Introducing the Bipartisan Tax Free Pell Grants Act—Strengthening Access to Higher Education

***Press Release***

Introducing the Bipartisan Tax Free Pell Grants Act—Strengthening Access to Higher Education

Washington, D.C. – Today, U.S. Representative Lloyd Doggett (D-TX), a senior member of the House Ways and Means Committee, joined by over 50 Members, and with leadership from U.S. Representatives Mike Kelly (R-PA) and Danny Davis (D-IL), introduced bipartisan legislation removing a major financial and logistical barrier to students securing higher education opportunities. 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 provisions that ensures that the AOTC allows a tax cut of up to $10,000 on education expenses, such as tuition, textbooks and fees.

"We need to make every reasonable effort to remove financial barriers to higher education. Because the tax code unnecessarily complicates using both the AOTC and a Pell Grant, too many deserving students are missing out on some available financial assistance," said Congressman Doggett. "By making Pell Grants entirely tax-free, we can complete and fulfill the promise of the AOTC for economically disadvantaged students. In addition to ensuring that students can access all federal aid, my bill expands eligible expenses to include child care and computers, which have become so essential to success."

"Pell Grants are a great way for more Americans to get an education and work toward a career," said Congressman Kelly. "I'm proud to join Congressman Doggett on this bipartisan legislation that will expand what these tax credits 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."

"Education is fundamental to our democracy," said Congressman Davis. "I am proud to join Representatives Doggett and Kelly 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 of the AOTC because many attend community colleges and can't claim their child care 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."

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.

Since more than one in four college students are parents and over 40% of these student parents are single mothers, childcare is often essential to completing higher education. Additionally, the COVID-19 pandemic has accelerated the need to access technology in educational pursuits. This bill adds child care and computer costs as qualifying expenses for the AOTC.

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)

Follow Congressman Doggett

Facebook: https://www.Facebook.com/RepLloydDoggett | Twitter: @RepLloydDoggett | Instagram:@RepLloydDoggett