On July 13, 2016, 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.
In a major victory for low-income working families and students, Congress passed an omnibus bill that makes permanent what were previously time-limited extensions of improvements to three critical refundable tax credits.
This paperdescribes the main public benefit and refundable tax credit programs low-income college students are most likely to be eligible for and their interactions with federal- and state-funded financial aid, including Pell Grants and work-study.
Leading up to Tuesday’s State of the Union address, President Obama outlined his plan to reform our complex tax codes, including proposals to improve higher education tax credits to make them simpler and more accessible to low-income students.
This White Paper presents the work of the Consortium for Higher Education Tax Reform, a partnership funded by the Bill & Melinda Gates Foundation as part of the second phase of its Reimagining Aid Design and Delivery (RADD) initiative. Consortium partners are the Center for Postsecondary and Economic Success at CLASP, the Education Trust, New America Foundation’s Education Policy Program, and Young Invincibles.