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Study: Tuition Tax Breaks Unfair to Lower-Income Students

Study: Tuition Tax Breaks Unfair to Lower-Income Students

A recent report from the National Center for Education Statistics suggests that college tuition tax credits are benefiting wealthy students more than their lower-income counterparts. An analysis of tax credits enacted with the 1997 Taxpayer Relief Act found that low-income families don’t have enough tax liability to benefit from the tax-relief measures.

Through the Hope Scholarship and Lifetime Learning tax credits, families earning less than $32,000 annually save about $600, compared to the $900 in savings for families earning up to $59,999 and the $1,100 average credit for families earning up to $91,999.

NCES suggests that low-income families are better off with grants and other financial aid than tax credits. The family that saved $600 using the credits would save an average of $3,300 by using grants instead.
“In general, tax credits, unless they are configured as refundable, do next to nothing for low-income families,” says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

The Hope Scholarship consists of a tax credit of up to 100 percent of the first $1,000 spent on tuition and fees. A credit of up to 50 percent of the second $1,000 results in a $1,500 credit. In 2002, those eligible for the Lifetime Learning credit could take a federal income tax credit of up to 20 percent for the first $5,000 and 20 percent of the first $10,000 of tuition expenses and required fees paid out of pocket thereafter, making the maximum credits $1,000 and $2,000, respectively.

— By Lelita L. Cannon

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