The White House released a Treasury Department report yesterday showing that the American Opportunity Tax Credit (AOTC) helped more than 8 million students and families cover college costs last year, and called on Congress to permanently extend this tax credit, which is currently scheduled to expire at the end of 2010. We agree that the AOTC should be made permanent, but it also needs to be improved. Because of the way the AOTC is currently structured, an estimated one million low- and moderate-income students are not eligible for the AOTC despite having financial need. Most of these students attend community colleges.
Here’s the issue in a nutshell: the AOTC covers up to $2,500 in college tuition, fees, textbooks and supplies, and it is 40% refundable so that students with low incomes can benefit. However, we estimate that one million low- to moderate-income students at low-cost schools are ineligible for the AOTC because their grant aid covers these specific expenses, even though they still have unmet financial need relative to their full cost of college attendance.
By better coordinating the AOTC and Pell Grants, many more students struggling to pay for college would be able to benefit from both the AOTC and Pell. We look forward to working with the Administration and Congress to both extend and integrate the AOTC to help make college more affordable for millions of Americans.