Reconciliation Bill One Step Closer to Senate Floor Action With New Finance Provisions Impacting ED
By Maria Carrasco, NASFAA Staff Reporter
The Senate Finance Committee released its portion of a reconciliation bill on Monday, proposing sweeping tax changes that could impact higher education programs.
Earlier in May, the House narrowly passed its version of the reconciliation bill, titled the “One Big Beautiful Bill Act.” Since then, the Senate has begun rolling out amended legislative text, with the Senate HELP Committee releasing its reconciliation bill, which made several changes to the House’s bill.
Now, the Senate Finance Committee is proposing its portion of the Senate’s reconciliation package, which includes changes to 529 college savings plans, educational assistance programs, the endowment excise tax, and more.
What the Senate Finance Committee Is Proposing
Permanently encodes nontaxability for student loans discharged for death or total and permanent disability. The American Rescue Plan of 2021 amended the Internal Revenue Code [IRC 108(f)(5)] to broadly exclude, for 2021-2025, student loan discharges. The Senate’s reconciliation bill proposes to extend the nontaxability of student loan discharges permanently. However, this is only applicable to discharges for death or total permanent disability. Borrowers must have a Social Security number (SSN) in order for their discharge to qualify as nontaxable. Notably, the tax exemption for loans canceled through Public Service Loan Forgiveness (PSLF) exists in another part of the IRC and remains untouched, preserving that exemption.
“Trump accounts” can be used for the same qualified higher education expenses as 529 college savings plans. In May, House Republicans amended its reconciliation bill to establish "Trump accounts" for newborns. Under this provision, every child born in the U.S. between Jan. 1, 2025, and Jan. 1, 2029 with an SSN, and whose parents have SSNs, would be automatically enrolled in the program. The Senate bill also includes this “Trump accounts” proposal.
New expenses would qualify to be covered by 529 college savings plans, including an expansion on books, supplies, and certain fees. The Senate bill also allows 529 college savings plans to cover certain postsecondary credentialing expenses at postsecondary education providers that do not qualify as eligible educational institutions under the Higher Education Act (HEA), such as nondegree programs.
Tax-free tip income is up to $25,000. Postsecondary education programs such as cosmetology, where tips comprise a significant portion of earnings, have challenged the gainful employment (GE) regulations on the premise that this population typically under-reports earnings and leads programs to disproportionately fail the GE metrics. This change could potentially allay those concerns if more individuals reported tipped earnings.
Changes to educational assistance programs, such as employer-paid educational expenses. The Senate’s reconciliation bill makes permanent the $5,250 tax exemption for student loan payments made by employer’s, which was set to expire at the end of the year. The Senate also proposes an inflationary adjustment for the $5,250 in annual educational assistance that may be excluded from gross income, beginning with taxable years after 2026.
Modifications to endowment excise tax for certain private institutions. The Senate bill proposes a graduated investment income excise tax rate, ranging from the current 1.4% up to 8%, based on the institution’s per-student endowment. The bill also excludes religious institutions from the endowment tax and limits the tax to only include schools that participated in a Title IV program in the last tax year. Additionally, the Senate proposes adding student loan interest income and certain royalty income to calculate a school’s net investment income.
Requiring a SSN for the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Starting with tax year 2026, a taxpayer must provide their SSN – and their spouse’s if filed jointly – and the SSN and name of the student whose tuition/expenses are being claimed, along with the Employer Identification Number (EIN) for the school the student is attending. If information is missing, it will be treated as an error, and the IRS can refuse to apply the credit without a formal audit.
Increase from $5,000 to $250,000 for unauthorized disclosure of tax information penalty. The Senate is proposing that unauthorized disclosures involving multiple taxpayers will be treated as separate violations, not one combined offense. Any leak or misuse of data – even a spreadsheet or email error – could now carry the $250,000 fine per student.
What’s Next
The Senate is still working to finalize its version of the bill so that it can be considered on the floor. If the Senate passes its amended version of the bill, it must work with the House to pass the same version of a reconciliation bill before the September 30, 2025 deadline.
As a reminder, NASFAA has created a reconciliation Call to Action advocacy campaign and will update it to reflect recent developments and where things currently stand.
Stay tuned to Today’s News for more updates on the reconciliation process, and be sure to check out our Reconciliation Web Center.
Publication Date: 6/18/2025
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