"Bailout" Bill: Surprise Help for Colleges and Parents

Important college tax provisions that expired at the end of 2007 were finally extended last week, after Congress had failed repeatedly to reenact them. The provisions caught a ride as "sweeteners" on the multi-billion dollar rescue bill for at-risk financial services institutions.

The bill also gives authority to the Treasury Secretary to secure both private and federal student loans in the case of an emergency. Passed by the Senate on October 1 and the House on October 3, the bill was immediately signed into law by the president.

Just a week earlier, the House and Senate had reached their third impasse on extending the tax provisions, with both sides announcing they wouldn't try again this year (see Week in Review, September 30, 2008). Only through the financial services rescue bill were these important provisions - which include the IRA rollover, the tuition deduction, and important tax breaks for research and development - given one last chance at passage this year.

All of the expired provisions in the bill will be extended for two years. The tax benefits will be retroactively extended to cover all of 2008, and be in effect until December 31, 2009.

While most members of Congress support extending these provisions, disagreements over offsetting the cost of the bill kept the package from moving separately. In the end, the extenders will be partially offset, reflecting the language reached in a compromise in the Senate. Inclusion of the extenders in the larger economic recovery package - sweetened with additional safety precautions for small businesses, plus an increase in FDIC deposit protections - was enough to make the tax provisions acceptable to some of the House members who had opposed any offset.

Passage of the extenders is a welcome relief to college parents who are eligible for the deduction, and who have come to depend on it. It also guarantees that families can claim the deduction for 2008 and 2009, providing more certainty when planning tuition payments.

The extension of the IRA charitable rollover provision is important to colleges. Their development offices now can definitively assure waiting donors that any gifts made through the end of 2009 will be subject to the benefits of the new law. NAICU survey results show that during the 2007 calendar year, 581 NAICU members raised more than $185 million through use of the IRA charitable rollover.

The provision allowing the Secretary of the Treasury to secure student loan assets - including private student loans - could also prove important to private colleges and their families, should a crisis hit the student loan programs. A different authority given to the Department of Education last summer to act as a type of secondary market for federal student loans (see separate story) is widely credited with having helped keep student loans flowing this fall. The new authority allows the Treasury Secretary to get into the act as well, if broader student loan problems arise. It's an important addition, since the Treasury Secretary has fewer hoops to run through in the event of an emergency, and because he has authority to cover all types of student loans, including private loans, for more lenders.

For more information, please contact:
Karin Johns