Obama to talk higher education tax reform in State of the Union


President Barack Obama takes the podium to give his State of the Union address Jan. 28, 2014, on Capitol Hill in Washington. This year, Obama will discuss higher education tax reform, including a permanent American Opportunity Tax Credit and a tax exemption for Pay-As-You-Earn participants.

By Jackie Nevarez

President Barack Obama is set to present higher education tax reform in today’s State of the Union Address, according to a White House news release.

American Opportunity Tax Credit

Obama’s plan would establish a permanent American Opportunity Tax Credit, which is currently scheduled to expire in 2017. The tax credit gives eligible students up to $2,500 for education expenses of their first four years of higher education. Currently, up to $1,000 or 40 percent of the remaining tax credit can be refunded if the individual owes no taxes after receiving the credit.

The permanent tax credit would grow with inflation and increase the refundable part to $1,500. Currently excluded part-time students would be eligible for a $1,250 tax credit and up to five years of claiming the tax credit. To simplify claiming the tax credit, colleges and universities would be required to give students tuition and fee information needed to receive it and Pell Grants would be exempt from taxation and tax credit claims.


Pay-As-You-Earn is an income-based student loan repayment plan that allows borrowers limited payments to a maximum of 10 percent of their income after taxes, while also qualifying for loan forgiveness after 20 years of repayment. The plan is being extended to all direct student loan borrowers by the Department of Education.

Those who choose to use the plan could face a tax bill after 20 years of repayment. Obama proposes to exempt taxes on student loan forgiveness.