During his State of the Union Address, President Obama laid out an economic vision that is focused on the middle class. The promise of higher education to serve as an engine for economic, civic, and social vitality is a central component to President Obama’s vision – one where all students have access to affordable, high quality higher education. Recognizing that cost is a common barrier to success for many students, President Obama proposed a series of financial resources in the form of tax breaks and tuition benefits that seek to widen the pipeline and turn more college students into graduates. The president also urged Congress to expand access to programs that ease the repayment of student debt for more Americans. Provided below are highlights from the State of the Union Address that describe President Obama’s plans to elevate opportunity for low- and middle-class students through the economic, civil, and personal benefits of pursuing and completing higher education.
Education Tax Breaks
President Obama announced his proposal to consolidate several education tax breaks into the American Opportunity Tax Credit, which is a credit that exists presently and is set to expire in 2017. The president plans to make this credit permanent. President Obama will also push to widen eligibility for the tax credit to those who enroll less than half time.
Currently, only the portion of a Pell Grant that applies toward educational expenses is exempt from taxation. President Obama proposed to exempt the entire Pell Grant amount from taxation. Also, the president proposed an exemption to the amount a student receives in Pell Grant funds from calculating eligibility for the American Opportunity Tax Credit. The White House expects that the average student will save approximately $2,500 per year under these proposed changes.
In addition to tax breaks for low- to middle-income students, President Obama proposed closing loopholes on capital gains to provide additional revenue that the White House expects will help pay for the president’s proposal for tuition-free community college.
Tuition-Free Community College
Recent U.S. Department of Education (Beginning Postsecondary Student Survey) data indicate that fewer than 40% of low-income students will finish a degree in six years after entering college. In addition, independent Pell recipients also face a steep challenge: more than 60 percent of these students are without a degree or certificate six years after entering college for the first time.
Affordability is a critical issue for many who leave college without a degree. The president’s proposal for two-years of tuition-free community college is bold, forward thinking, and critical to ongoing national efforts to turn access into success for more of America’s college students. This year, President Obama will push for Congress to enact legislation to authorize the program and establish eligibility criteria. The criteria would likely entail that eligible students need to maintain a certain grade point average and make steady progress toward completion.
This proposal has already elevated the higher education community’s focus to target policy actions that reflect the true investment and support needed for students who still face barriers to access and completion. And although many low- and middle-income students have access to grants that lessen the cost to attend a postsecondary institution, this proposal – combined with President Obama’s proposed tax breaks – can help more students to cover tuition and other related expenses. Easing the cost burden that prospective and current students face is a critical aspect of higher education’s access and success challenges, but targeted actions are still needed to address America’s persistent and commanding student debt issue.
Student Loan Debt
The national average for student loan debt continues to rise faster than inflation and is now above $30,000, eclipsing the starting salaries for many of today’s college graduates. The rise in student debt is also met with a steady increase in the number of students taking out loans to pay for college, with recent data indicating that seven in 10 students will incur debt to cover educational expenses.
The need for flexibility in student loan repayment was elevated as a priority during the State of the Union Address, and the president challenged policymakers to rewrite the rules that undergird the federal government’s Pay-as-You-Earn Program (income-based repayment). Presently, only newer borrowers can enroll in the Pay-as-You-Earn (PAYE) Program, which caps monthly payments at 10 percent of discretionary income and offers a waiver of any remaining debt after 20 years for all borrowers and 10 years for those who work in public service occupations. In his address, President Obama urged Congress to expand access to the PAYE program for all borrowers with federal student debt.
And in case you missed it, here is President Obama’s State of the Union Address.