New C-PES Report Calls for Consolidating Tax-Based Student Aid, Using Metrics to Improve College Choices and Completion
Feb 20, 2013
The Center for Postsecondary and Economic Success (C-PES) at CLASP released today a major report, Reforming Student Aid: How to Simplify Tax Aid and Use Performance Metrics to Improve College Choices and Completion. The report describes college affordability and completion challenges and provides detailed policy options for Congress and the Obama Administration on making federal aid more effective, more efficient, and simpler for students and parents to use.
Funded as part of the Gates Foundation's Reimagining Aid Design and Delivery project, our paper focuses on two areas that have received scant attention from federal policymakers: tax-based student aid and the use of performance metrics in aid policy. It's little known that tax-based student aid now accounts for nearly half of all federal student aid outside of loans and has more than quadrupled in recent years. Unfortunately, as currently designed, tax-based aid likely has little effect on college access or completion. Moreover, many low- and modest-income families cannot use tax-based student aid; for those who do, the tax aid doesn't reach them when they need it most -- when college bills are due -- but months later.
Our paper offers a range of policy options for consolidating the various tax-based aid provisions and better targeting this aid toward low- and modest-income families. We also propose piloting “real-time payment” of the American Opportunity Tax Credit to deliver this aid to students when they enroll, not just at tax time. Our ideas are backed by ten-year revenue estimates and distributional estimates from the Urban-Brookings Tax Policy Center. We've crafted our recommendations to be revenue neutral or modestly positive to respond to current budget realities, and we believe these proposals are timely, given the potential for tax reform in this Congress.
In addition, our paper describes the current landscape of rising college costs, financial pressures on students to work more, and the negative impact this has on completion. Beyond increasing aid to lower-income students through the tax system, we propose greater transparency in college outcomes and costs, including information on employment and earnings by program for each institution. Our idea for a new Compact for College Completion among the federal government, low-income students, and colleges would combine increased financial aid and supports for low-income students with incentives for both students and colleges to focus on progress toward completion.
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RADD Media Coverage:
Chronicle of Higher Education: Tax-Based Aid Should Be Redirected to Low-Income Students, Report Says, By Allie Bidwell
"Many groups participating in the Bill & Melinda Gates Foundation's Reimagining Aid Design and Delivery project have looked to the Pell Grant program and student-loan debt for ways to improve the federal financial-aid system. But a new paper released on Wednesday says policy makers have overlooked two important areas: tax-based student aid and performance measures used in student-aid policies."
Tax Vox: Education Tax Credits Rival Pell Grant Program in Size: Reforms Proposed, By Elaine Maag
Tax-based aid for higher education quadrupled between 2000 and 2010 and will continue to be a large part of the financial aid story – at least through 2017 when the American Opportunity Tax Credit is scheduled to expire. As part of a series of reports on federal financial aid, the Center for Law and Social Policy is urging a full review of who receives tax benefits for education, how those benefits compare with the better-known Pell grants, and whether Congress should reform higher education benefits. It proposes some important ideas for better targeting those subsidies to students who need them the most.
Tax Vox: Better Ways Federal Financial Aid Can Help College Students, By Kim Rueben
"Earlier this week, my Tax Policy Center colleague Elaine Maag blogged about proposals by the Center for Law and Social Policy (CLASP) to improve federal assistance for low-income college students, including better targeting of higher education tax credits. But there may be even more effective ways to help these students. One idea: Cut back on tax credits and use the savings to improve Pell grants and loan programs".