In Focus: Refundable Tax Credits
Mar 14, 2013 | Permalink »
Large Share of Tax-Based Student Aid Goes to Higher Income Families
By Center for Postsecondary and Economic Success
This is fourth in a five-part series highlighting work from CLASP’s recent publication, Reforming Student Aid: How to Simplify Tax Aid and Use Performance Metrics to Improve College Choices and Completion. The paper was written as part of the Bill & Melinda Gates Foundation project Reimagining Aid Design and Delivery.
To maximize the nation’s investment in student aid, we must target resources to low- and modest-income families -- those most likely to respond to incentives to enroll in and complete college. Unfortunately, tax-based student aid provides substantial support to individuals who are already highly likely to attend college and so may have little effect on access or completion for these students. In 2013, the Tax Policy Center estimates that 25 percent of the benefits of American Opportunity Tax Credit (AOTC) will go to families making more than $100,000 per year; 29 percent of the benefits of the Lifetime Learning Credit (LLC) will go to families making more than $75,000; and almost half of the benefits of the Tuition and Fees Deduction will go to households with annual incomes of $100,000 or more.
According to the National Center for Education Statistics, in 2010, the immediate college enrollment rate—the percentage of high school completers who enroll in two- or four-year colleges in the fall immediately after completing high school—was 52 percent for low-income families (bottom 20 percent of income), 67 percent for middle-income families (middle 60 percent of income), and 82 percent for high-income families (top 20 percent of income, approximately $100,000 for all tax units).
We can do better. By simplifying and better targeting tax-based student aid--and delivering it in “real time” instead of just when taxes are due--we can make tax aid more like grant aid, which has been shown to increase college enrollment by low- and moderate-income students and reduce their chances of dropping out. See our recent report for these and other policy recommendations on how to reform student aid.
Figure 1: Distribution of Tax-Based Aid Versus Pell Grants
Source: CLASP, based on data from the Tax Policy Center.
Mar 05, 2013 | Permalink »
Tax-Based Student Aid Quadrupled – Largely Unnoticed – Over the Past Decade
This is third in a five-part series highlighting work from CLASP’s recent publication, Reforming Student Aid: How to Simplify Tax Aid and Use Performance Metrics to Improve College Choices and Completion. The paper was written as part of the Bill & Melinda Gates Foundation project Reimagining Aid Design and Delivery.
From 2000 to 2010, tax-based aid grew from $7.4 billion to $32.4 billion, a more than four-fold increase. Despite making up nearly half of the nation’s investment in non-loan aid, it goes largely unnoticed both by policymakers and beneficiaries. According to Suzanne Mettler, Professor at Cornell University, almost 60 percent of individuals who claim a higher education tax credit do not realize they have received help from the government to pay for college.
One problem with this “stealth” aid – and a big reason for its invisibility – is that it doesn’t reach students and parents when they need it most — when college bills are due. Rather, this aid, which is built into annual income tax filings, can be delayed as long as 16 months. Moreover, students and parents may not even realize this aid is available until filing their taxes, if at all, further weakening the potential impact of this aid on college access and completion.
For a federal investment topping $34 billion annually, which rivals the Pell Grant program, shouldn’t we expect more? We can start to address these issues by simplifying and better targeting tax-based aid and piloting “real-time payment” of the American Opportunity Tax Credit (AOTC) to deliver this aid to students when they enroll, not just at tax time. Read our report for these and other policy recommendations to make our growing investment in tax-based aid work better.
Historical Spending on Tax-Based Aid
Notes: Figures are in constant dollars (2010). "Other tax benefits include other education tax benefits for postsecondary education, such as the above-the-line deduction for tuition and fees and employer-provided educational assistance.
Source: CLASP based on data from the Office of Management and Budget.
Feb 25, 2013 | Permalink »
Tax Policy Center’s Elaine Maag Highlights CLASP’s Recent Paper on Reforming Tax-Based Aid
This morning, Elaine Maag of the Urban Institute and Brookings Institution's Tax Policy Center (TPC), a leading voice in tax policy, highlighted CLASP’s recent paper, Reforming Student Aid: How to Simplify Tax Aid and Use Performance Metrics to Improve College Choices and Completionon TaxVox, the TPC Blog. In writing Reforming Student Aid, CLASP partnered with TPC to estimate the budgetary impact of its proposals to reform tax-based student aid.
In her piece, Education Tax Credits Rival Pell Grant Program in Size: Reforms Proposed, Maag provides an overview of the growth and current distribution of tax-based student aid and emphasizes the need to reform this major investment in postsecondary education. An excerpt of the piece is below:
“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.”