“When we first discovered that changes made to how unearned income for students is taxed was having unintended consequences on some college scholarships, we quickly went to work on solutions,” Mr. Solis said. “Discussions with the majority are ongoing, and we are hopeful that bipartisan action can be taken soon to provide greater certainty for students and their families.”
Senator Charles E. Grassley of Iowa, the chairman of the Senate Finance Committee, is working with his colleagues in the Senate and the House to address this issue as quickly as possible, according to a committee spokesman.
“Historically, after major tax legislation, the longstanding practice has been to correct drafting errors and other technical issues on a bipartisan basis,” Mr. Grassley said after reports of the Gold Star family tax increase came to light.
Democrats have expressed openness to fixing some other problems caused by the law, including harm to restaurant owners seeking to remodel their establishments. But after unanimously opposing the law, they are likely to demand a price for getting Republicans out of a political jam. Any fix would need to roll back some provisions of the law, Democrats say.
The new tax structure imposes a range of levies on unearned income: 10 percent on amounts up to $2,550, 24 percent on unearned income over $2,550, 35 percent on amounts over $9,150 and 37 percent on amounts over $12,500. According to the College Board, the average cost of room and board in the 2018-19 school year at a four-year public university is $11,140, and $12,680 at a private four-year school.
In the past, a student from a household with a joint income of $50,000 who was awarded a scholarship that covered $11,500 in room and board would be taxed at their parents’ rate of 12 percent. Under the new law, that money would be taxed up to 35 percent.
“It’s one of those things that is under the radar now but could really have a big impact,” said Megan McClean Coval, the vice president for policy and federal relations at the National Association of Student Financial Aid Administrators.