Student Aid and Tax Benefits: Better Research and Guidance Will
Facilitate Comparison of Effectiveness and Student Use
(13-SEP-02, GAO-02-751).
Title IV of the Higher Education Act (HEA), as first adopted in
1965, authorizes federal grant and loan programs, providing a
total of $53 billion in assistance to 8.1 million students in
fiscal year 1999. The Taxpayer Relief Act of 1997 allowed
eligible taxpayers to reduce their tax liability by receiving up
to $1,500 HOPE or $1,000 Lifetime Learning tax credit for tuition
and course-related fees paid. The 2001 Economic Growth and Tax
Relief Reconciliation Act created a new tax deduction for tuition
expenses and expanded many existing higher education tax
provisions. The federal investment in providing student
assistance through the tax code has risen sharply from $.0056
billion in 1996 to $7.6 billion in 2002--more than 80 percent of
which is comprised of HOPE and Lifetime Learning tax
expenditures. GAO reviewed title IV aid programs and higher
education tax provisions designed to assist students and
families, to help Congress prepare for the reauthorization of
HEA. GAO found that, in the 1999-2000 academic year, the Lifetime
Learning and HOPE tax credits provided an estimated 4 in 10
undergraduate students with benefits that equaled a varying share
of tuition and fees charged and title IV aid received. Some
students did not receive the credits on the basis of their
income; while others received the credits, but obtained less than
the credits' maximum value because their educational expenses
were too small to make full use of the credits. Available policy
and instructions provide clear guidance about the impact that
several, but not all, tax provisions have on title IV aid
eligibility. For several higher education tax provisions, the HEA
or Education's policies and instructions make clear how the use
of tax provisions affects aid eligibility. For some tax
provisions, however, Education has not established a policy on
how their use affects aid eligibility, or it has established a
policy but not communicated it clearly to aid applicants. Little
information is available to Congress on the relative
effectiveness of title IV grants, loans, and the HOPE and
Lifetime Learning tax credits in promoting postsecondary
attendance, choice, and completion or on the impact of these
programs on college costs. This is due, in part, to the data and
methodological challenges intrinsic to conducting studies
examining their effects. Moreover, Education has conducted few
evaluations of the title IV aid programs, and Treasury has not
yet examined the effects of higher education tax credits.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-751
ACCNO: A04633
TITLE: Student Aid and Tax Benefits: Better Research and
Guidance Will Facilitate Comparison of Effectiveness and Student
Use
DATE: 09/13/2002
SUBJECT: Educational grants
Higher education
Income taxes
Student financial aid
Student loans
Tax credit
Dept. of Education Parent Loans for
Undergraduate Students Program
Dept. of Education Stafford Student Loan
Program
Federal Perkins Loan Program
Free Application for Federal Student Aid
HOPE Tax Credit
Lifetime Learning Tax Credit
National Postsecondary Student Aid Study
Pell Grant
Supplemental Educational Opportunity
Grant
******************************************************************
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GAO-02-751
Report to Congressional Committees
United States General Accounting Office
GAO
September 2002 STUDENT AID AND TAX BENEFITS
Better Research and Guidance Will Facilitate Comparison of Effectiveness
and Student Use
GAO- 02- 751
Page i GAO- 02- 751 Student Aid and Tax Benefits Letter 1
Results in Brief 3 Background 5 Hope and Lifetime Learning Credits Provide
Benefits for a
Substantial Portion of Undergraduate Students 10 Available Policy and
Instructions Provide Clear Guidance about the
Impact of Several, but Not All, Tax Provisions on Eligibility for Title IV
Aid 24 Little Information Is Available to Congress on the Relative
Effectiveness of Title IV Grants, Loans, and Hope and Lifetime Learning
Tax Credits 26 Conclusions 29 Recommendations to the Secretaries of
Education and Treasury 30 Agency Comments 31
Appendix I Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid 33
Appendix II Research on the Effects of Grants, Loans, and Tax Credits 41
Appendix III Comments from the Department of Education 42
Appendix IV Comments from the Department of Treasury 44
Appendix V GAO Contacts and Staff Acknowledgments 45 GAO Contacts 45 Staff
Acknowledgments 45
Bibliography 46 Contents
Page ii GAO- 02- 751 Student Aid and Tax Benefits Tables
Table 1: Selected Postsecondary Education Tax Provisions, 2002 8 Table 2:
Estimated Use of Tax Credits and Title IV Aid Among All
Undergraduates in 1999- 2000 36 Table 3: Percent of All Undergraduate
Students Receiving HOPE
Credit 36 Table 4: Percent of All Undergraduate Students Receiving
Lifetime
Learning Credit 36 Table 5: Average Amount of HOPE Credit 37 Table 6:
Average Amount of Lifetime Learning Credit 37 Table 7: HOPE Credit as a
Percent of Tuition and Fees Charged
and Net Tuition and Fees Paid by Dependent Students 37 Table 8: HOPE
Credit as a Percent of Tuition and Fees Charged
and Net Tuition and Fees Paid by Independent Students 38 Table 9: Lifetime
Learning Credit as a Percent of Tuition and Fees
Charged and Net Tuition and Fees Paid by Dependent Students 38 Table 10:
Lifetime Learning Credit as a Percent of Tuition and Fees
Charged and Net Tuition and Fees Paid by Independent Students 38 Table 11:
Amount of HOPE Credit and Title IV Grant or Loan
Assistance Received by Dependent Students Obtaining Both 39 Table 12:
Amount of HOPE Credit and Title IV Grant or Loan
Assistance Received by Independent Students Obtaining Both 39 Table 13:
Amount of Lifetime Learning Credit and Title IV Grant or
Loan Assistance Received by Dependent Students Obtaining Both 40 Table 14:
Amount of Lifetime Learning Credit and Title IV Grant or
Loan Assistance Received by Independent Students Obtaining Both 40
Figures
Figure 1: Estimated Use of Higher Education Tax Credits and Title IV
Student Aid among All Undergraduates in 1999- 2000 4 Figure 2: Percent of
All Undergraduate Students Receiving HOPE
Credit 11 Figure 3: Percent of All Undergraduate Students Receiving
Lifetime
Credit 12
Page iii GAO- 02- 751 Student Aid and Tax Benefits
Figure 4: Average Amount of HOPE Credit Received by Dependent and
Independent Students 13 Figure 5: Average Amount of Lifetime Learning
Credit Received by
Dependent and Independent Students 14 Figure 6: HOPE Credit as a Percent
of Tuition and Fees Charged
and Net Tuition and Fees Paid by Dependent Students 15 Figure 7: HOPE
Credit as a Percent of Tuition and Fees Charged
and Net Tuition and Fees Paid by Independent Students 16 Figure 8:
Lifetime Learning Credit as a Percent of Tuition and Fees
Charged and Net Tuition and Fees Paid by Dependent Students 17 Figure 9:
Lifetime Learning Credit as a Percentage of Tuition and
Fees Charged and Net Tuition and Fees Paid by Independent Students 18
Figure 10: HOPE Credit and Title IV Grant and/ or Loan Assistance,
Dependent Students Receiving Both 20 Figure 11: HOPE Credit and Title IV
Grant and/ or Loan Assistance,
Independent Students Receiving Both 21 Figure 12: Lifetime Learning Credit
and Title IV Grant and/ or Loan
Assistance, Dependent Students Receiving Both 22 Figure 13: Lifetime
Learning Credit and Title IV Grant and/ or Loan
Assistance, Independent Students Receiving Both 23
Abbreviations
AGI adjusted gross income EFC expected family contribution FAFSA Free
Application for Federal Student Aid GPRA Government Performance and
Results Act of 1993 IRS Internal Revenue Service HEA Higher Education Act
NPSAS National Postsecondary Student Aid Study SEOG Supplemental
Educational Opportunity grants SOI Statistics of Income
Page 1 GAO- 02- 751 Student Aid and Tax Benefits
September 13, 2002 The Honorable Edward M. Kennedy Chairman The Honorable
Judd Gregg Ranking Minority Member Committee on Health, Education, Labor,
and Pensions United States Senate
The Honorable John A. Boehner Chairman The Honorable George Miller Ranking
Minority Member Committee on Education and the Workforce House of
Representatives
The federal government uses a range of policy tools to assist students in
financing postsecondary education, including direct expenditures and
federal tax law. Title IV of the Higher Education Act (HEA), first adopted
in 1965, authorizes federal grant and loan programs, providing a total of
$53 billion in assistance to 8.1 million students in fiscal year 1999. In
the past decade, the federal government has increasingly relied upon
another tool: the tax code. The Taxpayer Relief Act of 1997 allowed
eligible taxpayers to reduce their tax liability by receiving up to a
$1,500 HOPE or $1,000 Lifetime Learning tax credit for tuition and course-
related fees paid. The 2001 Economic Growth and Tax Relief Reconciliation
Act created a new tax deduction for tuition expenses, and expanded many
existing higher education tax provisions. For example, the law excluded
the earnings of state- sponsored college savings and prepaid tuition plans
from federal income taxation, providing they are used to meet tuition and
other educational expenses, and it increased the annual contribution limit
for Coverdell Education Savings Accounts. The federal investment in
providing student assistance through the tax code has risen sharply, from
an estimated $0.0056 billion in 1996 to $7.6 billion in 2002, 1 more than
80 percent of which is comprised of HOPE and Lifetime Learning tax
1 Cost is measured in estimated revenues foregone, and expressed in
constant 2002 dollars. Total costs are calculated on the basis of eight
tax provisions that aim to help students and families save, pay for, or
repay the costs of higher education, and do this by permitting tax filers
to reduce their income tax liability through the use of qualified
educational expenses. See table 1.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 02- 751 Student Aid and Tax Benefits
expenditures. In tax year 1999, 6.4 million tax filers obtained about $4.8
billion dollars in higher education tax credits. In comparison, the
federal government*s largest student aid program, the Pell grant program,
provided 3.7 million students with $7.2 billion dollars in grants during
the 1999- 2000 academic year.
