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The 2013 Fiscal Cliff Deal: What's In It For Students?

Feb 13, 2013 Jennifer Williamson, Distance Columnist | 0 Comments

The “Fiscal Cliff” was the sharp fall in budget deficits that many politicians believed would occur in 2013, due to spending cuts, tax increases, and a reduction in the budget deficit that was projected to cause a mild relapse in the recession. Thankfully, the country didn’t plunge over any cliffs at the end of 2012 or the beginning of 2013—due to the passage of the American Taxpayer Relief Act of 2012.

Notably, some of the biggest decisions affecting financial aid programs haven’t been made in this deal—they’ve just been pushed back. For instance, the FAFSA was supposed to undergo cuts at the end of the year; that decision has now been postponed. So was the discussion about whether to increase or decrease Title IV student aid funding and the Pell Grant program.

However, there are some goodies in this act for students and their families. Here’s an overview of what’s in the American Taxpayer Relief Act of 2012 for you:

An extension of the American Opportunity Tax Credit

This credit allows students and families to write off as much as $2,500 per year for traditional and accredited online college costs. This tax benefit is used by over 9 million families per year, and its extension is likely to make an impact.

See Also: Online Tax Preperation Courses

An extension of above-the-line tuition tax deductions

These deductions allow students and their families to write off between $2,000 and $4,000 in tuition and other associated costs, depending on financial need. The extension will go until December 31, 2013, when it will be open for discussion on whether it will be renewed, increased, decreased, or eliminated.

See Also: Online Accounting Degree Programs

Permanent status for deductions on employee tuition programs

There are several less well-known benefit programs that used to be up for negotiation every year—but have now been made permanent under the American Taxpayer Relief Act of 2012. Among them is the section 127 employer-provided education expenses bill, which allows employers to offer as much as $5,250 per year per employee to fund employee education, as long as the degree program is related to the employee’s job. Keeping this benefit permanent is likely to make it easier for companies to offer tuition reimbursement or payment programs to employees.

Permanent status for the Student Loan Interest Deduction

Another now-permanent feature of the tax code is the Student Loan Interest Deduction, which allows students to deduct as much as $2,500 per year in interests they pay on student loans. Before, this amount was open to debate every year—and was vulnerable to reduction or elimination altogether. Now, it’s a permanent part of the tax landscape for students and former students.

Permanent status for Coverdell Education Savings Accounts

These savings accounts have tax-advantaged status, and are designed to encourage people to save for school. With a Coverdell Education Savings Account, your money grows tax-deferred and money can be withdrawn tax-free if it’s spent on education expenses. Qualified expenses include books, fees, and tuition, and they can apply to secondary and postsecondary education as well as college. 

Paying for college isn’t easy. And while the Fiscal Cliff deal didn’t do anything dramatic to help colleges become more affordable, it did extend or make permanent some smaller benefits that help lighten the load of college tuition—and postpone imminent decisions that could have led to cuts in larger programs. With Pell Grants and other federal aid safe for the time being, hopefully fewer students and their families will struggle to pay for their studies in 2013.


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