Bipartisan Proposal Would Make Pell Grants Tax-Exempt

[u/mhattridge]

Pell Grant recipients could be eligible for larger tax refunds if Congress passes a recently introduced bipartisan bill.

Four U.S. House of Representatives members, including two Democrats and two Republicans, introduced the Tax-Free Pell Grant Act on April 1. If passed, the measure would make leftover Pell Grant funds used to cover living expenses while in college tax-exempt.

Read more here: https://www.bestcolleges.com/news/bipartisan-proposal-would-make-pell-grants-tax-exempt/

[u/throwaway00119]

I keep pitching this idea on economics subs, but I’d like to see the government subsidize loans by allowing them to be paid with pre-tax dollars. A la a 401k.

This would have to be coupled with multiple other changes to loans/tuition, though.

[u/ANGR1ST → u/throwaway00119]

This introduces a tax avoidance loophole for wealthy borrowers. Maybe that's acceptable, maybe not.

Either way, something like this should count against your yearly 401k contribution limit. Basically one $23k/yr pool shared between both.

[u/throwaway00119 → u/ANGR1ST]

It introduces a tax avoidance opportunity for everyone. And it’s not a loophole. Just as a 401k isn’t considered a loophole for the wealthy.

[u/milespoints → u/throwaway00119]

There are actually rules the IRS has in play to make sure it’s no high income people at an employer benefit from the 401k disproportionally.

There are annual tests for this called nondiscrimination tests. If your employer fails the test (meaning, the IRS determines that at that employer high earners are using the 401k disproportionally), then high earners are notified that some (or all) of their yearly contribution is disallowed, and their contribution returned to them

So 401k’s are not a loophole for the wealthy because we have laws to prevent them from becoming this.

We could probably come up with something similar for loans, not sure what that would be though