Congress Passes Fiscal Cliff Legislation, Extending American Opportunity Tax Credit
January 01, 2013
Congress passed the American Taxpayer Relief Act of 2012 (H.R. 8) late on Tuesday, January 1, 2013. The measure passed with bipartisan support in the Senate by a vote of 89 to 8 and in the House by a vote of 257 to 167. President Obama is expected to sign the legislation into law.
This legislation addresses some aspects of the fiscal cliff relating to federal student financial aid.
The legislation extends the American Opportunity Tax Credit for five years through the end of 2017.
The legislation extends the Tuition and Fees Deduction, which had expired at the end of 2011, through the end of 2013.
The legislation permanently extends the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) by repealing the sunset provisions. This makes permanent certain improvements in the Coverdell Education Savings Accounts (e.g., allowing distributions from Coverdell ESAs for elementary and secondary school expenses and increasing the maximum contribution from $500 to $2,000) and also makes permanent the repeal of the 5-year limitation on the Student Loan Interest Deduction.
The legislation also delays automatic across-the-board spending cuts, known as sequestration, for two months until March 1, 2013. If not addressed by Congress, these cuts will reduce spending on federal student aid programs by 8.2 percent. Such funding cuts would likely result in a reduction in the number of Federal SEOG grants and Federal Work-Study jobs, an increase in the fees on federal education loans, and a $300 to $400 cut in the maximum Pell Grant.
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