For Immediate Release: September 13, 2013

New CLASP-led Consortium Seeks to Simplify and Better Target Higher Education Tax Benefits

Washington, D.C. -- The Center on Postsecondary and Economic Success at CLASP is partnering with Education Trust, New America Foundation, and Young Invincibles in a new consortium to promote policies that reform and strengthen federal higher education tax benefits.  Supported by a $310,000 grant from the Bill & Melinda Gates Foundation, the consortium builds on previous work by these groups in the foundation's Reimagining Aid Design and Delivery (RADD) project.

The consortium will advance the public dialogue on reform of tax-based student aid through research, analysis, and development of policy solutions. Federal higher education tax benefits have grown exponentially in recent years. In fact, since its inception in the late nineties, tax-based student aid has more than quadrupled and now represents over half of all non-loan federal aid.

In 2012, the federal government spent nearly $34 billion on tax-based student aid-about a billion more than was spent on Pell Grants ($32.8 billion). Unfortunately, as currently designed, tax-based aid has limited ability to incentivize college access, persistence, and completion. These shortcomings include:

  • Tax-based aid is poorly targeted. Tax-based aid provides the most support to those who least need it-upper-income families.
  • Tax benefits do not reach students at the time expenses are incurred. Students and parents only receive this aid after filing their taxes, months after college bills are due.
  • Tax-based aid programs are complex and hard to use. The confusing array of higher education tax credits, deductions, and exclusions often leads taxpayers not to claim the benefit that would help them most.
  • Lack of awareness and low take-up rates limit the impact of tax-based aid. Just 38 percent of eligible filers in 2009 claimed the American Opportunity Tax Credit-less than half the take-up rate for the Earned Income Tax Credit (EITC). And 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.

"We know from research that grant aid is the most effective way to make college affordable for low-income students. That said, if we're going to continue to deliver half of federal student aid through the tax system, we have to make it work better for the students who need it most. And with Congress taking up tax reform for the first time in 27 years, this is a perfect opportunity to make common sense changes," said Julie Strawn, senior fellow at CLASP.

Numerous ideas have emerged in recent years, including from the first phase of the RADD project, on how to reform higher education tax aid-from small administrative changes to major legislative reforms to completely eliminating some or all of these benefits and reinvesting them in Pell Grants. Over the next ten months, the RADD consortium will highlight areas of consensus among these diverse proposals and produce several policy briefs and a white paper that provide new research and analysis and shared options for reform in four areas: targeting, effective delivery, simplification, and increasing participation. 

Under the first phase of RADD, CLASP took a comprehensive look at how to simplify and better target tax-based student aid and how to use metrics to improve college choices and completion. As a result of this work, CLASP was invited to brief House Ways and Means Members and its RADD white paper was cited widely by the Senate Finance Committee in its tax reform options papers. The new consortium will further advance that work as part of the second phase of RADD.

Strawn added, "Every day, low-income families across the country sit at their kitchen tables discussing how to pay for college.  These issues have real consequences.  CLASP is excited to work with the Gates Foundation and our consortium partners to move the dial on college affordability and get students the help they need."

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