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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An Analysis of STEM Education Funding at the NSF: Trends and Policy Discussion

Heather B. Gonzalez
Specialist in Science and Technology Policy

Federal policymakers have a longstanding interest in science, technology, engineering, and mathematics (STEM) education that dates to at least the 1st Congress. In its contemporary construct, this interest largely focuses on the connection between STEM education and the U.S. science and engineering workforce, which, in turn, is often perceived as instrumental to national security and the U.S. economy.

The National Science Foundation (NSF) is a key component of the federal STEM education effort. Several inventories of the federal STEM education portfolio have highlighted NSF’s important role—both in terms of funding and in the number and breadth of programs. The NSF is also the only federal agency whose primary mission includes supporting education across all fields of science and engineering. As such, funding for STEM education at the NSF impacts not only the agency, but also the entire federal STEM education effort.

Congress reduced enacted funding levels (from the prior year) for NSF’s main education account in both FY2011 and FY2012. Those year-over-year reductions followed several years of varying funding, as well as changes in the distribution of the Foundation budget that reduced funding for the main education account as a percentage of the total NSF budget. For the most part, these changes appear to result from a combination of holding the main education account more-or-less constant while applying most of the Foundation’s FY2003-FY2011 budget growth to the main research account. However, in constant dollar terms, it appears at least some of the increase in funding for research activities during the observed period may have come at the expense of education activities.

It is not clear if these funding changes reflect evolving congressional and Administration policy priorities and an intentional prioritization of research over educational activities at the NSF or if they reflect the cumulative impact of funding decisions made in response to specific conditions in specific fiscal years that happen to have had this effect. Further, the significance of these changes for NSF’s STEM education and research missions—and for the overall federal STEM effort— depends, in part, on how they fit within the broader policy context. In particular, it depends (among other things) on how policymakers perceive and assess the policy rationale behind STEM education funding at the NSF; the character of NSF’s STEM education activities; the Foundation’s role in the federal STEM education portfolio; and the impact of changes in NSF’s education account on the Foundation’s other primary mission, research.

This report analyzes NSF funding trends and selected closely related STEM education policy issues in order to place conversations about FY2013 funding in broader fiscal and policy context. It concludes with an analysis of potential policy options.


Date of Report: April 9, 2012
Number of Pages: 24
Order Number: R42470
Price: $29.95

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Federal Pell Grant Program of the Higher Education Act: How the Program Works, Recent Legislative Changes, and Current Issues

Shannon M. Mahan
Specialist in Education Policy

The federal Pell Grant program, authorized by Title IV of the Higher Education Act of 1965, as amended (HEA; P.L. 89-329), is the single largest source of federal grant aid supporting postsecondary education students. The program is estimated to have provided over $35.7 billion to approximately 9.7 million undergraduate students in FY2011. For FY2012, the total maximum Pell Grant was funded at $5,550. The program is funded primarily through annual discretionary appropriations, although in recent years mandatory appropriations have played a smaller yet increasing role in the program. The statutory authority for the Pell Grant program was most recently reauthorized by the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315).

Pell Grants are need-based aid that is intended to be the foundation for all federal student aid awarded to undergraduates. There is no absolute income threshold that determines who is eligible or ineligible for Pell Grants. Nevertheless, Pell Grant recipients are primarily low-income. In FY2010, an estimated 74% of all Pell Grant recipients had a total family income at or below $30,000.

The Pell Grant program has garnered considerable attention over the past several years in Congress, primarily due to the ongoing need for additional program funding from FY2009 to FY2011. The need for additional funding during this time period was driven by both anticipated and unanticipated cost increases in the program. Some of the factors contributing to these increased costs included (1) legislative changes enacted in FY2009 and prior years that led to increased benefits for more students; (2) increases in the number of students enrolling in college and applying for Pell Grant aid; and (3) a weakened economy. Congress responded to these funding needs through numerous legislative efforts in FY2010 through FY2011 by providing additional mandatory funding to augment discretionary funding for current and future years. This additional mandatory funding was offset by reductions in spending on the federal student loan programs and changes to the Pell Grant program’s eligibility and award rules.

Most recently, the FY2012 Consolidated Appropriations Act (P.L. 112-74) provided $22.8 billion in discretionary funding for the program in FY2012 and an additional $3.1 billion in mandatory funds for general use in the program from FY2012 to FY2021, of which $612 million is available beginning in FY2012. These mandatory funds were offset by changes also included in the FY2012 Consolidated Appropriations Act to federal student aid programs in the HEA that are scheduled to take effect on July 1, 2012.