To assist Congress as it prepares for the reauthorization of HEA, we
reviewed the title IV aid programs and higher education tax provisions
designed to assist students and families. Our review focused on three
questions: (1) What assistance do HOPE and Lifetime Learning tax credits
provide, and how do credit benefits compare to the tuition and fees that
students are charged, and to title IV aid they receive? (2) To what extent
do available policy and instructions provide clear guidance about the
impact of tax provisions on eligibility for title IV financial aid? (3) To
what extent is information available to Congress about the relative
effectiveness of title IV grants and loans and the HOPE and Lifetime
Learning tax credits?
To answer question one, we estimated the HOPE and Lifetime Learning tax
credits students received on the basis of the credits* design and on data
in the National Postsecondary Student Aid Study (NPSAS). NPSAS examines
how students and their families pay for education and is based on a
nationally representative sample of students. Appendix I describes our
estimation methodology. We also used NPSAS to estimate the title IV aid
received by students considered to be financially dependent on their
parents and by financially independent students. 2 To answer question two,
we reviewed the HEA, Internal Revenue Code, title IV financial aid
policies and instructions developed by the Department of Education
(Education), and interviewed Education officials. To answer question
three, we reviewed studies of the effectiveness of title IV aid and the
HOPE and Lifetime Learning tax credits. We focused on their effects on
college attendance and choice, completion, and costs. These outcomes were
chosen because they have been the focus of congressional concern, as
expressed in committee reports, statutorily established study commissions,
and requests for our work from Congress. We also
2 To be classified as an independent student in the title IV financial aid
process, students must meet one of the following criteria in academic year
2002- 03: (1) veteran of armed services; (2) born before January 1, 1979;
(3) married; (4) enrolled in a graduate or professional educational
program; (5) have legal dependents other than a spouse; or (6) be an
orphan or ward of the court. Financial aid administrators may also
classify students as independents through the exercise of their
professional judgment.
Page 3 GAO- 02- 751 Student Aid and Tax Benefits
interviewed Education and Department of Treasury (Treasury) officials
about their research and evaluation concerning title IV aid and tax
credits. Appendix II provides details about our review of the studies. We
conducted our work from August 2001 to July 2002 in accordance with
generally accepted government auditing standards.
In the 1999- 2000 academic year, the Lifetime Learning and HOPE tax
credits provided, we estimate, more than 4 in 10 undergraduate students
with benefits that equaled a varying share of tuition and fees charged and
title IV aid received. Some students did not receive the credits on the
basis of their (or their family*s) income: those with incomes above $100,
000 were not eligible to claim the credits, and those with incomes under
$20,000 typically lacked a sufficient tax liability to use the credits.
Others received the credits, but obtained less than the credits* maximum
value because their educational expenses were too small to make full use
of the credits. Among all dependent students who received the HOPE credit,
it equaled, on average, about 20 percent of the tuition and fees they were
charged, while among all independent students the HOPE credit equaled 30
percent of the tuition and fees they were charged, according to our
estimates. Some students received both a tax credit and title IV aid. For
these students, HOPE credits equaled, on average, about one- fifth of the
face value of the title IV aid they received, while the Lifetime Learning
credit equaled about one- tenth of the face value of their title IV aid.
As figure 1 shows, title IV student aid and higher education tax credits,
taken together, now assist more than 70 percent of undergraduate students
and families in paying for postsecondary education. Results in Brief
Page 4 GAO- 02- 751 Student Aid and Tax Benefits
Figure 1: Estimated Use of Higher Education Tax Credits and Title IV
Student Aid among All Undergraduates in 1999- 2000
Note: See appendix I for our methodology used to generate credit estimates
and the confidence intervals associated with these estimates.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Available policy and instructions provide clear guidance about the impact
that several, but not all, tax provisions have on title IV aid
eligibility. For several higher education tax provisions, the HEA or
Education*s policies and instructions make clear how the use of tax
provisions affects aid eligibility. For some tax provisions, however,
Education has not established a policy on how their use affects aid
eligibility, or it has established a policy but not communicated it
clearly to aid applicants. Specifically, Education has not decided whether
aid applicants should report the untaxed earnings of state- sponsored
college savings plans, prepaid tuition plans, or Coverdell Educational
Savings accounts when applying for title IV aid, as is the case with other
types of untaxed income. As a result, those who wish to use these tax
provisions are faced with uncertainty about how this income affects aid
eligibility. Education has decided how assets in state- sponsored college
savings plans, Coverdell Educational Savings accounts, and Savings Bonds
should be reported on the title IV aid application form and used in
calculating aid eligibility. However, the form provides unclear
instructions about who should report the ownership of these assets, the
student or parent. This may cause aid applicants to err in reporting
ownership of these assets, and result in their
14% Tax credits and title IV aid
25% Title IV aid only
28% Neither credits nor title IV aid
33%
Tax credits only
Page 5 GAO- 02- 751 Student Aid and Tax Benefits
eligibility for aid being miscalculated. We make recommendations in this
report to address these problems.
Little information is available to Congress on the relative effectiveness
of title IV grants and loans and the HOPE and Lifetime Learning tax
credits in promoting postsecondary attendance, choice, and completion, or
their impact on college costs. This is due, in part, to the data and
methodological challenges intrinsic to conducting studies examining their
effects. Moreover, Education has conducted few evaluations of the title IV
aid programs, while Treasury has not yet examined the effects of higher
education tax credits. Using statistical techniques and research designs
that respond to these data and methodological challenges, academic
researchers have begun to produce findings about the impact of student
financial aid. For example, most studies that we reviewed found that grant
aid results in increased rates of college attendance, though estimates of
its magnitude vary. Education has focused its analysis of title IV
programs on program delivery, rather than impact. Lacking access to
individual taxpayer data, Education has been unable to analyze the use of
higher education tax credits or their effects. Treasury has access to
taxpayer data but has not used these data as a basis for evaluating the
impact of tax credits. In addition, Treasury does not possess data on the
receipt of title IV aid, limiting its capacity to assess the credits*
effects. As a result, little information has been available to help
Congress weigh the relative effectiveness of grants, loans, and tax
credits. We recommend that the Secretaries of Education and Treasury take
steps to address this lack of information.
We provided Education and Treasury with a copy of our draft report for
review and comment. In written comments on our draft report, Education and
Treasury generally agreed with our reported findings and recommendations.
Education*s and Treasury*s comments appear in appendix III and IV,
respectively.
Education is the primary agency overseeing federal investments in support
of students enrolled in postsecondary education. Education*s grant and
loan programs are the largest source of student aid in the United States;
however, tax provisions recently enacted by Congress have created new
sources of support to assist students in paying for postsecondary
education. These two sources of student assistance* grants and loans, and
tax benefits* are intended to promote access to higher education and to
ensure its affordability. To help track progress toward these and other
goals, Education has developed strategic and performance goals in
Background
Page 6 GAO- 02- 751 Student Aid and Tax Benefits
accordance with the Government Performance and Results Act of 1993 (GPRA).
3
Title IV of the HEA of 1965, as amended, authorizes the federal
government*s financial aid programs for postsecondary education. Title IV
programs include Pell grants for low- income students, parent loans known
as PLUS loans, and Stafford loans. Stafford loans may be either subsidized
or unsubsidized. The federal government pays the interest cost on
subsidized loans while the student is in school. The terms and conditions
of unsubsidized loans are the same as those for subsidized loans, but the
federal government does not pay the interest costs on the loan while the
student is in school; rather, students are responsible for all interest
costs. Title IV also authorizes programs funded by the federal government
and administered by participating higher education institutions, commonly
known as campus- based aid* Supplemental Educational Opportunity grants
(SEOG), Perkins loans, and federal work- study aid. In academic year 1999-
2000, Education awarded approximately $53 billion to students through the
title IV programs.
In order to receive title IV aid, a student must apply using the Free
Application for Federal Student Aid (FAFSA). Information from the FAFSA is
used to determine the amount of money* called the expected family
contribution (EFC)* that the student and/ or the family is expected to
contribute to the student*s education. Statutory definitions establish the
criteria that students must meet to be considered independent of or
dependent on their parents for purposes of financial aid, and statutory
formulas establish the share of income and assets that are expected to be
available for the student*s education. 4 Once the EFC is established, it
is compared to the cost of attendance at the institution chosen by the
student. If the EFC is greater than the cost of attendance, the student is
not considered to have financial need for federal title IV aid programs.
If
3 GPRA seeks to improve the efficiency, effectiveness, and public
accountability of federal agencies as well as to improve congressional
decision- making. To do so, the act outlines a series of steps in which
agencies are required to identify their goals, measure performance, and
report on the degree to which those goals were met.
4 For students classified as financially dependent on their parents, the
EFC is based on the income and assets of the student and parents. The
student and parent EFC are computed separately and then summed. For
independent students with dependents, the EFC calculation is similar to
that of a parent of a dependent student. For independent students without
dependents, the EFC is based on a portion of their income and assets.
