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Wednesday, July 25, 2012

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Margot L. Crandall-Hollick
Analyst in Public Finance

Since 1997, education tax benefits have become an increasingly important component of federal higher education policy. Fourteen tax benefits are currently available for college students and their parents to help pay for higher education. The available tax benefits are a mixture of credits, deductions, exclusions, and other incentives. The benefits can be placed into one of three general categories: incentives for current year expenses, preferential tax treatment of student loans, and incentives for saving for college. The Joint Committee on Taxation (JCT) estimates the cost to the federal government of education tax benefits—the revenue foregone from offering these benefits—to be $78.9 billion between 2011 and 2015.1

This report provides a brief overview of the higher education tax benefits that are currently available to students and their families. The report contrasts higher education tax benefits with traditional student aid, presents a brief history of higher education tax policy over the past 60 years, summarizes key features of the available tax benefits, and provides JCT estimates of revenue losses resulting from individual tax provisions. The summary is contained in Table 1 and provides information on various aspects of each tax benefit including the type of benefit (credit, deduction, etc.), the annual dollar amount of the benefit, what expenses qualify for the benefit, what level of education the benefit can be claimed for, income levels at which the benefit phases out and any aspects of the benefit which are expiring during the 112th Congress. Table 2 contains estimates of the annual forgone federal revenue attributable to each provision.

Date of Report: July 10, 2012
Number of Pages: 11
Order Number: R41967
Price: $29.95

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