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The 34 Billion Dollar Question: Is Tax-Based Aid Advancing College Access and Completion Goals?

Dec 03, 2013

By Julie Strawn

If asked, what would you say is the largest form of federal student aid, excluding loans? If you guessed Pell Grants, you'd be wrong; it's student aid delivered through the tax system.

Since its inception in the late nineties, tax-based student aid has more than quadrupled and now represents more than half of all non-loan federal student aid. In 2012, the federal government spent nearly $34 billion on tax-based aid$1 billion more than the total spent on Pell Grants. This growth has occurred with little scrutiny about whether tax-based aid advances national goals.

Given rising college costs and tight federal budgets, Congress should take action to make sure tax subsidies for higher education improve college affordability, access, and completion. The Consortium for Higher Education Tax Reforma partnership of the Center for Postsecondary and Economic Success at CLASP, Young Invincibles, the New America Foundation's Education Policy Program, and The Education Trusthas developed specific recommendations that would go a long way toward fixing current problems with tax-based aid.

Our reforms would ensure that tax-based student aid goes to low- and modest-income students who struggle most with college costs, rather than higher-income individuals who are already very likely to attend college without a tax incentive. We would eliminate overlapping tax benefits, make it easier for families to understand and claim tax-based student aid, and deliver aid when college bills are due. Further, we propose linking tax breaks for higher education institutions to their performance on college access and completion. Finally, we would reinvest any potential savings from our reforms into student aid. Every dollar should be used to improve college access, affordability, and success, including through funding for the Pell Grant program.

Our package of reform proposals would realign the federal investment in tax-based aid with national goals of increasing college affordability, access, and success. More than 80 percent of households with college students would continue to receive higher education tax benefits under our proposals, and the aid would be more effectively distributed among the low- and modest-income households who most need help.

Critically, our proposals are also fiscally responsible. According to estimates from the Tax Policy Center, our reform package would raise $16 billion in revenue over ten years (2014-2023)funds that would further help students through reinvestment in financial aid.

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