February 14,2001

Grassley Works to Make Education More Affordable, Help Teachers, and Improve Schools Via the Tax Code

WASHINGTON -- Sen. Chuck Grassley convened the year's first legislative hearing of the Senate Committee on Finance and focused on tax proposals to make education more affordable and improve the condition of the nation's public school buildings.

"Families today have a higher tax burden than ever before," Grassley said. "We have an obligation to reduce that burden and free up those hard-earned dollars so parents can save and pay for their children's education. By making changes to the tax code, we can help teachers and improve school buildings. And in today's super-charged workplaces, the tax code shouldn't get in the way of anybody learning what they need to get ahead with technical expertise and college degrees."

Numerous education-related tax initiatives were considered during the hearing this morning, including two proposals sponsored by Grassley, the chairman, and Sen. Max Baucus, the ranking member of the Senate's tax-writing committee.

The first bill (S.152) would expand and simplify the student loan interest deduction. The tax deductibility of student loan interest is now limited to 60 payments. Grassley led the effort to restore the deduction after Congress totally eliminated it in 1986. Congress reinstated the deduction with a 60-payment limit in 1997.

Expanding and simplifying the deduction will ease the debt burden of all students, but it especially will help low-income students who must borrow large amounts to attend college. "Loans are a part of life for most college students," Grassley said. "A lighter debt load will make things easier and help encourage students to get the highest level of education they can."

Kimberly Sheppard of Kalona, Iowa, testified on this issue during today's hearing. Sheppard is a dental student at the University of Iowa. She plans to specialize so her graduate school debt will be greater than the average, which is $100,000.

The second bill (S.133) would make permanent the tax-free status of tuition reimbursement that employees receive from their employers and reinstate the status for graduate-level courses. Section 127 of the Internal Revenue Code allows public or private employers to provide up to $5,250 per year to each of their employees in tax-free reimbursement for tuition, books and fees for job or non-job related education. The provision will expire unless it is extended. This is a purely private-sector initiative and the only aspect of the tax code that encourages employer investment and assistance in providing educational opportunities to workers.

The Finance Committee also considered legislation being offered by Sens. Tim Hutchinson and Robert Torricelli to increase the limit on tax-free contributions to Education IRAs from $500 to at least $2,000. This proposal would expand the number of taxpayers eligible for these tax-free contributions and let corporations and other donors, such as grandparents, contribute to education IRAs. Tax-free contributions would be allowed for students who are over 18 years of age if those students have special needs. And the bill would expand portability rules for education IRAs to make it easier to transfer the education savings accounts among family members, including cousins.

Another item considered during today's hearing was a bill (S.203) introduced by Sens. Susan Collins and John Kyl to provide a new, annual tax credit of up to $100 for classroom expenses for which teachers are not reimbursed. A social studies teacher from West Liberty (Iowa) High School, Tom Carter, testified on behalf of this bill.

Committee members also discussed a bill to let private institutions offer tax-free prepaid college tuition plans for the first time, as well as legislative proposals to allow entities other than states to establish plans to help families save for college expenses.

Finally, today's hearing focused on how private bond markets could be encouraged to finance school construction and rehabilitation with changes to the tax code. A proposal offered last year by Sen. Bob Graham and supported by Grassley would let public elementary and secondary school facilities be financed with private-activity bonds. Today school construction and repairs are financed by state and local bonds. The Graham plan would let individual states issue bonds equal to or greater than $10 a resident or $5 million per corporation to build schools and then lease the school buildings to local school districts.

Grassley said today's hearing "isn't just an academic exercise." The Senate Committee on Health, Education, Labor and Pensions is taking up the bulk of President Bush's education package which includes expansion of the Education IRA and other tax provisions. Grassley said when this tax package moves, the Finance Committee will consider the education-related tax provisions.