A First Look at the Fiscal Cliff and Education

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The fiscal cliff deal passed by Congress late Tuesday means education will avoid widescale cuts, at least until March. So what does the new agreement mean for education? At first glance, this bill offers both positive news and a few unknowns.

Education Wins: 

  • Permanent extension of $2,000 contribution amounts to tax-free Coverdell Accounts (was originally set to go back to $500). Also, the bill extends the definition of education expenses to include K12 – a big win for school choice and digital learning as computer equipment is also covered. 
  • Permanently extends the expanded student loan interest deduction. 
  • Several school construction bond tax-exemptions. 
  • Temporary extension of the American Opportunity Tax Credit for up to $2,500 of the cost of higher education.  
  • The bill extends for two years the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom. 
  • Extension of the New Markets Tax Credit (NMTC) program--in which the federal government is able to leverage federal tax credits to encourage significant private investment in businesses in low-income communities--is extended for two years. Charter operators often use this financing vehicle for facilitates costs. 

Education Uncertainties:  The bill does not address the estimated 10 year, $56 billion shortfall in Pell Grant funding nor does it pay for a permanent fix to extend lower student-loan interest rates, which are scheduled to double in July 2013.  The two month delay of the automatic sequestration still creates uncertainties with respect to K12 funding. 

Stay tuned for further analysis. 

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