Bipartisan, Bicameral Tax Free Pell Grants Act Included in Build Back Better: Must Remain in Final Package

Statement

Today, U.S. Representative Lloyd Doggett (D-TX), a senior member of the House Ways and Means Committee, released the following statement regarding the inclusion of his bipartisan, bicameral Tax Free Pell Grants Act in the House Ways and Means Committee's portion of the Build Back Better bill:

"With access to education so vital to American progress, we need to Build Back Better with greater educational opportunity for all. This bill removes another financial barrier to higher education. Because tax treatment of combining the American Opportunity Tax Credit and a Pell Grant remains too complicated, some deserving students are missing out on available financial assistance. Making Pell Grants entirely tax-free expands opportunity. As education builds individual success, Tax Free Pell truly helps us Build Back Better."

American Council on Education President Ted Mitchell says: "We greatly appreciate the proposal by the House Ways and Means Committee to repeal the taxability of Pell Grants and urge the full House to include it in the final reconciliation measure. Pell Grants help nearly 7 million low- and moderate-income students attend and complete college annually, and are especially critical for students of color. But for more than three decades, the portion of Pell Grants spent on non-tuition expenses like room and board has been taxable. Repealing the taxability of Pell Grants is a long-overdue, common-sense way to permit millions of students to retain more of this aid to cover the cost of college."

"The "Tax-Free Pell Grant Act' would increase support to hundreds of thousands of the most financially disadvantaged community college students, helping them to learn the skills needed to generate family-supporting wages. The bill is the most important tax legislation for community college students since the establishment of the American Opportunity Tax Credit more than 10 years ago," said Walter G. Bumphus, Ph.D., President and CEO, American Association of Community Colleges.

The Doggett bill, joined by over 75 Members, including 6 Senators, removes a major financial and logistical barrier to students. The Tax Free Pell Grants Act expands the usage of Pell Grants on a tax-free basis, improves coordination with the American Opportunity Tax Credit (AOTC) and ensures students don't lose out on any AOTC benefits. More than a decade ago, Rep. Doggett authored AOTC provisions that authorize a tax cut of up to $10,000 on education expenses, such as tuition, textbooks and fees.

Since enacted in 2009, the American Opportunity Tax Credit (AOTC) has helped millions pay for college. The AOTC covers up to $2,500 in annual college tuition, fees, and other education-related expenses. 40% of the credit, up to $1,000, is refundable. Currently, Pell Grants are treated as tax-free income when used to cover tuition and fees, while any portion of a Pell Grant used for other education-related items like living expenses is taxed. But using Pell Grants to cover tuition reduces potential AOTC eligibility, creating a very complicated calculation for students in order to maximize their educational benefits. As a result, many simply forgo trying to claim the AOTC, leaving an estimated hundreds of millions of dollars unclaimed each year according to a report from the IRS. The Tax Free Pell Grants Act increases Pell Grant compatibility with the AOTC by ensuring that Pell Grants are not treated as taxable income even if they are used for non-tuition education expenses.

Endorsing organizations: The Center for Law and Social Policy (CLASP), American Council on Education (ACE), American Association of Community Colleges (AACC), National College Attainment Network (NCAN), The Institute for College Success (TICAS)

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