Title IV Aid
Page 7 GAO- 02- 751 Student Aid and Tax Benefits
the cost of attendance is greater than the EFC, then the student is
considered to have financial need. Financial aid administrators at the
student*s school then create a federal financial aid package that may
include grants, loans, and work- study. As part of the financial aid
package students may also receive state, institutional, or private aid.
In 1999- 2000, about one in four undergraduates (23 percent) received
federal Pell or SEOG grant aid. Awarded on the basis of financial need,
these grants were highly targeted. About 75 percent of dependent students
receiving Pell and SEOG grants had family incomes of $30,000 or less, 5
while three- quarters of independent students receiving them had incomes
of $20,000 or less. 6 Stafford loans were received by 28 percent of
undergraduates, and served a more varied population. A broad range of
dependent undergraduates made use of need- based (or subsidized) student
loans. Of the unsubsidized loans received by dependent undergraduates, 60
percent were received by those with family incomes of $60,000 or above per
year. Of all loans received by independent students* subsidized and
unsubsidized* three quarters of their total dollar amount went to students
whose incomes were less than $30,000 per year.
In recent years Congress has enacted eight higher education tax provisions
that are specifically designed to help individuals and families save for,
repay, or meet the current costs of higher education, and accomplish this
by permitting tax filers to use their qualified educational expenses to
reduce their federal income tax liability (see table 1).
5 Dependent students* income is measured by parental income for 1998. If
students applied for financial aid, parental income was measured as
adjusted gross income. See appendix I for additional information on income
measurement in NPSAS.
6 The income of independent students is that of the student and, if
married, that of their spouse, for 1998. Tax Provisions
Page 8 GAO- 02- 751 Student Aid and Tax Benefits
Table 1: Selected Postsecondary Education Tax Provisions, 2002 Tax
provision and year of adoption Tax benefit
Definition of qualified higher education expense Who is eligible
Tax benefit is phased out for filers with modified adjusted gross incomes
between
HOPE credit, 1997 Maximum credit: $1,500 per student. Credit rate is 100
percent on first $1,000 of qualified higher education expenses, 50 percent
on next $1,000. Nonrefundable: if filer has no tax liability due to
offsetting deductions, exemptions, or other tax credits, filer cannot
receive credit.
Tuition and fees at institutions eligible to participate in title IV
programs. Filers must reduce qualified expenses by the amount of tax- free
educational assistance received.
Tax filer on behalf of self, spouse, or dependent who is working towards a
degree or certificate at least half time in the first 2 years of
postsecondary enrollment.
Single filer a $41-$ 52,000 Joint return: $82-$ 102,000.
Lifetime Learning credit, 1997 Maximum credit: $1,000 per
tax filer (20 percent of qualified higher education expenses up to $5,
000). In 2003 maximum credit increases to $2,000 per tax filer (20 percent
of qualified higher education expenses up to $10,000). Nonrefundable: if
filer has no tax liability due to offsetting deductions, exemptions, or
other tax credits, filer cannot receive credit.
Tuition and fees at institutions eligible to participate in title IV
programs. Filers must reduce qualified expenses by the amount of tax- free
educational assistance received.
Tax filer on behalf of self, spouse, or dependent who is enrolled in
undergraduate or graduate courses, or any course that aids in learning new
or improving existing job skills, for as many years as the student is
enrolled.
Single filer a $41-$ 51,000 Joint return: $82-$ 102,000.
Student loan interest deduction, 1997 Maximum deduction: $2,500
Interest paid on eligible education loans is deductible.
Eligible loans are those used to pay for tuition, fees, room and board,
and related expenses minus any scholarships or grants received.
Tax filer, even those who do not itemize, may deduct interest paid.
Single filer: $50-$ 65,000 Joint return: $100-$ 130,000.
Exclusion for US Series EE or I Savings Bonds, 1988
Interest income from bonds purchased after December 31, 1989, may be
excluded from income subject to taxation if bond proceeds are used to pay
qualifying higher education expenses.
Tuition and fees at institutions eligible to participate in title IV
programs. These must be reduced by tax- free educational assistance, tax-
free withdrawals from a Coverdell ESA, and expenses used in figuring HOPE
and Lifetime Learning credits.
Similar to Lifetime Learning credit.
The bond owner must be at least 24 years old before the bond*s issue date.
For tax- free withdrawals, $57,600- $72,000 for single filers and $86,460-
$116,400 for joint returns.
Page 9 GAO- 02- 751 Student Aid and Tax Benefits
Tax provision and year of adoption Tax benefit
Definition of qualified higher education expense Who is eligible
Tax benefit is phased out for filers with modified adjusted gross incomes
between
Prepaid tuition plans, 1996. (Also called qualified tuition plans or,
section 529 plans.)
Earnings withdrawn from prepaid plans when used to pay for qualified
higher education expenses are free from federal income taxation after Dec.
31, 2001 for statesponsored programs, and after Dec. 31, 2003 for programs
of private institutions.
In general, tuition and required fees. Room and board if enrolled half
time or more. Specifics can vary by plan. For example, beneficiary may be
limited to attending state public colleges or any college in a specific
state.
Specifics depend on particular plan. Normally a plan is open for
contributions only on behalf of young children and accounts must be closed
within some number of years after the beneficiary reaches college age.
Not applicable. State- sponsored College Savings Plans, 1996. (Also called
Qualified Tuition Plans or, Section 529 plans.)
Earnings withdrawn from state- sponsored savings plans when used to pay
for qualified higher education expenses are free from federal income
taxation.
Tuition, fees, books, supplies, and equipment required for attendance.
Room and board if enrolled half time or more.
Same as Lifetime Learning credit. Not applicable.
Coverdell Education Savings Accounts, 1997.
Account earnings and distributions used for qualified higher education
expenses are tax- free. Annual contribution limit is $2,000 per year per
student through age 17 (unless special needs beneficiary).
Tuition, fees, books, supplies, and equipment required for attendance.
Room and board if enrolled half time or more.
Distributions from Coverdell Education Savings Accounts can be used for
students enrolled on fulltime, half time, or less than half- time basis.
For contributions, $95- $110,000 for single filers and $190- $220,000 for
joint returns.
Tax deduction for tuition and fees, 2001.
Maximum deduction: $3,000 per return. Tuition and fees at
institutions eligible to participate in title IV programs.
Same as Lifetime Learning credit. For 2002- 05, taxpayers will have the
option of using either the HOPE tax credit or the tuition deduction.
Single filer: $65,000 Joint Return: $130,000.
a Under the Taxpayer Relief Act of 1997, the income phase- out amounts are
indexed to inflation. Source: Internal Revenue Code, Department of
Treasury, Joint Committee on Taxation, and Congressional Research Service.
Education has a strategic goal that is particularly relevant to its title
IV programs, to *Enhance the Quality of and Access to Postsecondary
Education.* To ensure its progress toward this goal, Education has
developed annual goals that focus on (1) reducing the gaps in student
achievement and completion among students differing by race, ethnicity,
income, and disability; and (2) improving the effectiveness of its title
IV funding mechanisms in terms of, among other things, tuition prices and
borrower indebtedness. Education*s Strategic and
Annual Performance Goals
Page 10 GAO- 02- 751 Student Aid and Tax Benefits
In the 1999- 2000 academic year, more than 4 in 10 undergraduate students
received a higher education tax credit, according to our estimate. On
average, the HOPE tax credit equaled about 20 percent of the tuition and
fees that were charged to dependent students, and 30 percent of those
charged to independent students. The Lifetime Learning credit equaled 8
percent of tuition and fees charged to dependent students, and 11 percent
for independent students. For both groups of students the HOPE and
Lifetime Learning credits comprised a larger share of the net tuition and
fees they paid* that is, tuition and fees charged, minus all types of
grant assistance. In addition to the credits, some students* about 14
percent* also received title IV aid. For these students, credit amounts
ranged from 4 to 26 percent of the face value 7 of the title IV aid that
they received. Taken together, credits and title IV student aid now assist
about 7 out of 10 undergraduate students in meeting the costs of
postsecondary education.
According to our estimates, more than 4 in 10 undergraduate students
received a higher education tax credit in 1999- 2000, a larger share of
students than participated in the federal government*s title IV programs.
About 29 percent received a Lifetime Learning tax credit, while 17 percent
received a HOPE tax credit. Students may receive title IV aid and a HOPE
or Lifetime Learning credit, and many did* an estimated 14 percent of
undergraduate students received both.
Not all undergraduates were eligible to receive a HOPE or Lifetime
Learning tax credit. One factor that affects eligibility is income.
Students from families with parents who filed jointly and had incomes
above $100,000 were ineligible to receive the credits. In addition, in
order to receive a credit, tax filers must have a positive tax liability.
For a twoparent family with one dependent college student, federal income
tax
7 We report the face value of title IV loans awarded, rather than their
economic subsidy value to the student. Although title IV loans must be
repaid, they can provide a subsidy by offering funds to students who could
not otherwise find lenders, and by offering lower interest rates than are
available in the non- title IV private loan market. In contrast to grants
and tax credits, which provide subsidies that are equal to their face
values, loans provide subsidies that are considerably less, on average,
than their face values. Dynarski (* Loans, Liquidity, and Schooling
Decisions,* February 2002) calculates that the subsidy for loans of
average riskiness is equal to about 30 percent of the face value for
subsidized Stafford loans and about 15 percent for unsubsidized Stafford
loans. Cameron and Heckman (1999) put the subsidy value at about a third
of the amount of loans disbursed. Hope and Lifetime
Learning Credits Provide Benefits for a Substantial Portion of
Undergraduate Students
HOPE and Lifetime Learning Tax Credits Were Received by Many, but Not All
Page 11 GAO- 02- 751 Student Aid and Tax Benefits
liability began in 2000 at about $15,750. 8 As shown in figures 2 and 3, a
small proportion of those dependent students whose family incomes were
below $20,000 received the credits.
Figure 2: Percent of All Undergraduate Students Receiving HOPE Credit
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental adjusted gross income
(AGI); independent income equals
1998 student AGI and, if married, spouse*s AGI. Source: GAO calculations
based upon 1999- 2000 NPSAS data.
8 Assuming the family filed a joint return and used a standard deduction.
Percent 0 5
10 15
20 25
30 35
40 45
50 $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income a 4
9 27
18 33
16 34
12 32
14
Dependent Independent
Page 12 GAO- 02- 751 Student Aid and Tax Benefits
Figure 3: Percent of All Undergraduate Students Receiving Lifetime Credit
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Figures 4 and 5 show that students who received the credits did not
necessarily receive the full amount. Students may not have a sufficiently
large tax liability or qualified educational expenses necessary to receive
a tax credit*s full value. Tax filers must have qualified educational
expenses of $2,000 per student to receive the maximum HOPE credit, while
they must have $5,000 of qualified expenses (for themselves or others
claimed on their return) to receive the maximum value of the Lifetime
Learning credit. Tax filers must subtract the nontaxable aid they
received, such as Pell grants or scholarships, from qualified educational
expenses. The reduction of qualified educational expenses by nontaxable
aid reduces the number of students who might otherwise receive the
credits, and it reduces the credit amounts obtained, particularly, we
estimate, among dependent students with family incomes in the $10-$ 50,000
range.
Percent 0 5
10 15
20 25
30 35
40 45
50 $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income a
Dependent Independent
5 19
29 46
33 48
32 48
39 42
Page 13 GAO- 02- 751 Student Aid and Tax Benefits
Figure 4: Average Amount of HOPE Credit Received by Dependent and
Independent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Dollars 0 125
250 375
500 625
750 875
1,000 1,125
1,250 $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income a
Dependent Independent
Page 14 GAO- 02- 751 Student Aid and Tax Benefits
Figure 5: Average Amount of Lifetime Learning Credit Received by Dependent
and Independent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals student 1998 AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
For the 47 percent of all undergraduates who received a tax credit in
1999- 2000, the higher education tax credits equaled a varying share of
the tuition and fees. On average, the HOPE tax credit equaled about 20
percent of the tuition and fees that were charged to dependent students,
and 30 percent of independent students* tuition and fee charges. The
Lifetime Learning credit equaled 8 percent of tuition and fees charged to
dependent students, and 11 percent for independent students. Many students
receive private, institutional, state, and federal grants that reduce the
tuition and fee costs that they must pay out of their own resources. In
claiming the HOPE and Lifetime Learning credits, tax filers must reduce
their qualified educational expenses, tuition and fees, by these (and any
other) forms of nontaxable aid. We calculated students* net tuition and
fees as the tuition and fees they were charged minus all private,
institutional, state, and Credits Equaled a Varying
Share of Tuition and Fees
Dollars 0 125
250 375
500 625
750 $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income a
Dependent Independent
Page 15 GAO- 02- 751 Student Aid and Tax Benefits
federal grant aid they received. We estimate that the HOPE credit equaled,
on average, 28 percent of dependent students* net tuition and fees, and 36
percent of independent students* net tuition and fees. The Lifetime
Learning credit equaled about 12 percent of dependents* net tuition and
fees, and 15 percent of independents* net tuition and fees. Figure 6
compares the estimated HOPE credit to the total tuition and fees charged
to dependent students, and to the net tuition and fees they paid. Figure 7
presents the same comparisons for independent students. Figure 8 compares
the estimated Lifetime Learning credits received to the total tuition and
fees charged to dependent students, and to the net tuition and fees they
paid. Figure 9 presents the same comparisons for independent students.
Figure 6: HOPE Credit as a Percent of Tuition and Fees Charged and Net
Tuition and Fees Paid by Dependent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Percent $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income
a
Percent of tuition and fees charged Percent of net tuition and fees paid
0 10
20 30
40 50
60 6
12 20
31 21
31 22
32 12
15
Page 16 GAO- 02- 751 Student Aid and Tax Benefits
Figure 7: HOPE Credit as a Percent of Tuition and Fees Charged and Net
Tuition and Fees Paid by Independent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Percent $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income
a 0
10 20
30 40
50 60
21 26
34 41
39 43 44
50 25
28
Percent of tuition and fees charged Percent of net tuition and fees paid
Page 17 GAO- 02- 751 Student Aid and Tax Benefits
Figure 8: Lifetime Learning Credit as a Percent of Tuition and Fees
Charged and Net Tuition and Fees Paid by Dependent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Percent $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income
a 0
2 4
6 8
10 12
14 16
18 5
9 9 14
9 13
10 13
5 6 20
Percent of tuition and fees charged Percent of net tuition and fees paid
Page 18 GAO- 02- 751 Student Aid and Tax Benefits
Figure 9: Lifetime Learning Credit as a Percentage of Tuition and Fees
Charged and Net Tuition and Fees Paid by Independent Students
Note: See appendix I for confidence intervals associated with these
estimates. a Dependent income equals 1998 parental AGI; independent income
equals 1998 student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Approximately 14 percent of undergraduate students received both title IV
aid and a higher education tax credit in 1999- 2000; for these students,
the HOPE and Lifetime Learning tax credits equaled a varying share of the
face value of the title IV aid they received. The HOPE credit equaled, on
average, about one- fifth of the average title IV aid received by
students. The Lifetime Learning tax credit provided a smaller benefit
relative to title IV aid than the HOPE credit, equaling, on average, about
one- tenth of the title IV aid received by dependent and independent
students. For dependent students with family incomes of $20,000-$ 40,000,
we estimate that the average HOPE credit ($ 924) was larger than the
average title IV grant award ($ 569). For students with family incomes of
$40,000-$ 80,000, For Title IV Recipients,
Higher Education Tax Credits Equaled a Varying Share of Their Aid
Percent $0- 19,999 $20- 39,999 $40- 59,999 $60- 79,999 $80- 99,999 Income
a 0
2 4
6 8
10 12
14 16
18 10
13 13 16
13 16
14 17
8 11 20
Percent of tuition and fees charged Percent of net tuition and fees paid
Page 19 GAO- 02- 751 Student Aid and Tax Benefits
who typically do not receive grant aid, the HOPE credit provides a
significant benefit in comparison to the face value of their federal loan
assistance. Figures 10 and 11 show, for dependent and independent
students, the estimated HOPE credit and title IV grant and loan aid
amounts received. Figures 12 and 13 compare the estimated Lifetime
Learning credit and title IV grant and loan aid amounts received by
dependent and independent students.
Page 20 GAO- 02- 751 Student Aid and Tax Benefits
Figure 10: HOPE Credit and Title IV Grant and/ or Loan Assistance,
Dependent Students Receiving Both
Notes: These calculations report the face value of loans, rather than
their economic subsidy value to the student. Recent estimates of the
economic subsidy value of title IV student loans put the value at about 15
to 30 percent of the face value of the loan, depending upon the type of
loan.
See appendix I for confidence intervals associated with these estimates. a
Dependent income equals 1998 parental AGI.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Dollars 0 500
1,000 1,500
2,000 2,500
3,000 3,500
Mean credit Mean loan Mean grant
Income a $20,000- 39,999
$40,000- 59,999 $60,000- 79,999
$80,000- 99,999 $0- 19,999
Page 21 GAO- 02- 751 Student Aid and Tax Benefits
Figure 11: HOPE Credit and Title IV Grant and/ or Loan Assistance,
Independent Students Receiving Both
Notes: These calculations report the face value of loans, rather than
their economic subsidy value to the student. Recent estimates of the
economic subsidy value of title IV student loans put the value at about 15
to 30 percent of the face value of the loan, depending upon the type of
loan.
See appendix I for confidence intervals associated with these estimates. a
Independent income equals 1998 student AGI and, if married, spouse*s AGI.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Dollars
Mean credit Mean loan Mean grant
Income a 0
500 1,000
1,500 2,000
2,500 $20,000- 39,999
$40,000- 59,999 $60,000- 79,999
$80,000- 99,999 $0- 19,999
Page 22 GAO- 02- 751 Student Aid and Tax Benefits
Figure 12: Lifetime Learning Credit and Title IV Grant and/ or Loan
Assistance, Dependent Students Receiving Both
Notes: These calculations report the face value of loans, rather than
their economic subsidy value to the student. Recent estimates of the
economic subsidy value of title IV student loans put the value at about 15
to 30 percent of the face value of the loan, depending upon the type of
loan.
See appendix I for confidence intervals associated with these estimates. a
Dependent income equals 1998 parental AGI; independent income equals 1998
student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
$20,000- 39,999 Dollars
0 500
1,000 1,500
2,000 2,500
3,000 3,500
Mean credit Mean loan Mean grant
Income a $40,000- 59,999
$60,000- 79,999 $80,000- 99,999 $0- 19,999
Page 23 GAO- 02- 751 Student Aid and Tax Benefits
Figure 13: Lifetime Learning Credit and Title IV Grant and/ or Loan
Assistance, Independent Students Receiving Both
Notes: These calculations report the face value of loans, rather than
their economic subsidy value to the student. Recent estimates of the
economic subsidy value of title IV student loans put the value at about 15
to 30 percent of the face value of the loan, depending upon the type of
loan.
See appendix I for confidence intervals associated with these estimates. a
Dependent income equals 1998 parental AGI; independent income equals 1998
student AGI and, if
married, spouse*s AGI. Source: GAO calculations based upon 1999- 2000
NPSAS data.
Dollars
Mean credit Mean loan Mean grant
Income a 0
500 1,000
1,500 2,000
2,500 $20,000- 39,999
$40,000- 59,999 $60,000- 79,999
$80,000- 99,999 $0- 19,999
Page 24 GAO- 02- 751 Student Aid and Tax Benefits
About 6 out of 10 undergraduates did not receive title IV student
assistance in 1999- 2000. We estimate that slightly more than half of
these students received a higher education tax credit. Among those
dependent students who received no federal financial aid, the HOPE tax
credit equaled about 25 percent of the tuition and fees they were charged,
while among independents this share was nearly 50 percent. The Lifetime
Learning tax credit equaled a smaller share of tuition and fees charged to
both, 10 percent and 14 percent, respectively.
Available policy and instructions provide clear guidance about the impact
of several higher education tax provisions on eligibility for title IV
aid, but in a few instances they do not. Education has not established a
policy on how the income that students and parents report as part of the
expected family contribution is affected by the tax- free earnings of
state savings plans, prepaid tuition plans, and Coverdell accounts. As a
result, those who wish to use these provisions are faced with uncertainty
about how using them affects title IV aid eligibility. Although Education
has established policies about the ownership of these assets for the
purpose of calculating the EFC, these policies have not been clearly
communicated to aid applicants. Specifically, families who choose to use
state savings plans, Coverdell accounts, and Series EE Savings Bonds
receive unclear instructions on the FAFSA form about who should claim
these assets, the student or parent( s). As a result, they may err when
reporting these assets, and their eligibility for aid may be
miscalculated.
For many of the higher education tax provisions that we reviewed, the HEA
or Education*s guidance make clear how their use affects aid eligibility.
The HEA prohibits including HOPE and Lifetime Learning tax credits as
income or assets in the computation of EFC. 9 In contrast, the act
specifies that assets in a tuition prepayment plan do reduce students*
eligibility for title IV aid because they reduce students* cost of
attendance. 10 In specifying how federal taxation affects the EFC, the HEA
also accounts for the effects of two other tax provisions: the student
loan interest deduction and the higher education tax deduction. Under the
rules of the
9 The act also prohibits including the credits as financial assistance in
the award of title IV aid. 10 Each dollar of qualified educational
expenses paid from a prepaid tuition plan reduces the student*s cost of
attendance by the same amount. This results in a reduction in the
student*s calculated financial need and aid eligibility. For Students Who
Did Not
Receive Title IV Aid, Credits Equaled, on Average, from One- Tenth to One-
Half of the Tuition and Fees They Were Charged
Available Policy and Instructions Provide Clear Guidance about the Impact
of Several, but Not All, Tax Provisions on Eligibility for Title IV Aid
Page 25 GAO- 02- 751 Student Aid and Tax Benefits
federal financial aid methodology, aid applicants reduce their reported
income by federal income and payroll taxes, and by an allowance for state
taxes. The use of these tax provisions lowers an applicant*s tax liability
and their adjusted gross income, reducing their EFC and increasing their
aid eligibility. 11 The HEA also specifies that interest on tax- free
bonds, including Savings Bonds, must be reported as part of the untaxed
income included in the EFC. As a result, the HEA makes clear that the use
of Series EE Savings Bonds increases an aid applicant*s EFC, and reduces
their aid eligibility.
In a few instances, neither the HEA*s financial aid methodology nor
Education*s policies establish how parents* and students* use of certain
tax provisions* state savings plans, prepaid tuition plans, and Coverdell
accounts* affects their eligibility for title IV aid. Before January 2002,
the earnings portion of prepaid tuition and state savings plans was
taxable upon distribution. As part of the student*s taxable income, it was
reported on the FAFSA form and included in the calculation of the EFC.
After January 2002, in accordance with the Economic Growth and Tax Relief
Reconciliation Act, the earnings of these plans were no longer subject to
federal taxation. Education has not yet determined whether interest earned
on prepaid tuition plans, savings plans, or Coverdell accounts should be
reported on the FAFSA form and included in the calculation of EFC as a
type of untaxed income. 12 As a result, those who use either tax provision
cannot predict whether interest earnings from these plans will increase
the income that they report on the FAFSA, thereby increasing their EFC and
reducing eligibility for most title IV aid.
For state savings plans and Coverdell accounts, as well as Series EE
Saving Bonds, the FAFSA form does not provide clear instructions for
reporting to whom these assets belong, the student or parent. The FAFSA
has a single set of instructions directing parents and students to report
their assets, including state savings plan assets, bonds, and Coverdell
accounts. However, the instructions do not indicate who should claim
11 Both tax deductions reduce an applicant*s tax liability and AGI. The
first of these changes increases the EFC, while the second reduces it. The
net effect of these two changes is to reduce the applicant*s EFC.
12 HEA*s financial aid methodology includes some forms of untaxed income
in the calculation of the EFC, such as tax- exempt interest income (from
IRS 1040, line 8b) and a variety of governmental payments (worker*s
compensation, untaxed portions of railroad retirement benefits, and Black
Lung benefits).
Page 26 GAO- 02- 751 Student Aid and Tax Benefits
which assets. 13 As a result, parents may claim assets that should be
reported as student assets, or vice versa. A mistake of this type has
consequences because the HEA specifies that a larger share of student
assets is to be included in the EFC than parental assets. 14 Errors in
reporting of these assets on the FAFSA may result in a miscalculation of
the EFC, and students receiving more or less aid than they would if the
assets were correctly reported.
Little information is available to Congress on the relative effectiveness
of title IV grants and loans and the HOPE and Lifetime Learning tax
credits in promoting postsecondary attendance, choice, and completion, or
their impact on college costs. Data and methodological challenges make it
difficult to isolate the impact of grants, loans, and tax credits. Some
academic research has addressed these challenges, and developed evidence
about the effects of student assistance, chiefly grant aid. Our review of
research found little work undertaken by Education to assess the
effectiveness of title IV programs. Treasury has studied the impact of
some tax provisions, but has not yet done so for the HOPE or Lifetime
Learning tax credits. As a result, Congress has little information to help
it weigh the relative effectiveness of these policy tools.
Data and methodological challenges make it difficult to identify the
impact of grants, loans, and tax credits on college attendance and choice,
completion, or costs. Many factors in addition to financial aid may
influence college- going decisions, including academic preparation, family
income and wealth, and the expected costs and benefits of college
attendance. To isolate the effect of financial aid on college attendance,
for example, researchers need data about each of these factors* both for
those who chose to attend college and those who did not. National surveys
do not contain complete data on all of these factors for those who attend
13 Education*s Web- based instructions in support of the FAFSA form do,
however, provide clear guidance about the ownership of state savings plan
assets. The instructions are available at http:// www. ed. gov/ prog_
info/ SFA/ FAFSA/ instr02- 03/ step4_ 4. html
14 If reported as the asset of a dependent student, 35 percent of net
state savings plan assets would be counted toward the EFC; if reported as
a parental asset, between 2. 64 percent and 5. 64 percent of their net
value would be counted toward the EFC. Incorrectly reporting this asset as
a student asset would result in an EFC that is larger than it should be,
and an erroneously small estimate of financial need. Little Information Is
Available to Congress on the Relative Effectiveness of Title IV Grants,
Loans, and Hope and Lifetime Learning Tax Credits
Identifying Impact of Grants, Loans, and Tax Credits Is Difficult, and
Little Is Known Beyond the Effects of Grants on Attendance
Page 27 GAO- 02- 751 Student Aid and Tax Benefits
and do not attend college. 15 Moreover, researchers have little evidence
about how postsecondary institutions respond to changes in the
availability of federal aid. Despite such challenges, researchers have
begun to establish a body of findings about the effects of federal aid,
much of it focusing on the effects of grant aid. They have done so by
using a variety of statistical techniques and research designs 16 that
mitigate these challenges.
Much of the research we identified examined the impact of grants on
attendance. While some studies conclude that grants have not had a large
effect on college attendance, 17 most indicate that grants have a positive
impact on attendance, though their estimates of its magnitude vary. Recent
research by Dynarski (2001) and Seftor and Turner (2002) found that
changes in grant aid significantly increased the probability that
recipients would attend college. 18
Little is known about the effects of the higher education tax credits on
college attendance and choice, completion or costs. No studies we
identified used individual taxpayer data, collected after the credits were
enacted, to estimate any of these effects. A few researchers have
simulated the effects of the HOPE tax credit on rates of college
15 Surveys that focus on educational choices and outcomes have sparse
information on potential students* parental resources and academic
ability. See Sarah E. Turner, *Federal Financial Aid: How Well Does It
Work?*, John C. Smart (ed), Higher Education: Handbook of Theory and
Research, vol. XVI (New York: Agathon Press, 2001.
16 For example, several recent studies use a quasi- experimental design
attempting to isolate the effects of financial aid policy changes. See
Susan Dynarski, *Does Aid Matter? Measuring the Effect of Student Aid on
College Attendance and Completion.* John F. Kennedy School of Government,
Harvard University Working Paper (RWP01- 034), September 2001; and Neil S.
Seftor and Sarah E. Turner, *Back to School: Federal Student Aid Policy
and Adult College Enrollment,* The Journal of Human Resources 37 (2002):
336- 352. Other studies explicitly model student college attendance
decisions to correct for potential bias from incomplete data. See Stephen
V. Cameron and James J. Heckman, *The Dynamics of Educational Attainment
for Black, Hispanic, and White Males.* Journal of Political Economy, 109,
no. 3 (2001): 455- 499. Charles Manski and David Wise, College Choice in
America. Cambridge, Massachusetts: Harvard University Press, 1983.
17 See Kane (1999). Cameron and Heckman (2001) estimate that *a $1, 000
increase in Pell grant entitlements produces less than a 1 percent
increase in enrollments** 18 Dynarski studied the effects of the
elimination of the Social Security student benefit program in 1982, and
concluded that the offer of a $1, 000 grant (year 2000 dollars) would
increase the probability of attending college by 3. 6 percentage points.
Seftor and Turner find that changes in the availability of Pell grants had
sizeable effects on the college enrollment of older, independent students.
Page 28 GAO- 02- 751 Student Aid and Tax Benefits
attendance. One simulation estimated that 90 percent of the cost of the
HOPE credit is received by students who would have attended college in its
absence. 19 None of the studies that we reviewed examined whether the
credits have influenced the type of institution that students choose to
attend or their rates of college completion. Moreover, none examined
whether the credits have made college more affordable for recipients or
have led instead to offsetting tuition increases or reductions in
institutional aid to credit recipients.
Education is authorized to conduct studies on the impact of title IV
programs; however, it has focused primarily on customer service and
program delivery for two reasons. First, Congress has consistently
expressed concern about the management and financial integrity of the
title IV programs. 20 A second reason, according to Education, is that it
is difficult to *isolate the behavioral effects of title IV aid programs.*
Therefore, Education has chosen to *assess the effectiveness of the
student aid programs without attempting to establish a causal link between
program funding and achievement of specific outcomes.* 21 As discussed
earlier, academic researchers facing the same methodological challenges
have begun to produce a body of findings.
Because it lacks reliable data on the individuals using higher education
tax credits, Education is unable to determine how tax credits affects
college attendance and choice, completion, and costs. Section 6103( a) of
the Internal Revenue Code prohibits the Internal Revenue Service, without
congressional authorization, from sharing individual taxpayer data with
Education. Education has attempted to collect information on the use of
tax provisions by incorporating questions about their use into the student
survey component of the NPSAS. Dependent students are often unfamiliar
with how their parents use tax benefits and, as a result, the information
they provide on surveys is unreliable.
19 Cameron and Heckman*s simulation leads them to conclude, *The estimated
enrollment response to the HOPE program is a 4.2 percentage point increase
in two- year enrollments and a 0.9 percentage point decrease in four- year
enrollments (3.3 increase for both categories combined).*
20 Over the last several years, we have frequently reported to Congress on
these issues. See, for example, U. S. General Accounting Office, Major
Management Challenges and Program Risks: Department of Education, GAO- 01-
245 (Washington D. C.: January 2001).
21 U. S. Department of Education, Planning, and Evaluation Service,
Biennial Report, 1995- 96. (As of 2002, this continued to be Education*s
position.) Education and Treasury
Have Not Focused on Impact of the Federal Grants, Loans, and Higher
Education Tax Credits
Page 29 GAO- 02- 751 Student Aid and Tax Benefits
Treasury has access to individual taxpayer information, from which data on
the use of higher education tax provisions can be calculated. Although
Treasury has studied the effects of other tax credits, it has not examined
the HOPE or Lifetime Learning credits since their implementation in 1998.
22 Treasury does not possess data on the receipt of title IV aid for those
tax filers who use higher education tax credits, limiting its capacity to
assess the credits* effects. Treasury has indicated that its primary
evaluation priority is the impact of tax provisions on rates of saving. It
has no work underway, or scheduled, to evaluate the impact of higher
education tax credits.
Higher education tax provisions are an important new tool in helping many
students and families meet the costs of postsecondary education. Millions
now receive higher education tax credits, and millions are now saving for
college using a variety of other tax provisions. In the future a growing
share of students and families may be making combined use of tax credits,
other tax provisions and title IV aid. Although many of these tax
provisions have clear consequences for title IV aid eligibility, some do
not. Lacking clear guidance about the impact of some tax provisions on aid
eligibility, some families may find it difficult to plan how they will pay
for college. Faced with unclear instructions about reporting their use of
tax provisions, some students may make errors that result in inaccurate
awards of aid. As an increasing share of students use both aid and tax
provisions, more families will be faced with uncertainty about aid
eligibility and potential errors in aid awards. Education has the capacity
to address both of these problems.
The adoption of higher education tax provisions creates new opportunities
and choices for federal policymakers, providing them with a range of tools
to accomplish their objectives. For Congress to weigh the relative
effectiveness of these policy tools, it must receive information about who
these tools serve and their impact. Congress does not yet have this
information available to it. Several questions likely to be important to
Congress remain to be fully addressed, including:
22 Treasury was mandated by P. L. 104- 188 to *study the effect on
adoptions* of the two adoption tax provisions: a tax credit for qualified
adoption expenses and an exclusion for employer- paid or reimbursed
adoption expenses. The study was prepared in consultation with the
Department of Health and Human Services, and released in October 2000.
Report to the Congress on Tax Benefits for Adoption,
http:// www. treas. gov/ taxpolicy/ library/ adoption. pdf. Conclusions
Page 30 GAO- 02- 751 Student Aid and Tax Benefits
Does the provision of student assistance* grants, loans, or tax credits*
result in levels of postsecondary attendance greater than would otherwise
occur, and are some forms of assistance more effective at promoting
attendance than others?
Do changes in the availability of student assistance influence the types
of institutions that students choose to attend?
Do changes in the availability of student assistance affect whether
students complete their postsecondary education?
How do postsecondary institutions respond to the changes in the
availability of federal student assistance? Have grant and loan increases,
or the introduction of tax credits, resulted in tuition increases or
reductions in institutional aid to grant, loan and credit recipients and,
if so, to what degree?
Noting the difficulty of showing the link between title IV spending and
outcomes, Education has undertaken little work identifying the impact of
its grant and loan programs. As a result, it cannot fully assess its
progress in achieving its strategic goal to *Enhance the Quality of And
Access to Postsecondary Education.* Moreover, Treasury and Education have
not collaborated to provide Congress with evidence about the impact of
higher education tax credits and title IV student aid. Determining whether
there is a causal link between program and tax expenditures and desired
outcomes is difficult, but not impossible. Given an annual investment of
billions of dollars* in outlays and revenues foregone* studying their
effectiveness is warranted.
To ensure that students and families understand how using tax provisions
will affect their eligibility for title IV financial aid, we recommend
that the Secretary of Education develop a policy specifying whether the
tax- free earnings of state- sponsored college savings plans, tuition
prepayment plans, and Coverdell Education Savings Accounts should be
included in the calculation of the EFC and, therefore, reported by aid
applicants as untaxed income on the FAFSA form. In addition, we recommend
that the Secretary clarify FAFSA instructions, clearly explaining who
should report ownership of the assets held in state- sponsored savings
plans, Coverdell education savings accounts, and Series EE Savings Bonds.
In order to provide Congress with information about the effectiveness of
its title IV programs as well as to ensure its programs are achieving
results, Recommendations to
the Secretaries of Education and Treasury
Page 31 GAO- 02- 751 Student Aid and Tax Benefits
we recommend that the Secretary of Education sponsor research on the
impact of title IV programs on postsecondary education attendance and
choice, completion, and costs.
In order to provide Congress with information about the relative
effectiveness of Education*s direct expenditure programs and Treasury*s
higher education tax provisions, we recommend that the Secretaries of
Education and Treasury collaborate in studying the impact of tax credits
and title IV student aid programs on college attendance and choice,
completion, and costs. As a first step, the Secretaries will need to
identify opportunities for, and limits to, the sharing of data, and
develop a plan to address them.
In their written comments, Education and Treasury noted that the report
was useful and informative, and generally agreed with our findings and
recommendations. In response to our recommendation that Education develop
policy and clarify instructions on how the use of certain tax provisions
affect title IV aid eligibility, Education stated that it would take
advantage of the opportunity provided by the upcoming HEA reauthorization
to comprehensively review how families now pay for college and,
consequently, the title IV student aid eligibility formulas. Regarding our
recommendation that Education sponsor research on the effectiveness of
title IV programs, Education indicated that it would identify
opportunities to sponsor such research, including how the federal
investment affects students* postsecondary education attendance and
completion as well as institutions* tuition and financial aid behavior. In
response to our recommendation that Education and Treasury collaborate in
studying the impact of tax credits and title IV student aid programs,
Treasury said that such an effort would be beneficial. Treasury also noted
that it would take time and staff resources to develop a useful
longitudinal database, and that the confidentiality of individuals* tax
return information must always be protected. Education noted that it
recently collaborated with Treasury in developing a legislative proposal
that would allow the agencies to match income information contained on tax
returns with title IV student aid application data for the purpose of
reducing erroneous payments to individuals participating in the title IV
programs. Education said it looked forward to future collaborations with
Treasury.
We are sending copies of this report to the Secretaries of Education and
Treasury and other interested parties. We will also make copies available
Agency Comments
Page 32 GAO- 02- 751 Student Aid and Tax Benefits
to others upon request. In addition, this report will be available at no
charge on the GAO Web site at http:// www. gao. gov.
If you have any questions about this report, please contact me on (202)
512- 8403. Other contacts and acknowledgments are listed in appendix V.
Cornelia M. Ashby Director, Education, Workforce,
and Income Security Issues
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 33 GAO- 02- 751 Student Aid and Tax Benefits
All estimates of title IV student financial aid are based upon the 1999-
2000 National Postsecondary Student Aid Study (NPSAS). NPSAS is a
comprehensive study that examines how students and their families pay for
postsecondary education. It includes nationally representative samples of
50,000 undergraduates, and 12,000 graduate and first- professional
students enrolled at approximately 1,000 postsecondary institutions during
the 1999- 2000 academic year. The data are based on student interviews and
administrative records, and NPSAS contains both students who received
financial aid and those who did not. Title IV financial aid included Pell
and SEOG grants, Stafford loans, PLUS loans, and federal work- study
assistance. In reporting on title IV loans, we indicate the face amount of
the loans received.
We computed estimates of the HOPE and Lifetime Learning credits received
by students using data from NPSAS. NPSAS data are collected at the
individual student level, and cannot be aggregated into families or linked
to tax filing status. Therefore, our analysis treated individual students
as if they were the credit claimants and recipients. Credit amounts for
each student in NPSAS were computed by calculating a completed Internal
Revenue Service (IRS) form 8863, the form used by tax filers to claim the
credits, for each student in the NPSAS sample. We determined a student*s
eligibility for the HOPE credit on the basis of enrollment status and year
in school. We subsequently assumed that all students not eligible for the
HOPE credit were potentially eligible for the Lifetime Learning credit.
After establishing eligibility for students in the database, we determined
the maximum tax credit each student could receive using the formulas
contained in the IRS form 8863, applying the income eligibility
requirements associated with these credits. Form 8863 uses adjusted gross
income (AGI) for these measures, which is all income minus exclusions from
income such as student- loan interest and IRA contributions. For one- half
of students in the NPSAS database who filed a Free Application for Federal
Student Aid (FAFSA), NPSAS reports the adjusted gross income for the
student (and spouse) if they are independent, or the parents (if the
student is a dependent). For the other half of students, income is based
on a computer- assisted telephone interview, and/ or stochastic
imputation.
In addition to income, the amount of credit allowed is limited by the
amount of tax liability reduced by amounts of dependent care and the
elderly and disabled credits claimed. Generally speaking, tax liability is
tax owed on a filer*s taxable income, which is their AGI minus personal
Appendix I: Estimation of HOPE and Lifetime
Learning Tax Credits and Title IV Student Aid
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 34 GAO- 02- 751 Student Aid and Tax Benefits
exemptions and either the standard deduction or the sum of itemized
deductions such as mortgage interest or property taxes. Without tax data
we had no means of estimating potential itemized deductions, so we assumed
that all tax filers used the standard deduction. We calculated the amount
of liability owed using the standard tax tables provided by the IRS. There
is no information in NPSAS about the amount claimed for dependent care and
the elderly and disabled tax credits. We therefore assumed that these
returns only had education tax credits.
The steps above allowed us to calculate a tax credit for every student in
the NPSAS sample. We estimated that approximately 90 percent of the
students in the NPSAS sample who were eligible to claim the credits did
so. We had no reliable evidence about different rates of tax credit use
across family income or student type; therefore, we randomly selected a 90
percent sample of those students who had a non- zero credit to be the
population of credit recipients used to calculate our tax credit
estimates.
The results of our estimation were compared to data on credits claimed and
allowed, computed from the Statistics of Income (SOI) and provided to us
by the IRS. Our estimate of the net value of HOPE and Lifetime credits
allowed was 94 percent of the SOI estimate. Our estimates of HOPE credits
claimed was significantly lower than the SOI estimate, while our estimate
of Lifetime Learning credits claimed was significantly higher than the SOI
estimate.
Some aspects of our methodology tend to overstate the credit amounts
claimed, while others aspects of the methodology have the opposite effect.
Tax filers who had more than one family member enrolled in postsecondary
education were able to apply the qualified education expenses of each to
the Lifetime Learning tax credit, up to a $5,000 per household limit.
NPSAS data do not allow individual student records to be linked into
households. Therefore, we were unable to adjust our estimates of students*
qualified educational expenses to reflect this feature of the credit. Our
estimates of total Lifetime Learning credit amounts were larger than those
estimated from the SOI; some of this overestimation may have resulted from
this limitation.
Tax filers using either the HOPE or Lifetime Learning credit may find that
they are unable to obtain the full value of the credit because they lack
sufficient tax liability to do so. Our methodology assigns the tax
liability of each family to one student, regardless of the number of
family members actually enrolled. For those families that had more than
one student Limitations of Our Analysis
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 35 GAO- 02- 751 Student Aid and Tax Benefits
enrolled, our methodology may overestimate the tax liability available to
the student and thus overestimate the credit received.
We assumed that all tax filers used the standard deduction. Our estimates
of pre- credit tax liability among those with adjusted gross incomes of
$20- 30, 000 were 17 percent lower than SOI*s, and 8 percent lower for tax
filers with adjusted gross incomes of $30-$ 40, 000. Our estimates of tax
liability were slightly higher than those of SOI at AGIs above $75,000.
This may result in an underestimation of the credits claimed by tax filers
with adjusted gross incomes below $40,000.
Some individuals who are eligible to claim the credit may not do so. There
are no reliable data on the rate at which eligible tax filers claim the
HOPE and Lifetime Learning credits. Our methodology estimated that 90
percent of the students in the NPSAS sample who were eligible to claim the
credits did so. We first calculated a credit amount for all students.
Lacking any empirical basis for establishing different rates of credit
usage among students, we randomly selected a 90 percent sample of students
who had a non- zero credit to be the population of credit recipients used
to calculate our tax credit estimates. To the extent that the rate of
usage varies across student populations by income or dependency status,
our estimates of credit amounts will be too small for some populations,
and too large for others.
Data limitations may also affect the quality of tax credit estimates. Our
estimates of tax credits may be lower than those obtained from the SOI
because SOI data represent pre- audited amounts, and tax filers may have
over claimed the credits. While income data for those students who did
apply for federal financial aid is reported by NPSAS to be very precise,
for the other half of students the income information is acknowledged by
NPSAS to be much less reliable. This lack of reliability in the
measurement of income may result in imprecise estimates of credit usage
and credit amounts received.
Because our estimates come from a sample of the larger population, NPSAS,
there is some sampling error associated with them. Moreover, taking a 90
percent sample of those data introduces additional sampling errors. In
calculating sampling errors and confidence intervals, we took into account
this complex sample design. Sampling errors are often represented as a 95
percent confidence interval: an interval that 95 times out of a 100 will
contain the true population value. The upper and lower bounds of the 95
percent confidence intervals for each estimate are presented in the
following tables.
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 36 GAO- 02- 751 Student Aid and Tax Benefits
Table 2: Estimated Use of Tax Credits and Title IV Aid Among All
Undergraduates in 1999- 2000
(In percentages)
Income category Lower and upper bounds of 95 percent confidence interval
Tax Credits and Title IV Aid 13.86- 14.53 Tax Credits Only 32.23- 33.36
Title IV Aid Only 24.39- 25.33 Neither Credits Nor Title IV Aid 27.62-
28.69
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 3: Percent of All Undergraduate Students Receiving HOPE Credit
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Dependent Independent
$0- 19, 999 2.85- 5.15 8.09- 10. 19 $20-$ 39,999 24.71- 28.87 15.96- 19.15
$40-$ 59,999 30.72- 34.89 13.60- 17.95 $60-$ 79,999 31.61- 36.82 9.45- 14.
80 $80-$ 99,999 29.02- 34.53 9.10- 21. 25
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 4: Percent of All Undergraduate Students Receiving Lifetime Learning
Credit
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Dependent Independent
$0- 19, 999 3.61- 6.77 17.59- 20.24 $20-$ 39,999 27.18- 31.21 43.45- 47.68
$40-$ 59,999 30.99- 35.07 44.96- 50.72 $60-$ 79,999 29.93- 34.25 44.16-
51.80 $80-$ 99,999 36.12- 41.51 36.49- 48.16
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 37 GAO- 02- 751 Student Aid and Tax Benefits
Table 5: Average Amount of HOPE Credit
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Dependent Independent
$0- 19, 999 264.02- 364. 57 567.65- 666. 30 $20-$ 39,999 876.87- 971. 27
782.60- 877. 99 $40-$ 59,999 982.17- 1068.45 671.67- 817. 21 $60-$ 79,999
1098.65- 1189. 18 722.35- 960. 81 $80-$ 99,999 614.70- 704. 14 282.33-
493. 50
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 6: Average Amount of Lifetime Learning Credit
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Dependent Independent
$0- 19, 999 149.09- 238. 40 236.20- 272. 83 $20-$ 39,999 384.46- 440. 14
199.98- 227. 31 $40-$ 59,999 410.21- 463. 04 155.70- 187. 94 $60-$ 79,999
520.77- 582. 72 176.39- 222. 90 $80-$ 99,999 277.05- 322. 06 84.03- 128.43
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 7: HOPE Credit as a Percent of Tuition and Fees Charged and Net
Tuition and Fees Paid by Dependent Students
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Credit as percent of
tuition and fees charged Credit as percent of net tuition and fees
$0- 19, 999 4.37- 7.92 8.34- 15. 11 $20-$ 39,999 18.11- 21.47 28.24- 34.3
$40-$ 59,999 19.20- 22.34 28.23- 33.23 $60-$ 79,999 20.73- 24.27 29.27-
34.12 $80-$ 99,999 10.29- 12.83 13.25- 16.58
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 38 GAO- 02- 751 Student Aid and Tax Benefits
Table 8: HOPE Credit as a Percent of Tuition and Fees Charged and Net
Tuition and Fees Paid by Independent Students
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Credit as percent of
tuition and fees charged Credit as percent of net tuition and fees
$0- 19, 999 18.42- 23.26 22.92- 28.8 $20-$ 39,999 31.06- 36.27 37.7- 44.
