New Tax Law Changes on Education

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Finally, both houses passed the new tax bill, which is the first major change to the tax code in 30 years. The new Tax Cut and Job Act will have a significant impact on education funding.  The main objective of the bill is to lower taxes and simplify the process.

Below are the final approved areas that may have a direct impact on college funding and student loan repayment.

 College Funding Items

529 Plans – They can now be used for K-12 education cost up to $10,000 per child.  This could be very helpful for people who live in states that offer a tax deduction for contribution to a 529 plan.  It also includes a provision for use in home schooling.

American Opportunity Credit – This tax credit remains at $2,500 per child per year with qualified college expenses.  There are income limits based on the tax filing status. 

College Tuition Benefit will remain untaxed.  – Initial change was to make it taxable.  It is still considered an outside resource for need based financial aid determination.

Company Tuition Reimbursement will still be tax free up to $5,250.  Initially planned to be eliminated but was added back in.

Coverdell Saving Plans – Initially listed to be eliminated especially after the 529 expansion.  The Coverdell will remain the same.

Graduate School Scholarships – There is no change in the final bill.  This too was listed as a change in the initial bill but will remain the same as current law.

Hope Scholarship and Lifetime Learning Credit – The original bill stated to eliminate both of these income tax credits but they will remain the same.  The goal was to have only one educational tax credit.  This credit helps specific tax filers who were part time students and graduate students.

Student Loan Deduction – This is still an allowable deduction in the final bill.  The original bill eliminated this deduction.  There are limitations based on how you file your taxes.

Student Loan Discharge due to Death and Disability will be tax exempted – Prior to this bill these types of student loans forgiveness were taxable.  This will remain in place but will be sunset in 2025.  Other Income Drive Repayment Loan forgiveness such as IBR, PAYE, REPAY are still taxable forgiveness.  Public Service Loan Forgiveness is tax free.  Changes in these plans will be addressed in the Higher Education Act being reviewed now.

The Elliott Group is here to help you navigate this process and make better decisions.  The Tax Cut and Job Act impact on education is just the first step in the changes ahead.