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 Congress Needs to Extend the American Opportunity Tax Credit in 2012 

10/17/2012

Community colleges strongly support extension of the American Opportunity Tax Credit (AOTC), which is set to expire at the end of 2012. The AOTC provides significant support to nearly 10 million college students, many of whom attend community college. The credit is estimated to provide more than $18 billion in assistance to college students and their families in 2012.

Therefore, as Congress prepares to debate a variety of tax issues before the end of 2012, extension of the AOTC should be a top priority.

The American Opportunity Tax Credit was created in the ARRA legislation that was enacted in February 2009. It was extended for two years in December 2010. For community college students, the AOTC represents an important means of financing some of their college expenses. The AOTC is a significant improvement over the Hope Scholarship Tax Credit, which it replaced, and included many features of bi-partisan legislation that had been introduced in previous Congresses.

Specifically, the AOTC is far preferable to the Hope Scholarship credit because it:

  • Provides up to $2,500, rather than $1,800 (after indexing) as under Hope.
  • Is structured to enhance participation by students attending low-cost institutions such as community colleges.
  • Includes in the definition of eligible expenses "course materials," which is extremely important for community college students since it enables many of them to receive a significantly higher credit.
  • Makes the credit 40% refundable, which enables some of the neediest students to qualify for the credit.

Extending the AOTC will take a strong Congressional commitment because, under Congressional PAYGO rules, offsets will need to be identified, among many competing priorities. However, the tremendous support that the AOTC currently provides—some $11.4 billion annually, or about 30% of all Pell Grant funding—demonstrates its extensive reach in helping college students.

For more information, contact David Baime, Senior VP for Government Relations and Policy Analysis, dbaime@aacc.nche.edu or 202.416.4500.

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