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Tax Benefits for College Attendance

March 2016

Susan Dynarski, Judith Scott-Clayton


The article examines various higher education focused tax credits and savings deductions in an attempt to estimate their savings and behavioral effects on people at various income levels. The study compares a variety of research on the topic and finds that higher education tax credits such as the Hope, Lifetime Learning, and American Opportunity credits have had very little to no significant impact on individual’s decision to attend college. Further, the article finds that a significant portion of credit benefit is offset in grant aid offered by schools. The article also points to research that shows higher education tax deduction accounts are rarely utilized, and mostly benefit those in the higher income brackets due to increased marginal returns. The study also notes that 14 percent of families eligible for education tax credits did not claim them, and 40 percent of filers who claimed the tuition tax deduction would have been better off claiming a credit instead. Finally the study mentions that those who choose not to claim the credits would benefit most.

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Policy Implications

This article can be used in attempting to create efficient reform in the tax code to promote attendance and affordability of higher education. The study notes that current tax credits and deductions for higher education do not incentivize college attendance and suspects this is because of both limited knowledge of the tax incentives structures, and because they are received upon filing taxes and are typically perceived as a windfall rather than factored in as an incentive. The paper suggests that to achieve this effect tax incentives should be focused at students before the cost of school is realized and students should be alerted to potential eligibility before enrolling in college with clear instructions on meeting eligibility. Another approach recommended is to combine the tax incentives into the Pell grants students receive.

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