Doggett, Davis, Kelly, Feenstra Introduce Bipartisan Bill to Improve Financial Assistance for College

Contact: Alexis.Torres@mail.house.gov

Washington, D.C. – U.S. Representatives Lloyd Doggett (D-TX), senior member of the House Ways and Means Committee, Danny K. Davis (D-IL), ranking member of the House Ways and Means Subcommittee on Worker and Family Support, Mike Kelly (R-PA), Chairman of the House Ways and Means Subcommittee on Tax, and Randy Feenstra (R-IA) introduced the bipartisan Tax-Free Pell Grants Act to remove a financial and logistical barrier impairing students from securing higher education opportunities. Specifically, the legislation expands the usage of Pell Grants on a tax-free basis, improves coordination with the American Opportunity Tax Credit (AOTC), and ensures students do not lose out on any AOTC benefits. An incredibly timely solution as ongoing cuts to postsecondary institutions and research labs across the country result in lost revenue and financial gaps in operating costs, potentially leading to increases in tuition and fees for students and their families.

“Everyone deserves a chance at success, and we should be simplifying our tax code to unlock more support for students interested in going to college but who may need a little financial help to get there,” said Rep. Doggett. “This legislation would also expand eligible expenses under the existing tax credit to include computers and childcare, which for many is essential to achieving their dreams and growing our economy.”

“Education is fundamental to our democracy,” said Rep. Davis. “I am proud to join Representatives Doggett, Kelly, and Feenstra in leading this bill that helps low-income students get the most from the American Opportunity Tax Credit. In my District, relatively few taxpayers use the AOTC because many attend community colleges and can’t claim their childcare and computer costs. Ensuring that students can fully benefit from the AOTC credit without worry about being taxed on the Pell grant helps educate our citizenry and strengthen them economically.” 

“Pell Grants are an important way for more lower-income Americans to get an education and work toward a successful career,” said Rep. Mike Kelly (R-PA), Chairman of the Ways & Means Subcommittee on Tax. “More than 216,000 Pennsylvania students benefitted from Pell Grants last year. I’m again proud to join Congressman Doggett on this bipartisan legislation that will expand what these grants can be used for – including child care and computers -- so many more Americans, particularly single mothers, have the ability to access higher education to achieve long-term financial stability for themselves and their families.”

“I have long supported Pell Grants because they offer academic opportunities to our students and ensure that Iowans who might otherwise skip higher education because of the cost can pursue advanced studies. These grants are an important investment in the next generation of leaders, farmers, innovators, and entrepreneurs who will support our communities and power our economy forward,” said Rep. Feenstra. “However, current law still requires some students to pay taxes on their Pell Grants, reducing the financial support that these grants are intended to provide. That’s why I’m glad to help introduce legislation to make Pell Grants completely tax-free so that our kids can focus on their studies without worrying about the cost.”

While Pell Grant awards used to pay for tuition and fees are already treated as tax-free income, any portion of a Pell Grant used for other education-related items like living expenses is taxed. Currently, using Pell Grants to cover tuition reduces potential AOTC eligibility and creates complications for students in maximizing their educational benefits. As a result, many students simply forgo the AOTC, leaving an estimated hundreds of millions of dollars unclaimed each year. By increasing compatibility with the AOTC, we can ensure that Pell Grants are not treated as taxable income, even if they are used for non-tuition education expenses.

Since enacted in 2009, the AOTC has helped millions pay for college, and more than a decade ago, Rep. Doggett authored provisions to ensure the tax credit allows a tax cut of up to $10,000 on education expenses, such as tuition, textbooks and fees. 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. With more than 3 million undergraduate students in the United States being parents—nearly one in five college students—access to affordable childcare can be the difference between completing a degree program or not. The Tax-Free Pell Grants Act meets this need by adding childcare and computer costs as qualifying expenses for the AOTC.

Endorsing organizations: American Association of Community Colleges, American Association of State Colleges and Universities, American Council on Education, Association of American Universities, Association of Public and Land-grant Universities, and the National Association of Independent Colleges and Universities.

The bill text is available here.