important benefit of IRC Sec. 127 that now allows employers to provide not only annual tuition assistance to employees, but also annual student loan repayment assistance on a permanent basis. The Student Loan Interest Deduction also helps students repay their loans, but an additional benefit should be provided to assist borrowers who qualify for public service federal loan forgiveness by eliminating the tax on those loan amounts.

These tax benefits provide some relief from tuition costs, encourage savings, and allow students and families a greater array of choices in selecting a college.

In communications with your elected officials in Washington:

  • Express your appreciation and say THANK YOU for the higher education tax benefits that help your students and families.
  • Emphasize how important the three tiers of tax benefits are to your students and their families.
  • Express your appreciation and say THANK YOU for the expansion and permanent extension of IRC Section 127 allowing tax-free employer provided education assistance to be used for either tuition or student loan repayment expenses.
  • Encourage support for legislation to double the amount of tuition assistance available under IRC Section 127 employer-provided education assistance from $5,250 to $12,000 annually.
  • Encourage support for legislation to allow tax-free public service loan forgiveness.

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