How the Stimulus Helps You Pay for College

How the Stimulus Helps You Pay for College

The government is poised to spend about $13 billion in stimulus funds on improvements to education tax credits that will offset up to $2,500 in college costs for millions of low- and middle-income families. But the changes probably won't immediately stimulate the economy or make much of a difference to the many families now living paycheck to paycheck, tax experts say.

Other education provisions in the stimulus bill, such as a several-hundred-dollar increase in the Pell grant, the biggest federal grant awarded to low-income students, have won bipartisan support. The education tax changes are more controversial, though, and have drawn criticism from some education organizations for their high costs and comparatively small impact.

Congressional Democrats defended all aspects of the stimulus bill, including the education tax breaks. "For the first time, Congress is making these tax cuts refundable, which means that even if people don't earn enough to pay taxes, they are still eligible for a refund. We also simplified the process by combining two existing tax credits, which will make the tax credit less confusing for eligible students. Both the tuition tax credit and the significant boost in the Pell grant scholarship will be a huge help for low-income and middle-class families struggling to pay for college," says Melissa Salmanowitz, press secretary for the House Education and Labor Committee.

And while the education tax break didn't quite match up to President Barack Obama's campaignpromise of a $4,000 credit payable when bills come due (instead of making students wait for tax refunds) in return for public service, the administration said it was happy with the provision. "This is a good step forward, and we will look at ways we can take the next step," said a spokesman for the Department of Education.