Untaxing Student Loans

From Ohio comes news that there’s a bill in the state house to essentially eliminate the tax currently associated with Pell Grants. From the Daily Reporter:

Specifically, House Bill 419 would authorize an income tax deduction for the otherwise taxable portion of a federal Pell Grant used to pay room and board for a post-secondary student.

Rep. Timothy Derickson, R-Springboro, one of the bill’s sponsors, said he introduced HB 419 after being approached in July 2009 by a single mother of two – with one child enrolled in college – who didn’t understand why she should have to pay income tax on payments for meals, room and board when using a state grant.

Derickson pointed out that while low-income students who receive Pell grants or the state’s College Opportunity Grant are generally exempt from income taxes, there’s still federal and state income taxes associated with the money from these grants that goes to pay for dorms and meal plans.

Ohio would lose about $3 million in taxes if the bill becomes law. This is a relatively minor cut, though not insignificant. Citing budget concerns, Ohio Governor Ted Strickland eliminated all state financial assistance for students attending career colleges in his state budget last year.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer