Weather warming and birds returning to roost serve to remind us it's tax season: an exciting time of forms and frustration for disgruntled filers around the nation. But as bad as taxes normally are, a debate forming around college tuition tax credits is making this tax season more contentious than usual.
The college tuition tax credit allows taxpayers who have paid for college tuition and fees the past year to deduct some percentage of the amount from their taxes. The rapidly growing program is essentially a form of federal financial aid for college, lowering the net cost of college attendance.
The program has become indispensible for Americans across the income scale, but not without warranted criticisms on the way in which these credits are distributed.
The largest form of non-loan college financial aid is delivered through the tax system, according to a report by the Consortium for Higher Education Tax Reform. The report states tax-based aid, primarily in the form of credits, accounts for nearly $34 billion in aid, $1 billion more than Pell Grants.
This aid, though helpful and necessary for many, has had exceptional growth, more than quadrupling since the 1990s, according to the report. This growth, however, has gone by with little oversight or interrogation.
The Consortium's report and an article released this week by The Hechinger Report, a nonprofit organization focused on issues in education, make the case that this sizeable and growing tax-based aid disproportionately benefits the wealthy, particularly those making over $100,000 per year.
The poor targeting of this program requires immediate reform.
The vast majority of the $34 billion in tax-based aid comes from the American Opportunity Tax credit - $21.4 billion in 2012 - touted as a way to help middle class families get on the path to the prosperity college offers. But with more than half of these tax credits going to families making over $100,000, the efficacy of the program is questionable.
The misallocation of these tax credits poses yet another barrier to college attendance for lower income families, not just an added benefit for the upper 20 percent of this nation's income earners. Reallocating the portion of the tax credits going toward higher income individuals would mean greater assistance for those most in need.
Although $100,000 per year for a family is debatably far from exorbitant wealth, over half of $34 billion allocated to that income bracket displays misaligned priorities.
Such a cornerstone of financial aid for college attendance should be tiered to provide more than the current $2,500 cap to lower income brackets while reducing the effective credit at levels higher than $100,000, giving the program an appropriately distributed curve.
In addition to properly targeting the tax credit programs, information on their availability should be more accessible to students and families. Particularly for students paying tuition themselves, the credit can be a significant form of aid and often goes unutilized.
Financial aid for college, for many families, is essential in allowing college attendance. Reforming existing programs and improving access to information on what are often complex tax codes is necessary to maximize the effectiveness of these well-meaning government expenditures.
email: editorial@ubspectrum.com
Photo: Courtesy of Laron Fomby
