Higher-ed tax breaks exceed cost of grants for lower-income students

The cost of tax deductions that previous research has shown disproportionately help wealthier families pay for college continues to outpace what the federal government spends on grants for low-income students, a new study points out.

The total amount of tax credits has increased 13-fold since 1990, when adjusted for inflation, and reached $34.5 billion in 2014, the last year for which the figures are available, according to the study by the Pew Charitable Trusts.

That’s $4.1 billion more than went to the government’s Pell Grant program to help low-income students pay for college.

Earlier research by the Tax Policy Center has shown that half of the $20 billion a year provided under the principal tax deduction, the American Opportunity Tax Credit, go to families earning between $100,000 and $180,000 a year, almost all of whom would have sent their children to college even without them.

The program provides a tax break of up to $2,500 per undergraduate, per year, toward the cost of college expenses.

Another nearly $2 billion in tax credits were applied to investment earnings from so-called 529 college savings plans, Pew found. Only one in 10 families that earn less than $50,000 knows about 529 plans, a survey by the investment firm Edward Jones found. *

These are among several ways federal, state and institutional financial aid and even private scholarships flow toward wealthier Americans.

A quarter of the students who get federal work-study jobs, for example, come from families whose annual income exceeds $80,000, and one in 10 from households with $100,000 in earnings or more, federal data show.

More than $16 billion a year in private scholarships is made available by the likes of fraternal organizations and chambers of commerce, College Board figures show; the U.S. Department of Education reports that more of it goes to students from families that earn $106,000 and up than to those with incomes under $30,000.

Pew also tried to calculate the cost of state-level tax credits for higher-education costs. It found that such credits totaled $167 million in Pennsylvania and $121 million in Massachusetts in 2014; $457 million in New York in 2013; and $443 million in California in 2012. All were the most recent years for which the figures were available.

This article comes from The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. It is reprinted with permission.

About the Author

Jon Marcus / The Hechinger Report
is a higher education editor at The Hechinger Report.