Education in the Bailout

The recently enacted “bailout” bill was not entirely for Wall Street – the final bill included over $107 billion in tax breaks and other benefits for consumers, business owners, schools and students. The bill does not include any new programs to help lower the cost of higher education or solve school district budget crises, but it does expand or extend some valuable and important pre-existing education programs.

The Emergency Economic Stabilization Act of 2008 extends the current $4,000 per year college tuition tax deduction through 2009, reducing revenue by an estimated $3.1 billion in 2009. The deduction was previously slated to expire in 2008. The classroom expenses tax credit for teachers and other school employees was also extended through 2009. The tax credit limit remains $250 per year and is expected to cost $214 million in forgone revenue in 2009.

The bill also expands HOPE and Lifetime Learning credits for students and families in the Midwest disaster areas for the 2008 and 2009 tax years. Both credits for these students will now cover expenses for books, equipment and room and board in addition to tuition and fees. The HOPE credit will cover 100% of expenses up to the first $2,400, and 50% of the second $2,400. This brings the total possible HOPE credit to $3,600, up from $1,650. The Lifetime Learning credit was also expanded for these students from 20% coverage to 40% coverage on expenditures up to $10,000, for a $4,000 maximum credit. The value of the credit increase for students in Midwest disaster areas is expected to be $71 million in 2009.

The Qualified Zone Academy Bonds (QZABs) were also expanded and extended through 2010 with a bond limit of $400 million. This program issues tax credits to bond holders in lieu of interest payments to help school districts with low income populations finance school renovation and repairs. They cover expenses deemed in a school’s best interest including those for facilities, equipment, course materials, and teacher training. The cost of the extension is estimated at $6 million in 2009.

Finally, the “bailout” bill reauthorizes the Secure Rural School and Community Self-Determination Act of 2000 for four years at $3.3 billion ($1 billion in 2009). This law will distribute funds to 700 school districts in 39 states that can no longer depend on federal timber sales to pay for schools and other social costs. For many districts, these funds will enable them to continue certain academic programs and hire new teachers to replace those that have retired.

It’s hard to measure the immediate economic impact of these tax breaks and benefits. They seem small in relation to the $700 billion authorized to stabilize failing financial institutions. Collectively they don’t address the full extent of the economic troubles schools are likely to face. And, despite a further bailout for student lenders, the bill provides no relief for indebted student borrowers.