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College Tax Credits Saved in Fiscal-Cliff Deal

Tax credits for college expenses were among the items saved when Congress agreed late last night on a deal to avert the so-called "fiscal cliff."

The American Opportunity Tax Credit, which can trim up to $10,000 off the cost of a college degree, was extended for five years. It allows families to get a maximum $2,500 tax credit in higher education related expenses annually for four years.

The credit was introduced as part of the 2009 stimulus bill and has been supported by President Obama as an effort to keep college affordable.

The full credit is available to individuals whose adjusted gross income is less than $80,000 or for married couples making less than $160,000. The credit can be applied to course-related books and supplies, in addition to tuition and fees.

Nearly half of American undergraduates cut their college expenses by an average of $700 by taking advantage of tax credits, according to a report released last year by the U.S. Department of Education. The tax benefits were more likely to help middle- or high-income students—just one-third of lower-income students took advantage of federal education tax benefits.

Some groups, such as Education Sector, advocate ending the AOTC in favor of spending more federal dollars assisting lower-income students with college expenses.

The Pell Grant program, which provides grants for students mostly from families making less than $30,000 a year, is exempt from sequestration. However, the program faces a structural deficit, in part because of higher demand for the grants as more students enroll in college.

(See Politics K-12 for full coverage of the congressional vote and fiscal-cliff implications for education.)

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