Why Is Congress Targeting Education Tax Credits

"Education is the most powerful weapon which you can use to change the world." – Nelson Mandela

Imagine receiving a scholarship, only to find out later that your tuition bill just got bigger. That’s exactly what’s happening with education tax credits right now. For years, students and families have relied on the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) to help cover tuition costs. But now, Congress wants to eliminate them, leaving students with fewer financial breaks and potentially more debt. At the same time, Trump’s push to shut down the Department of Education is adding to the uncertainty. But here’s the twist—if these tax credits disappear, future students will likely need more loans, putting us right back into the same debt cycle we just started fixing. So, is this really about cutting costs, or is it a fundamental shift in how the government funds education?

That’s a Hard Pass for Students

For decades, education tax credits have helped students afford college. Just last year, 71% of all claims (totaling $6.3 billion) came from households earning under $100,000 per year. The AOTC provides up to $2,500 per student annually for tuition, books, and fees, with up to $1,000 refundable, meaning even students who owe little to no taxes can still get financial relief. Meanwhile, the LLC offers up to $2,000 per tax return, covering undergraduate, graduate, and job training courses with no cap on the number of years it can be claimed. Though non-refundable, it has been a critical resource for working professionals looking to advance their careers.

Now, the Republican-led budget proposal seeks to eliminate both tax credits, arguing it will save the government $85 billion over ten years and Higher Education Tax Reforms Could Raise Over $45 Billion. While this sounds fiscally responsible on paper, the reality is that students will be left with fewer options, forcing them to take on more debt and worsening the already massive $2 trillion student debt crisis.

Didn’t Biden Wiped Out Billions in Student Loans?

While Congress is pushing to eliminate education tax credits, the former Biden administration has forgiven $190 billion in student loans.

Here’s a breakdown of the numbers:

• Public Service Loan Forgiveness (PSLF): $78.5 billion forgiven for 1 million borrowers working in public service jobs.
• Income-Driven Repayment (IDR) Adjustments: $57.1 billion for 1.45 million borrowers by recalibrating payment plans.
• Borrower Defense to Repayment & School Closure Relief: $34.5 billion for 2 million borrowers who were defrauded by schools.
• Disability Discharge: $18.7 billion forgiven for 633,000 borrowers with permanent disabilities.

The irony? Even as the Biden administration wipes out past debt, cutting tax credits could force future students to borrow even more sending us right back into the same financial crisis.

Why It Keeps Failing

This isn’t the first time the federal government has tried to regulate education costs, but history shows that every major attempt has backfired. After World War II, the GI Bill was meant to cover tuition for veterans, but colleges inflated their fees, knowing the government would pay. Later, the Higher Education Act (HEA) of 1965 introduced federally backed student loan programs through private banks and loan guarantors. This was intended to make loans more accessible, but instead, it removed risk for lenders, allowing colleges to raise tuition unchecked.

The 1992 HEA reforms attempted to fix this by denying federal aid to schools with high student loan default rates. However, for-profit institutions found loopholes, continuing to prey on students while still receiving federal funds. The pattern is clear: every time the government has tried to regulate tuition, institutions, and lenders have found ways around it—leading to even higher costs for students.

The Alternative to Tax Credits

Instead of tax credits, Republicans are pushing a risk-sharing model, where colleges would be financially liable if their graduates struggle to repay loans. Schools with low post-graduation earnings could lose federal funding or face penalties, effectively forcing institutions to take responsibility for student debt outcomes. While this proposal holds colleges accountable, it also raises concerns. If institutions fear financial penalties, they may start admitting fewer low-income students to reduce risk, making college even less accessible for those who need it most.

The President’s Rulebook

Education tax credits aren’t the only thing on the chopping block. Trump has renewed his push to eliminate the Department of Education. His administration has already slashed $900 million from its research division, which tracks student performance data.

Trump has repeatedly called the Education Department “a big con job”, arguing that states should take over education funding. If that happens, federal student aid programs including grants, loans, and tax credits—could disappear, shifting education costs entirely onto state governments and private lenders. This could result in higher loan interest rates, fewer tuition assistance programs, and wider state-by-state disparities in education funding.

What Happens If These Tax Credits Disappear?

If Congress eliminates education tax credits, students will have to borrow more to afford college, increasing their financial burdens. College enrollment may decline as affordability worsens, forcing universities to either raise tuition or cut programs. Young adults could delay major life milestones—buying homes, starting families, or saving for retirement—due to higher student loan debt. Meanwhile, the workforce could suffer, as fewer people pursue degrees, leading to critical shortages in key industries like healthcare, education, and technology.

Final Thoughts

At the heart of this debate is a fundamental question: Should the government invest in education, or should students bear the full burden? Congress argues that cutting tax credits will save money, but in reality, it will make college even more expensive, force students to borrow more, and potentially weaken the workforce. Meanwhile, Biden’s $190 billion in student loan forgiveness has helped millions, but if tax credits disappear, future students will be left in an even worse financial position. With the future of higher education financing on the line, now is the time to pay attention, get involved, and advocate for policies that keep education accessible and affordable. Enjoying our stories so far? Then don't forget to subscribe to our weekly newsletter for industry insights delivered to your inbox every week!