Sioux City Times

U.S. Representative Randy Feenstra has introduced the Tax-Free Pell Grants Act, aiming to exempt federal Pell Grants from taxation. This proposed legislation seeks to expand the untaxed use of Pell Grants and enhance their coordination with the American Opportunity Tax Credit (AOTC), helping students retain their AOTC benefits.

“The Tax-Free Pell Grants Act” has gained bipartisan support with co-leads U.S. Representatives Lloyd Doggett, Mike Kelly, and Danny Davis. Representative Feenstra emphasized the bill's potential impact, stating, “I have long supported Pell Grants because they offer academic opportunities to our students and ensure that Iowans who might otherwise skip higher education because of the cost can pursue advanced studies.”

Currently, while Pell Grants for tuition and fees are untaxed, portions used for non-tuition expenses incur taxes. This situation decreases AOTC eligibility, prompting many students to bypass this benefit, resulting in hundreds of millions of unclaimed dollars annually. Feenstra's legislation intends to resolve these issues by proposing that Pell Grants be entirely tax-free, allowing students to avoid financial concerns related to education costs.

As part of the AOTC, up to $2,500 can cover tuition, fees, and other education expenses annually, with 40% potentially refundable up to $1,000. With about three million undergraduate students in the U.S. being parents, affordable childcare is crucial. The Tax-Free Pell Grants Act proposes to recognize childcare and computer costs as AOTC-qualified expenses, assisting students in completing their education.