Some of the issues concerning the Pell Grant program that may confront this session of Congress center on appropriate satisfactory academic progress measures for students who receive Pell Grant aid and outcome measures for both students and institutions that receive Pell Grant aid. While the funding needs of the program appear to be met for FY2013 due to advance mandatory appropriations and other changes, Congress may begin to consider the implications of additional funding needs in FY2014, when advance mandatory appropriations to augment discretionary appropriations are substantially less than in FY2013. Finally, Congress may also continue to consider ways to decrease future program costs by changing the distribution of overall benefits by targeting aid to the most needy students or by revising the program’s award rules and eligibility parameters.


Date of Report: March 27, 2012
Number of Pages: 51
Order Number: R42446
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Educational Accountability and Secretarial Waiver Authority Under Section 9401 of the Elementary and Secondary Education Act

Rebecca R. Skinner
Specialist in Education Policy

Jody Feder
Legislative Attorney

Section 9401 of the Elementary and Secondary Education Act (ESEA) provides the Secretary of Education with broad waiver authority with respect to programs authorized under the act. The Secretary has used the authority provided under Section 9401 to grant numerous waivers over time, including waivers of accountability and general administrative provisions. On September 23, 2011, President Obama and the Secretary announced the availability of an ESEA flexibility package for states and described the principles that states must meet to obtain the included waivers. The waivers would apply to school years 2011-2012, 2012-2013, and 2013-2014. States would have the option to apply for a one-year waiver extension for the 2014-2015 school year.

The following waivers are included in the ESEA flexibility package: 

1.      Flexibility regarding the 2013-2014 timeline for determining adequate yearly progress 

2.      Flexibility in implementation of school improvement requirements 

3.      Flexibility in implementation of local educational agencies (LEAs) improvement requirement 

4.      Flexibility for rural LEAs 

5.      Flexibility for schoolwide programs 

6.      Flexibility to support school improvement 

7.      Flexibility for Reward Schools 

8.      Flexibility regarding highly qualified teacher (HQT) improvement plans 

9.      Flexibility to transfer certain funds 

10.  Flexibility in the use of School Improvement Grant funds to support priority schools 

The waivers would exempt states from various academic accountability requirements, teacher qualification-related requirements, and funding flexibility requirements that were enacted through the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110). State educational agencies (SEAs) could also apply for an optional waiver related to the 21st Century Community Learning Centers program. However, in order to receive the waivers, SEAs must agree to meet four principles established by ED for “improving student academic achievement and increasing the quality of instruction.” The four principles, as stated by ED, are as follows: (1) college- and career-ready expectations for all students; (2) state-developed differentiated recognition, accountability, and support; (3) supporting effective instruction and leadership; and (4) reducing duplication and unnecessary burden.

Taken collectively, the waivers and principles included in the ESEA flexibility package amount to a fundamental redesign by the Administration of the accountability and teacher-related requirements included in current law. Given that most states have applied for, or signaled an intent to apply for, the waivers, the ESEA flexibility package may be in effect in many states by the end of the current school year. If Congress continues to work on ESEA reauthorization during the 112th Congress, it is possible that provisions included in any final bill may be similar to or override the waivers and principles established by the Administration.


Date of Report: January 10, 2012
Number of Pages: 49
Order Number: R42328
Price: $29.95

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Federal Support for Academic Research

Christine M. Matthews
Specialist in Science and Technology Policy

From the time of Vannevar Bush and his 1945 report on U.S. science policy, academic research has played a role in the nation’s economy. Vannevar Bush’s report, Science the Endless Frontier, maintained that major investments in research should be made to the nation’s universities. He stated that the research capacity of the colleges and universities was significantly important to long-term national interests. Currently, some Members of Congress have expressed concern about the health and competitiveness of the nation’s colleges and universities. There are those who continue to maintain that the long-term competitiveness of the nation is linked to the strength of the academic research infrastructure. It has been shown that academic research is integrated into the economy and impacts at both the local and national level. By one estimate, approximately 80% of leading industries have resulted from research conducted at colleges and universities.

Colleges and universities are the primary performers of basic research, with the federal government being the largest funding source. In FY2008, the federal government provided approximately 60% of an estimated $51.9 billion of research and development funds expended by academic institutions. When measured in current dollars, federal academic support increased by 2.5% between FY2007 and FY2008. When inflation is taken into account, it equates to an increase of 0.2% from FY2007 to FY2008 following two years of decline in constant dollars since FY2005. An issue before the 112th Congress is that with further budget reductions expected, how does the nation best reduce the budget while adjusting the support for research conducted at colleges and universities?


Date of Report: January 26, 2012
Number of Pages: 25
Order Number: R41895
Price: $29.95

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