Shenango Valley News

U.S. Representatives Mike Kelly, Lloyd Doggett, Danny K. Davis, and Randy Feenstra have jointly introduced the Tax-Free Pell Grants Act, aiming to improve financial assistance for college students by addressing complications in the tax treatment of Pell Grants. This bipartisan proposal seeks to enhance the coordination with the American Opportunity Tax Credit (AOTC) and expand the use of Pell Grants on a tax-free basis.

"Pell Grants are an important way for more lower-income Americans to get an education and work toward a successful career," stated Rep. Kelly. Last year, over 216,000 Pennsylvania students benefited from these grants. The legislation aims to broaden the scope of these grants to cover essential expenses such as childcare and computers, particularly benefiting single mothers.

Rep. Doggett commented, "Everyone deserves a chance at success, and we should be simplifying our tax code to unlock more support for students interested in going to college but who may need a little financial help to get there." The bill proposes to include computers and childcare as eligible expenses under the existing tax credit, facilitating support for students pursuing college degrees.

Rep. Davis emphasized the educational and economic strengthening role of the bill. He stated, “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.”

The existing law requires taxation on the portion of Pell Grants used for non-tuition expenses, an issue the new bill intends to rectify. This situation sometimes leads students to forgo AOTC benefits, resulting in unclaimed opportunities. Rep. Feenstra pointed out the significance of Pell Grants in offering opportunities for students, particularly in Iowa, saying, "However, current law still requires some students to pay taxes on their Pell Grants, reducing the financial support that these grants are intended to provide."

Megan Coval, President of Butler County Community College, expressed support for the bill, noting its potential to remove barriers for low-income and community college students. “By making Pell Grants fully tax-free and aligning them with the American Opportunity Tax Credit, the bill removes barriers that disproportionately impact low-income students and those attending lower-cost institutions," Coval said.

The Tax-Free Pell Grants Act addresses gaps in current legislation, seeking to treat all Pell Grant awards as tax-free, even when used for living expenses. The AOTC provides up to $2,500 annual coverage for tuition and educational expenses, with up to $1,000 as refundable credit. The proposed act includes childcare and computers as qualifying expenses to help more students, particularly parents, complete their education.

The legislation is endorsed by several organizations, including the American Association of Community Colleges and the National Association of Independent Colleges and Universities. The text of the bill is available for review.