March 13,2001

Committee Unanimously Passes Chairman Grassley’s Education Package

WASHINGTON – The Committee on Finance today approved a legislative package fromChairman Chuck Grassley that would help parents save and pay for their children’s education,encourage employers to pay tuition for employees hoping to better themselves, and make it easierto earn a degree without securing a lifetime of debt.

“Thomas Jefferson believed an educated people is key to a strong republic,” Grassley said.“Our purpose is to promote tax policies that reflect Jefferson’s principle. We want to recognize thattaxes are universal, a good education should be universal, and therefore the tax code is an ideal wayto promote education. The tax code can serve as a student aide.”

Grassley said he was pleased to have his first chairman’s mark focus on education. Thecommittee unanimously approved his chairman’s mark as amended. The mark, called the AffordableEducation Act of 2001, contains legislative contributions from Grassley and other committeemembers.

Grassley said the package reflects the priorities witnesses expressed during a Feb. 14committee hearing on education proposals. First, higher education is becoming less affordable foran increasing number of Americans. A dental student at the University of Iowa provided anexample. She plans to specialize so her graduate school debt will be greater than the average, whichis $100,000.

Second, the Senate is interested in increasing its commitment to all levels of education,Grassley said. A record number of senators testified before the Committee on education proposalslast month.

Grassley said the Senate’s strong interest in acting on education legislation, and PresidentBush’s identification of education as a priority, bode well for legislative success this year. Keyelements of the chairman’s mark approved today include:

Removing the limitation on the deductibility of student loan interest. Grassley led theeffort to restore the deduction after Congress totally eliminated it in 1986. Congress reinstated thededuction with a 60-payment limit in 1997; this provision removes the 60-payment limit and adjuststhe income limits.

Raising the amount that can be contributed to an education saving account from $500to $2,000. This would help parents save money for their children’s higher education. Corporations,unions, charitable organizations, foundations and other entities also could contribute to a child’saccount. In addition, the committee approved an amendment permitting withdrawals from educationsavings accounts for kindergarten through 12th grade expenses. An amendment eliminated themarriage penalty built into the education savings accounts.

Making distributions from pre-paid college savings plans and tuition plans tax-free andpermitting consortia of private colleges and universities to offer pre-paid tuition plans. Undercurrent law, states can offer tuition plans to which people contribute money for the higher educationexpenses of a beneficiary. The earnings are taxed at withdrawal to the beneficiary. Under thechairman’s mark, withdrawals would be tax-free.

Making permanent the tax-free treatment of employer-provided educational assistance.Educational expenses paid by an employer for its employees are generally deductible to theemployer. For employees, employer-paid educational expenses are excluded from gross income ifprovided under certain assistance plans. The exclusion is set to expire on Dec. 31, 2001, and doesn’tapply to graduate classes. Under the chairman’s mark, this exclusion would become permanent andwould apply to graduate classes.

Improving local options for the construction and renovation of public schools. The lawlimits the ability of state and local governments to profit from their investment of bond proceedsbecause bonds are exempt from federal taxes. One exception is governments that issue no more than$5 million of governmental bonds in a calendar year. The $5 million limit is increased to $10million if at least $5 million is used to finance public schools. The chairman’s mark increases theexception to $15 million, provided that at least $10 million is used to finance public schools.Under current law, state and local governments in limited situations can provide tax-exemptfinancing for private parties such as charitable organizations, but not to finance schools owned oroperated by a private, for-profit business.

The chairman’s mark creates a new category of private activity bonds, with an annual perstate volume cap of $10 per capita or $5 million, if greater. These bonds could be used to financeelementary and secondary school facilities that are owned by a private, for-profit corporationpursuant to a public-private partnership agreement with the local educational agency. The schoolfacilities would be required to be operated as part of the public school system, and ownership of thefacility would have to transfer to the school system at the end of the contract period.

“It’ll take all of these steps, and more, to maintain Thomas Jefferson’s goal of a welleducatedsociety,” Grassley said. “Jefferson was a visionary, but he couldn’t have predicted thesuper-charged, highly technical environment of today’s workplaces. It takes a commitment at everylevel of society to move our children from the chalk board to the circuit board.”