Students with Least Amount of Need Receive the Most Tax-Based Student Aid
By Julie Strawn
This article is the first in a three-part series highlighting charts from the recent publication, Higher Education Tax Reform: A Shared Agenda for Increasing College Affordability, Access, and Success, written by the Consortium for Higher Education Tax Reform for the Bill & Melinda Gates initiative, Reimagining Aid Design and Delivery. The Consortium is a partnership of four organizations concerned with college affordability, access, and completion for low- and modest-income individuals: the Center for Postsecondary and Economic Success at CLASP, Young Invincibles, the New America Foundation's Education Policy Program, and The Education Trust.
The federal government spends nearly $34 billion annually on student aid delivered through the tax system—a billion more than it spends on Pell Grants. Despite extensive research showing that low- and modest-income families are more likely to respond to changes in college costs and student aid, this tax aid provides substantial support to higher-income families who are well beyond middle class.
For the year 2013, the Tax Policy Center estimates that more than half of the benefits of the Tuition and Fees Deduction and the Exemption for Dependent Students will go to households with annual incomes of $100,000 or more. Nearly a quarter of American Opportunity Tax Credit benefits (24 percent) and Student Loan Interest Deduction benefits (23 percent) will go to families making more than $100,000 per year. To put that in perspective, almost 80 percent of American households had incomes below $100,000 in 2012. Additionally, there are no income participation limits on federally subsidized 529 college savings plans. What does all of this mean? Essentially, students from families with the least financial need are receiving the most tax-based aid because of poor targeting.
Despite some progress, low-income students still attend college at lower rates than high-income students did 40 years ago. Further, the lowest-income students are only one-seventh as likely as their highest-income peers to attain a bachelor's degree by age 24. We must urgently address the college affordability, access, and completion issues facing low-income families.