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Student Aid Tax Issues

Traditional nonprofit public and private colleges and universities historically have been granted tax-exempt status. This permits them to devote more of their resources to funding student financial aid, educational activities, academic research, and community programs to achieve their core missions of teaching, research, and public service.

In addition, the Federal Tax Code contains a number of provisions directed specifically at students and families, including various tax credits and deductions, that help make college more affordable and thus encourage greater access to and participation in higher education.


AAU joined the American Council on Education (ACE) and 18 other higher education organizations in endorsing the Tax-Free Pell Grant Act (H.R. 3000), which “would repeal the taxability of Pell Grants and help hundreds of thousands of low-income Pell Grant recipients access the American Opportunity Tax Credit (AOTC).”
Employer-provided educational assistance benefits (Section 127) allows employers to offer their employees up to $5,250 annually in tax-free educational assistance for undergraduate or graduate-level courses.
The Qualified Tuition Reduction, section 117 (d) of the Internal Revenue Code, allows nonprofit universities to give their employees, spouses, or dependents tuition reductions that are excluded from taxable income.
Learn more about the student loan interest deduction (SLID) and why it's important.
AAU joined 15 other associations in urging the leaders of the House Ways and Means Committee and the Senate Finance Committee to include the Tax-Free Pell Grant Act in end-of-the year tax legislation.
The Lifetime Learning Credit (LLC) is one of two income tax credits to help offset the costs of higher education.

The American Opportunity Tax Credit (AOTC) is a partially-refundable tax credit up to $2,500 that helps students cover tuition and college expenses.


What Is the American Opportunity Tax Credit?

AAU joined ACE and other higher education associations in sending a letter to House leadership urging them to repeal the taxability of Pell Grants in the FY22 reconciliation process.
AAU President Barbara R. Snyder sent a letter to Congress expressing support for certain provisions of the Build Back Better Act and urging some important modifications as the bill advances through the legislative process. The letter emphasizes the significance of a successful government-university partnership and asks Congress to improve the legislation so it benefits students and America’s research and innovation enterprise.
AAU joined a letter to Senate Finance leadership urging them to repeal the taxability of Pell grants as part of the FY22 reconciliation process.