American Council Education (ACE) President Ted Mitchell sent a letter on May 9, 2019 to members of the House Ways and Means and Senate Finance Committees, urging swift action to correct a mistake made in the Tax Cuts and Jobs Act (TCJA) of 2017 that inadvertently has resulted in harm to many low- and middle-income students who rely on scholarship aid to pay for their college education. The letter notes that the TCJA made changes to the so-called “kiddie tax” that sharply increased the tax levied on the portion of scholarships set aside for expenses, such as room and board that colleges and universities award to students from families of little or modest means. A consequence is that many low- and middle-income students are being taxed at the same rates as wealthy individuals.

Academic, need-based scholarship students are not the only ones who will feel the impact of the amended kiddie tax. College athletes on full scholarships, which include money for housing and other non-tuition expenses, also are affected by kiddie tax changes, many of whom come from economically disadvantaged families. Based on Department of Education data, the increased tax on scholarship/grant aid could exert an effect on nearly 1.4 million students and their families. A related concern is that problems caused by the change to the kiddie tax extend beyond higher education. For example, “Gold Star” Families (immediate family survivors who receive benefits resulting from a fallen service member who died while serving in a time of conflict) also may be affected negatively.

Student Loan Borrower Bill Of Rights Act Of 2019 Re-Introduced

Senators Dick Durbin (D-IL), Elizabeth Warren (D-MA), and Jack Reed (D-RI) on May 8, 2019, re-introduced the Student Loan Borrower Bill of Rights Act of 2019, which would amend the Truth-in-Lending Act, to create consistent disclosure and servicing standards across federal and private student loan programs. Its provisions include:

  • Requiring various disclosures to borrowers when a loan is sold or transferred,

  • Standardizing the application of payments and the allocation of payments among multiple loans in a

    manner that is most beneficial to a borrower, and

  • Limiting when borrowers are subject to late fees and other consequences.

Trump Administration Proposes To Reduce Pell Grant Surplus

An effort by the Trump administration that was announced in May 2019 to make a deep reduction in the Pell Grant surplus was criticized by several groups representing colleges, universities, and student aid advocates. A concern is that the proposal, which is in the form of a revised budget request for FY 2020 that would shift $3.9 billion from the Pell surplus to aid in funding a National Aeronautics and Space Administration (NASA) mission to the moon, not only will hurt students, but also make attending college more expensive. Previously, White Office officials sought to take $1.3 billion from left-over Pell funding in 2017. Fiscal year 2018 and 2019 budgets also proposed multibillion-dollar cancellations, but these proposals eventually were withdrawn.

States Pass Laws Aimed At Student Loan Companies

Stimulated to some extent by Democratic gains in state houses around the nation in the November 2018 election, coalitions involving liberal groups, consumer advocacy organizations, and labor unions have launched efforts to regulate student loan companies operating in their respective states. For example, a new law in New York places student loan servicers under the jurisdiction of the state's financial services regulator as a means of protecting student loan borrowers and reducing their financial loan burden by cracking down on unscrupulous lending practices. Both the Trump administration and student loan industry groups oppose these initiatives on the grounds that states don’t have the power to regulate companies collecting federal student loans. Such issues await further resolution in the courts.

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