03 $40-$ 59,999 34.37- 42.96 38.32- 48.4 $60-$ 79,999 37.88- 50.69 42.09-
56.99 $80-$ 99,999 17.32- 32.94 18.2- 37. 6
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 9: Lifetime Learning Credit as a Percent of Tuition and Fees Charged
and Net Tuition and Fees Paid by Dependent Students
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Credit as percent of
tuition and fees charged Credit as percent of net tuition and fees
$0- 19, 999 3.63- 5.87 6.45- 10. 75 $20-$ 39,999 8. 12- 8.97 12.98- 14.32
$40-$ 59,999 8. 52- 9.56 12.51- 13.83 $60-$ 79,999 8. 97- 10. 17 11.93-
13.82 $80-$ 99,999 4. 91- 5.65 6.08- 7.00
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 10: Lifetime Learning Credit as a Percent of Tuition and Fees
Charged and Net Tuition and Fees Paid by Independent Students
(In percentages)
Lower and upper bounds of 95 percent confidence interval Income category
Credit as percent of
tuition and fees charged Credit as percent of net tuition and fees
$0- 19, 999 9.27- 10. 58 11.78- 13.45 $20-$ 39,999 12.48- 13.48 15.87-
16.95 $40-$ 59,999 12.41- 13.72 14.84- 16.2 $60-$ 79,999 13.29- 14.76
16.22- 17.57 $80-$ 99,999 7. 36- 9.48 9.79- 11. 85
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 39 GAO- 02- 751 Student Aid and Tax Benefits
Table 11: Amount of HOPE Credit and Title IV Grant or Loan Assistance
Received by Dependent Students Obtaining Both
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Mean title IV grants Mean title IV loans Mean HOPE credit
$0- 19, 999 775.92- 1475.29 1214.5- 2477.63 264.02- 364. 57 $20-$ 39,999
490.44- 648. 15 1568.21- 2047. 2 876.87- 971. 27 $40-$ 59,999 84.17- 141-
29 1541.20- 1930. 96 982.17- 1068.45 $60-$ 79,999 1. 08- 15. 01 1584.03-
2060. 38 1098.65- 1189. 18 $80-$ 99,999 a 1156.63- 1728. 42 614.70- 704.
14 a No value calculated.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 12: Amount of HOPE Credit and Title IV Grant or Loan Assistance
Received by Independent Students Obtaining Both
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Mean title IV grants Mean title IV loans Mean HOPE credit
$0- 19, 999 259.08- 411. 96 1683.14- 2301. 55 567.65- 666. 30 $20-$ 39,999
214.19- 314. 8 1286.51- 1716. 85 782.60- 877. 99 $40-$ 59,999 13.72- 59.27
662.30- 130. 19 671.67- 817. 21 $60-$ 79,999 a 588.42- 1330.59 722.35-
960. 81 $80-$ 99,999 a 46.39- 1417.17 282.33- 493. 50 a No value
calculated.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Appendix I: Estimation of HOPE and Lifetime Learning Tax Credits and Title
IV Student Aid
Page 40 GAO- 02- 751 Student Aid and Tax Benefits
Table 13: Amount of Lifetime Learning Credit and Title IV Grant or Loan
Assistance Received by Dependent Students Obtaining Both
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Mean title IV grants Mean title IV loans Mean lifetime credit
$0- 19, 999 353.27- 823. 32 990.85- 2231.35 149.09- 238. 40 $20-$ 39,999
370.47- 490 1848.23- 2312. 28 384.46- 440. 14 $40-$ 59,999 49.23- 85
1935.13- 2369. 26 410.21- 463. 04 $60-$ 79,999 0- 33.41 2063.87- 2561. 13
520.77- 582. 72 $80-$ 99,999 a 1864.27- 2554. 13 277.05- 322. 06 a No
value calculated.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Table 14: Amount of Lifetime Learning Credit and Title IV Grant or Loan
Assistance Received by Independent Students Obtaining Both
(In dollars)
Lower and upper bounds of 95 percent confidence interval Income category
Mean title IV grants Mean title IV loans Mean lifetime credit
$0- 19, 999 190.41- 265. 51 1646.74- 2090. 38 236.2- 272.83 $20-$ 39,999
94.84- 132.02 919.31- 1175.66 199.98- 227. 31 $40-$ 59,999 5. 65- 40. 83
623.96- 938 155.7- 187.94 $60-$ 79,999 a 434.22- 765. 56 176.39- 222. 90
$80-$ 99,999 a 176.17- 615. 13 84.03- 128.43 a No value calculated.
Source: GAO calculations based upon 1999- 2000 NPSAS data.
Appendix II: Research on the Effects of Grants, Loans, and Tax Credits
Page 41 GAO- 02- 751 Student Aid and Tax Benefits
To identify available information on the relative effectiveness of title
IV aid and the HOPE and Lifetime Learning tax credits, we reviewed studies
of the factors that affect college attendance and choice, completion, and
costs. These outcomes were chosen because they have been the focus of
congressional concern, as expressed in committee reports, statutorily
established study commissions, and requests for our work from Congress. We
examined studies that appeared in books, refereed journals, working
papers, dissertations, or government reports. Some of these studies were
excluded from further assessment because they did not undertake original
data analysis that could identify the effectiveness of federal financial
aid programs. Studies that provided an original empirical analysis (or, in
the case of tax credits, a simulation methodology) were subsequently
assessed according to professional standards of econometric analysis for
their methodological rigor. Some of these studies explicitly estimated the
effects of federal aid programs. Others estimated how sensitive student
attendance, completion, or choice decisions are to changes in the net cost
of college. The studies are listed in the bibliography. The results of
studies that were judged to contain acceptably identified statistical
estimates formed the basis for our findings about the availability of
information concerning the relative effectiveness of title IV grants and
loans and HOPE and Lifetime Learning tax credits. Appendix II: Research on
the Effects of
Grants, Loans, and Tax Credits
Appendix III: Comments from the Department of Education
Page 42 GAO- 02- 751 Student Aid and Tax Benefits
Appendix III: Comments from the Department of Education
Appendix III: Comments from the Department of Education
Page 43 GAO- 02- 751 Student Aid and Tax Benefits
Appendix IV: Comments from the Department of Treasury
Page 44 GAO- 02- 751 Student Aid and Tax Benefits
Appendix IV: Comments from the Department of Treasury
Appendix V: GAO Contacts and Staff Acknowledgments
Page 45 GAO- 02- 751 Student Aid and Tax Benefits
Jeff Appel (202) 512- 9915 Thomas Weko (202) 512- 8796
In addition to those named above, the following people also made
significant contributions to this report: Paul L. Posner, Managing
Director, Federal Budget Issues, Strategic Issues; Michael Brostek,
Director, Tax Issues; and Patrick di Battista, Malcolm Drewery, Bryon
Gordon, John Mingus, Edward Nannenhorn, Linda Stokes, Andrea Romich Sykes,
and James Wozny. Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Staff Acknowledgments
Bibliography Page 46 GAO- 02- 751 Student Aid and Tax Benefits
Cameron, Stephen V., and James J. Heckman. *Can Tuition Policy Combat
Rising Wage Inequality?* Kosters, Marvin H. (ed) Financing College
Tuition: Government Policies and Educational Priorities. Washington, D.
C.: The American Enterprise Institute, 1999.
Cameron, Stephen V., and James J. Heckman. *The Dynamics of Educational
Attainment for Black, Hispanic, and White Males.* Journal of Political
Economy, 109, no. 3, (2001): 455- 499.
Cronin, Julie- Anne. *The Economic Effects and Beneficiaries of the
Administration*s Proposed Higher Education Tax Subsidies* National Tax
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Dynarski, Susan. *Hope for Whom? Financial Aid for the Middle Class and
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Dynarski, Susan. *Does Aid Matter? Measuring the Effect of Student Aid on
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*GeneralEquilibrium Treatment Effects: A Study of Tuition Policy.* The
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Kane, Thomas J. *Rising Public College Tuition and College Entry: How Well
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Kane, Thomas J. The Price of Admission. Washington, D. C., and New York,
N. Y.: The Brookings Institution and the Russell Sage Foundation, 1999.
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Li, Judith. *Estimating the Effect of Federal Financial Aid on Higher
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Manski, Charles, and David Wise. College Choice in America. Cambridge,
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McPherson, Michael S. and Morton Owen Schapiro. Keeping College Affordable
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Oberg, Jon H. *Testing Federal Student- Aid Fungibility in Two Competing
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Reyes, Suzanne. *Education Opportunities and Outcomes: The Role of the
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Rouse, Cecilia Elena. *What to Do after High School: The Two- Year versus
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Schwartz, J. Brad. *Wealth Neutrality in Higher Education: The Effects of
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(130052)
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