The Source Of Federal College Financial Aid That Mostly Benefits The Wealthy

The students from the most well off families receive the most tax-based federal college financial aid, which has become a big piece of the federal aid pie, according to a recent report from The Reimagining Aid Design and Delivery (RADD) Consortium for Higher Education Tax Reform.

While low-income families receive more Pell Grants than wealthier ones, less visible is the fact that the tax credits that support college tuition go mostly to the highest income families. For example, households that make $100,000 or more get more than half of the benefits from the Tuition and Fees Deduction and the Exemption for Dependent Students tax credits. They get about a quarter of the benefits from the American Opportunity Tax Credit and Student Loan Interest Deduction Benefits.

The report notes that tax-based aid has more than quadrupled since it began in the 1990s and now is more than half of all non-loan federal aid. The government spent nearly $34 billion last year on tax-based aid, a billion more than it spent on Pell Grants. 

The report notes some other problems with this form of aid: it is difficult to navigate, comes after families already have to pay for the costs of college, and few are aware of the benefits.

The issue carries even more urgency because the cost of college has such a big impact on lower-income students. Even just having $500 saved away for college means less wealthy students are three times more likely to enroll in college and four times more likely to graduate. Overall, low-income students are less likely to go to college than wealthier ones. The rate of high school graduates from poorer families who immediately enroll in college is 30 percentage points lower than those from high-income ones. The vast majority of high-achieving low-income students don’t apply to the most selective universities even though they end up being admitted at higher rates, party of why well-off children are six times more likely than lower-income ones to attend those colleges.

One incredibly simple solution to the cost of college is to make public universities free. The government current spends $173.9 billion on aid through Pell Grants, loans, and the tax code, according to the consortium’s report. The cost of providing free public higher education has been estimated to come to $127 billion — not terribly far off from what it already expends.

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