07.22.21

Whitehouse Introduces the Tax-Free Pell Grant Act to Make Higher Education More Affordable

Legislation would expand access to higher education assistance and increase opportunities for students

Washington, DC – Senators Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Patty Murray (D-WA), Michael Bennet (D-CO), Sherrod Brown (D-OH), Tina Smith (D-MN) and Debbie Stabenow (D-MI) introduced the Tax-Free Pell Grant Act to help students take full advantage of higher education tax credits and Pell Grants to pursue a college education. Currently, our tax code prevents many qualifying students from reaping the full benefits of the American Opportunity Tax Credit (AOTC) and the Pell Grant program. This legislation would remove financial barriers to higher education by better coordinating Pell Grants with the AOTC, fully excluding Pell Grants from taxable income and ensuring higher education tax credits cover childcare and computer expenses that contribute to education costs.

“The Pell Grant has helped generations of Americans earn a college degree. We ought to make sure it can continue to provide that benefit for generations to come,” said Whitehouse. “The Tax-Free Pell Grant Act would invest in our young peoples’ futures by maximizing, expanding, and streamlining existing higher education tax incentives. I’m pleased to carry on the legacy of Rhode Island Senator Claiborne Pell by strengthening the program that bears his name.”

“Pell grants have allowed millions of first-generation college students to afford higher education and build a better future, but there’s more we can do to ensure students are able to take advantage of federal financial help. Tax free financial aid is a good place to start,” Wyden said. “It’s an investment in our young people, and I’m all in on this effort to make college degrees more accessible.”

“Pell grants have made it possible for so many students—including myself—to attend college and pursue their higher education goals. But we must make sure every student can take advantage of the financial help available to them and ensure no student is burdened with an unexpected tax bill on their Pell grant,” said Murray. “I’m proud to join my colleagues in taking this step to ensure students can benefit from all the financial aid options available to them—and look forward to continuing to work to make higher education affordable for all students.”

“Our current tax code prevents many hardworking students from receiving the full value of their Pell Grants,” said Bennet. “The Tax-Free Pell Grant Act will ensure students can use the full value of their Pell Grants to help cover the growing cost of college as well as strengthen the American Opportunity Tax Credit for students from low- and moderate-income families. In order for America to remain competitive with the rest of the world, it’s essential that we build an economy that works for everyone – and making higher education more affordable and accessible is an important step toward that goal.”

“Even before the pandemic, students were struggling to keep up with the rising cost of college, and not enough was being done to ensure that they have the opportunity to pursue jobs that pay well, that are fulfilling, and that lead to fulfilling careers. We must make sure that federal financial aid is designed in a way that meets the needs of students today and increases the academic and financial opportunities available to them. I’m glad to join my colleagues to support this effort,” said Brown.

Established in 1965, the Pell Grant program revolutionized American higher education. It is named for the late Rhode Island Senator Claiborne Pell, who was the chief sponsor of the program. These grants have been a critical form of federal aid, helping millions of young people by covering college costs, including tuition, living expenses, and other fees.

In 2009, Congress enacted the American Opportunity Tax Credit (AOTC), which provides up to $2,500 for tuition and course materials to students, assisting millions with the cost of college. Despite the success of the Pell Grant and AOTC, America’s complex tax code and the lack of coordination between the two programs block students from maximizing their benefits. Right now, students are required to subtract their Pell Grant from the amount of expenses for which they claim the AOTC, leaving some unable to qualify for the tax credit despite substantial college costs remaining. To maximize their AOTC, some students use their Pell Grant to cover living expenses, but that portion of the Pell Grant is then taxable.

To address these issues, the Tax-Free Pell Grant Act would create flexibility for students to use the AOTC and Lifetime Learning Credit (LLC) on a broader range of associated expenses, make Pell Grants fully tax-free, and no longer require students to subtract Pell Grants from expenses for which the two higher education credits can be claimed.

This legislation has been endorsed by a broad coalition of groups: American Association of Community Colleges; The Institute for College Access and Success; Advance CTE; American Association of Collegiate Registrars and Admissions Officers; American Council on Education; Association of American Universities; Association for Career and Technical Education; American Association of Community College Trustees; Association of Governing Boards of Universities and Colleges; Association of Jesuit Colleges and Universities; Association of Public and Land-grant Universities; College and University Professional Association for Human Resources; Council for Christian Colleges & Universities; Council for Higher Education Accreditation; Council for Opportunity in Education; EDUCAUSE; National Association of College Stores; National Association of College and University Business officers; National Association of Independent Colleges and Universities; National Association of Student Financial Aid Administrators; National Council for Community and Education Partnerships; National Council of State Directors of Community Colleges; Rebuilding America’s Middle Class; and State Higher Education Executive Officers Association.