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Congressional Gridlock Impacts Community Colleges

Posted: January 10, 2013 — Much has been aired and written recently regarding the “fiscal cliff” plan approved by Congress with a particular focus on the implications for individual tax rates. Less discussed are the details of the legislation which impact community colleges and our students.  Like any compromise, the American Taxpayers Relief Act, signed on January 3rd by President Obama, provides some positive news as well as some uncertainties.

On the plus side, the American Opportunity Tax Credit (AOTC) has been extended for five years. This partially fulfills a campaign promise made by President Obama to make permanent the credit that originally was part of the 2009 economic stimulus bill. The AOTC provides a partially refundable tax credit of $2,500 that can be used for tuition and for related expenses such as textbooks. The AOTC is particularly beneficial to students with little or no tax liability. According to a 2010 Department of Treasury report on the AOTC, 4.5 million students and families benefited from the credit during the first year of the program. The American Association of Community Colleges estimates that as many as 10 million students have benefited from the program since its inception.

Two other provisions of the law also preserved education-related sections of the IRS Code. First, a benefit which has been around on a temporary basis since 1978, Section 127, has finally been made permanent. Section 127 provides employees with up to $5,250 tax-free for employer-provided educational assistance. Second, student loan interest deductions were expanded and made permanent. The new law eliminates the previous cap on the duration of deductions and increases the income phase-outs. This is particularly important for an institution like FM, where nearly 50% of students rely in part or in full on student loans to finance their education.

While the new law temporarily delayed the automatic spending cuts that would have been triggered had no agreement been reached, Congress now has two months to deal with the current federal debt ceiling. Without significant spending cuts and/or raising the debt limit, another federal fiscal crisis is possible. Another stalemate in Washington could result in sequestration. Sequestration is mandatory across-the-board cuts for non-exempt discretionary spending based on limits set by Congress. If no agreement is reached by March 1, $6 billion would need to be cut from the federal budget, impacting a number of higher education programs.

According to a September 2012 report from the White House’s Office of Management and Budget, sequestration would result in an 8.2% reduction in federal financial aid programs including Supplemental Educational Opportunity Grants and Federal Work-Study. Student loan origination fees would also increase. Also included in the cuts would be student services programs that benefit FM, such as TRiO, which provides additional services to students from disadvantaged backgrounds. The White House Report also indicates expected cuts in other programs from which FM currently receives funding, such as the National Science Foundation and the Carl D. Perkins Vocational Technical Education program.

The impact of potential cuts is devastating to students who are most at-risk. If Congress is unable to come to an agreement by March 1, sequestration could lead to the elimination of programs which provide access to those who most need it as well as programs designed to support those disadvantaged students who are able to attend college. Please urge your federal representatives to work together toward a federal budget deal that makes sense and provides for a stable environment for education and the population we serve.

Dr. Truckenmiller is Provost and Vice President for Academic Affairs at FM.

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