Congress on May 26 approved the Economic Growth and Tax Relief Reconciliation Act of 2001, a $1.35 trillion tax cut bill that includes several provisions aimed at helping students and families pay for college. The education-related measures, which become effective in 2002, add up to more than $30 billion in tax benefits over the next 10 years. President Bush signed this bill on June 7, 2001.

Included in the bill are the following provisions of interest to colleges and universities:

• Permanent extension of the exclusion of employer-provided tuition benefits under section 127 of the Internal Revenue Code for undergraduate and graduate level courses (for coursework beginning January 1, 2002, through December 31, 2010).
• Elimination of the 60-month limit on the student loan interest deduction and an increase in the limits on adjusted gross income (AGI) of $65,000 for single filers and $130,000 for joint filers.
• Tax-free withdrawals from prepaid tuition plans of independent institutions, along with the ability to transfer credits from one qualified tuition savings program to another for the benefit of the same beneficiary (limited to one penalty-free rollover per year).
• A raise in the annual contribution limits on education IRAs (also known as education savings accounts or ESAs), from $500 to $2,000, and a provision allowing tax-free withdrawals for elementary and secondary education expenses.
• Creation of a new, above-the-line tax deduction for higher education tuition and related expenses. This new deduction, introduced by Senator Bob Torricelli (D-NJ), provides relief to families whose AGI is too high to qualify for the Hope and Lifetime Learning tax credits. Single filers with AGI of up to $65,000 ($130,000 for joint filers) can deduct $3,000 per year in 2002 and 2003, and $4,000 per year in 2004 and 2005. Single filers with AGI not exceeding $80,000 ($160,000 for joint filers) can deduct $2,000 per year in 2004 and 2005.Taxpayers do not need to itemize to claim the new deduction, which expires in 2005. 

It is anticipated that the IRS will provide regulations for the enacted legislation. H.R. 1836 Section 222 (d)(6) provides that "the Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring record keeping and information reporting".

In order to comply with the Congressional Budget Act, the entire tax bill expires on December 31, 2010. This places pressure on future Congresses to find the revenue to support the continuation of these tax breaks.