"Tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma."
–President Barack Obama, Speech to a Joint Session of Congress, February 24, 2009.
President Obama has strongly signaled that the Federal government is committed to the cause of higher education. But what's more, the government also has taken some important steps to deliver greater financial support to the nation's educational system, as well as help make it easier for certain families and students to fund college costs.
In February, President Obama signed the American Recovery and Reinvestment Act, designed to deliver substantial financial stimulus to the economy as a response to the severe economic downturn that began in 2008. The act allocated $787 billion for stimulus activities, and education was one of the top priorities: $53 billion was directly targeted toward support for education.
Among the act's provisions are some changes in government grant and tax policies that can help benefit certain families trying to save for college costs. Here are the details:
- Pell Grants : Available since 1965, Pell Grants are a need-based program that provides low-income students with extra funding for school. Formerly, the maximum Pell Grant was $4,731. Now, the maximum has been raised to $5,350, with an optional $2,675 for the summer.
- American Opportunity Tax Credit: The American Opportunity Tax Credit is a $2,500 annual tax credit to help pay for post-secondary education, offered to individuals earning less than $80,000 or families making less than $160,000. It expands on the Hope Credit, another kind of educational tax credit, in order to help more taxpayers who either owe too little in taxes, or earn too much, for the traditional Hope Credit. The American Opportunity Tax Credit can be applied for up to four years of college, and be used to help pay for tuition as well as course materials.
Other Helpful Changes: In addition to the parts of the new bill that directly support college savers, some other changes, aimed at all taxpayers, can provide a college saving boost indirectly.
- The "Making Work Pay" tax credit provides extra income to many middle- and lower-income families – potentially providing more funds for college savings without directly impacting available financial aid.
- The Child Tax Credit of $1,000 per child has been expanded to apply to filers with at least $3,000 in earnings. Previously, the threshold was $8,500 for 2008 and $12,550 for 2009. Lowering the threshold for the tax credit puts it in reach for more low-income families and – as with the Making Work Pay credit—can help provide some additional funds for college costs.
The American Recovery and Reinvestment Act was designed to invest a substantial amount in education and retraining, particularly for low-income students. But even provisions of the bill that weren't specifically intended to provide direct aid to students can still help students and families striving to pay for higher education as well as adults seeking new educational opportunities.
For example, the act authorized $144 billion in state and local funding, which governments can use for educational projects. The act also created $288 billion in tax reductions for all tax payers, potentially putting more money into the hands of families to help pay for college costs.
Some provisions of the Act aren't focused on traditional education at all – rather, they're intended to help retrain adults to acquire new skills that will be much in demand as the economy evolves, including training in healthcare and the emerging field of "green technology." In this way, the government is trying to use its stimulus power not just to restore old kinds of economy activity, but also help the country—and its workers—retool for the future.
You should be sure to take advantage of any educational related tax credits that you're eligible for, in preparing your taxes each year. There are many online resources offer information on the Pell Grants program, including www.finaid.com. And for, more information on the American Recovery and Reinvestment Act, you can check out www.recovery.gov. We also suggest that you discuss your particular circumstances with a tax professional who can give you advice with respect to your particular circumstance.