Clinton Moves Quickly on Education, Proposes Tax Credits and Deductions

President Clinton launched a bully-pulpit campaign Wednesday to sell a key element of his second-term agenda: a proposal to create broad new subsidies for middle-class parents worried about rising college costs.

Traveling to this city, Clinton turned the spotlight on a state that has done what he hopes to do for the nation by offering the equivalent of a higher-education entitlement for millions of middle-income Americans.

Clinton’s plan would allow parents to claim tax credits and deductions for college costs and establish tax-free savings accounts to cover tuition payments. In addition, the government would award $1,000 presidential honors scholarships to students in the top 5% of every high school graduating class in the country.

The president’s program, if approved, would represent a radical departure from previous federal policy: For the first time, middle-class families would be offered college assistance that they would not have to pay back.

“We have to give everybody the tools to make the most of their lives and the most important thing we can do is to give people a good education,” Clinton said in a speech before several thousand people inside a gymnasium at Augusta State University. “That’s why I came to Georgia.”

A central element of Clinton’s plan is the “Hope Scholarship” tax credit. It is based loosely on a Georgia program by the same name that covers tuition costs for every in-state college student with at least a B average, regardless of family income.

In his State of the Union address Tuesday, Clinton challenged Congress “to give hope to all of America with a Hope Scholarship in every state, in every community.”

For three decades, the federal government has concentrated its tuition assistance on financially needy students through the Pell grant program. Middle-income families were offered government-guaranteed loans but no grants.

Concern about the ability to repay those loans may discourage some students from starting college and mounting debt has caused others to drop out before completing four-year degree programs. Two in three freshmen responding to a nationwide survey conducted by UCLA said that they are “at least somewhat concerned [that] they won’t have enough money to complete college.”

Clinton’s plan for ameliorating those anxieties would increase the cost of federal financial assistance for higher education from the current $35 billion a year to an estimated $58 billion by the year 2002.

The college-financing strategy reflects the president’s vision of a new role for the federal government. Instead of concentrating on the poor and disadvantaged, with the primary goal of giving them equal opportunity, the government would broaden its reach by providing greater assistance to middle-income Americans.

“We want to make a very strong statement that it is worth it to this country to invest in these middle-class students,” said Assistant Secretary of Education David Longanecker. “We believe it will help them reengage in civic life and make them believe that government does something for them too.”

By choosing tax relief over grants, the administration appears to be siding with conservatives in Congress who maintain that tax breaks are preferable to government spending.

“There is a difference between cutting taxes and increasing spending,” Longanecker said. “That’s what our friends in the majority in Congress have been beating through our heads for a long time, and we sort of got it.”

Some policy analysts predicted that the administration’s initiative would only marginally increase access to higher education. In an era of limited resources, they argued, it would be more effective to target assistance at people who could not attend college without it. The best way to accomplish that, they said, would be to increase funding for Pell grants, which are limited to low-income Americans.

Lawrence Gladieux, policy director for the College Board, praised the president for his commitment to increasing federal assistance, noting that “Clinton is an education president if we ever had one.” But Gladieux criticized some of the president’s specific proposals, particularly the Hope Scholarship credits, because they would go to people who probably would find a way to attend college anyway.

Clinton’s Hope Scholarship program would provide a tuition tax credit of as much as $1,500 per student for the first year of college, followed by an additional $1,500 credit for the second year if the student earns at least a B average as a freshman.

It would cost an estimated $18.6 billion over five years, and it would help about 4.2 million middle-income students in 1998.

A second key element of Clinton’s program would provide a tax deduction of as much as $10,000 per family for tuition costs. Unlike the Hope Scholarship credit, it would not be limited to freshmen and sophomores and would not be contingent on grade performance.

The deduction would cost the government $17.6 billion over five years, and it would help an estimated 8.1 million students in 1998.

A family with a child in the first or second year of college could claim either the tax credit or the deduction but not both. For higher-income families, the deduction could be more attractive: A $10,000 deduction would reduce federal taxes by $2,800 for a family in the 28% tax bracket.

Both the credit and the deduction would be phased out for taxpayers with adjusted gross incomes between $80,000 and $100,000 for joint returns, and between $50,000 and $70,000 for single and head-of-household returns.

Because the credit and the deduction would reduce income taxes owed to the federal government, the credit would be of no benefit to low-income families who have no tax liability.

The president’s proposed tax credit is named after a Georgia program that has helped cover college costs for 238,500 students since 1993, according to Rick Dent, spokesman for Georgia Gov. Zell Miller, a Democrat.

In the Georgia program, the idea is straightforward: If you leave high school with at least a B average, you get your first year’s tuition, fees and books free at any state school. If you maintain a 3.0 grade average in college, the state will pay for the next three years as well.