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Jul 18, 2016  |  PERMALINK »

A Common-Sense Change for Low-Income Students: Excluding Pell as Taxable Income

By Duy Pham

On July 13, Representative Mark DeSaulnier (D-CA) introduced HR 5764, a bipartisan bill that would exclude all federal Pell Grant funds from taxable income. Under current law, when students spend their Pell Grants on indirect costs to education—such as transportation, food, or housing—these funds are counted as taxable income, while Pell funds used for direct costs like tuition, fees, and books are not. CLASP supports eliminating the discrepancy between direct and indirect costs to ensure low-income students fully benefit from Pell Grants without affecting their eligibility for other needed supports such as refundable tax credits, housing assistance, Supplemental Nutrition Assistance Program (SNAP), and Medicaid.  

The increase in nontraditional students’ unmet financial need is driven largely by the indirect costs of postsecondary education. On average, community college students incur an estimated $16,833 in education-related expenses annually, but only $3,435 of that amount comes from the direct costs of tuition and fees. Indirect costs are included in student budgets as determined by the college and in the federal definition of the cost of attendance used to determine the total Pell Grant. In essence, taxing Pell funds used for indirect costs is awarding low-income students financial aid through one arm of the federal government and taking it away with another.

Although meant to cover both direct and indirect expenses, Pell Grants alone are insufficient to cover all expenses, contributing to high unmet need and forcing students to borrow more, work more hours, take fewer courses, or drop out altogether. For low-income and nontraditional students, public benefits can be a complement to financial aid and help alleviate the financial burden of postsecondary education. CLASP’s paper, Bolstering Non-Traditional Student Success: A Comprehensive Student Aid System using Financial Aid, Public Benefits, and Refundable Tax Credits, provides an analysis of the interaction between financial aid and public benefit programs. For public benefits such as SNAP, Medicaid, and subsided housing assistance, taxable income is used to determine eligibility for these programs.

Eligibility for refundable tax credits such as the Earned Income Tax Credit (EITC) and the American Opportunity Tax Credit (AOTC) is also based partly on taxable income. Since Pell Grant aid used for indirect costs adds to taxable income, low-income students risk becoming ineligible for these tax credits. For example, Pell Grants allocated to direct costs can potentially reduce a student’s AOTC credit for tuition, fees, and materials, which are the only eligible expenses allowed in the AOTC calculation. This interaction between Pell and the AOTC forces some families to decide whether to use AOTC funds for eligible direct costs and potentially pay taxes on Pell funds used for indirect costs. Passage of HR 5764 can help ensure low-income and nontraditional students have access to a comprehensive set of financial supports for persisting in and completing college.

CLASP previously recommended Congress eliminate this tax penalty in our HEA recommendations and also supports the Pathways to an Affordable Education Act, which includes this provision. Additionally, excluding Pell Grants from gross income is proposed in the President’s 2017 Budget. Ending the taxation of Pell both strengthens and upholds Pell’s mission to support students pursuing postsecondary education.

CLASP looks forward to seeing this legislation move forward as an important step in promising that all students have the financial support to succeed in postsecondary education. The bill has been referred to the House Committee on Ways and Means. 

Jul 11, 2016  |  PERMALINK »

Benefits Access for College Completion: Lessons Learned from a Community College Initiative to Help Low-Income Students

By Amy Ellen Duke-Benfield and Duy Pham 

A new report from CLASP analyzes how students were served by Benefits Access for College Completion (BACC), a 2.5-year initiative designed to increase access to public benefits (such as SNAP or Medicaid) for eligible low-income students. These crucial supports reduce students’ unmet financial needs and help them finish school.

Launched in 2011, BACC funded seven community colleges to develop and implement sustainable policies and practices for embedding benefits access strategies into their operations. CLASP’s report, Lessons Learned from a Community College Initiative to Help Low-Income Students, outlines challenges and successes experienced by college sites as well as statewide systems.

Among colleges participating in BACC, no two institutions employed the same benefit access strategy. However, all the institutions found that increasing access to public benefits was more effective when combined with other services in which students already engage, such as financial aid, counseling, and advising. In addition, CLASP found that colleges’ success with integrating and sustaining benefits depended on:

  • The role of institutional leadership in fostering buy-in success;
  • Changes in student flow and business processes;
  • Actions to overcome cultural barriers within the institution;
  • The capacity to produce and use data;
  • The importance of collaboration and teamwork within the colleges;
  • New relationships with local and state benefits agencies; and
  • The need to overcome student stigma.

Drawing on data from an evaluation of BACC, the report also demonstrates how increased access to benefits improves student progress toward degree completion. This is especially true for students who bundle multiple benefits while enrolled.

The success of CLASP’s BACC initiative confirms the importance of public benefits for low-income students. By reducing unmet financial need, these supports help students complete school and enter the workforce. Institutions themselves also benefit through higher completion rates.  Federal and state policymakers should leverage the lessons of BACC to better align public benefits and financial aid rules, as well as ensure postsecondary attendance is supported by public benefits programs, to help low-income students build skills, obtain credentials, and succeed in today’s economy.

Read the paper >>

Jul 6, 2016  |  PERMALINK »

CLASP Comments on "The Strengthening Career and Technical Education for the 21st Century Act”

By Andrea AmaechiAnna Cielinski, Judy Mortrude, and Lauren Walizer

Yesterday, the Center for Law and Social Policy (CLASP) submitted comments to the U.S. House Committee on Education and the Workforce regarding "The Strengthening Career and Technical Education for the 21st Century Act,” proposed legislation to reauthorize the Carl D. Perkins Career and Technical Education Act. The bill was released by the committee on June 28, 2016.

We appreciate the sponsors’ efforts to align federal Perkins Career and Technical Education (CTE) funds with some important elements with the Workforce Innovation and Opportunity Act (WIOA), including out-of-school youth, the definition of career pathways, and other language from WIOA’s performance measures. However, we are very concerned about the bill’s proposed rollback of state accountability, along with the reduction in required state Maintenance of Effort (MOE) funding, which could lead to state disinvestment in CTE. Low-income students, including Perkins’ “special populations,” have the most to lose from lack of accountability for student outcomes and disinvestment in skills building activities that could otherwise create pathways to postsecondary education and economic success. 

Read the comments here >>

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