Create the American Opportunity Tax Credit to offset college costs

Tax credit for college not as much as Obama promised

Updated: Tuesday, February 17th, 2009 | By Angie Drobnic Holan

Congress granted additional tax benefits for students in the American Recovery and Reinvestment Act of 2009 it approved Feb. 13, 2009. Congress even gave the program the name Obama used during the campaign: the "American Opportunity Tax Credit." But it falls short of what Obama promised on the trail,which was a $4,000 a year tax credit for college students.

The credit had been $1,800 under existing law and will now go to $2,500 thanks to the stimulus. But that's still well below the $4,000 Obama promised.

(For accountants and tax geeks: That $2,500 includes a full credit on the first $2,000 of expenses, and then 25 percent of expenses up to $4,000, for a total potential credit of $2,500.)

The measure also does not require community service as specified in Obama's original promise, but it does direct the education secretary and the treasury secretary to conduct a feasibility study on requiring community service in order to get the tax credit.

We should also note that the stimulus bill, which Obama signed on Feb. 17, only approves the new credit for two years. If Obama wants the tax cut to continue beyond those years, he will have to include it in future budget legislation. It's possible that at that time Obama could succeed in increasing it to the higher levels he promised during the campaign. For now, we rate this promise Compromise.

Sources:

Thomas, The American Recovery and Reinvestment Act of 2009 , accessed Feb. 17, 2009

The Tax Policy Center, report card on the American Recovery and Reinvestment Act of 2009 , accessed Feb. 17, 2009