Policy Supports College Savings, Mostly for the Rich

It turns out that a lot of the tax breaks available to help people pay for college are mostly going to people who don’t need much help. Such policies aren’t likely to change anytime soon, however. According to a recent report by Stephen Burd published by Education Sector:

In the years between 1999 and 2001, nearly 83 percent of the higher education tax benefits went to families earning less than $75,000 per year. By contrast, in the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits, while the share going to middle-income families sharply declined.

This trend is unlikely to change… The government will spend about $55 billion on tuition tax break programs from 2010 through 2014. The largest amount and share of these benefits will likely go to families making over $100,000, not those students in most need.

This has happened because, while the original tax benefits for college applied largely to families earning between $25,000 and $75,000 a year, over time policymakers have piled on tax benefits so that additional breaks now apply to higher income families.

Burd suggests it’s time to eliminate the American Opportunity Tax Credit and the other federal tax-break programs designed to help families save for college. As he writes,

At a time when Congress is struggling to fund the Pell Grant program and financially needy students who pursue a higher education are facing mountains and mountains of debt, steering billions of dollars in tuition tax benefits each year to upper middle income families who would send their children to college without the help is a luxury that the government cannot afford.

While it’s certainly worth noting that tax breaks are increasingly helping affluent people save for college, it’s not really clear how eliminating such tax breaks would help.

Part of the reason such benefits exist, after all, is because even relatively rich people are hurt by escalating tuition (families making between $100,000 and $180,000, in annual household income, are still going to feel a lot of financial pressure about paying for college) and demand that policymakers find some way to address it.

Frankly, neither offering tax breaks to help affluent Americans pay for college nor eliminating those tax breaks and using the money to help shore up Pell Grants actually address college costs. But tax breaks have the advantage of appealing to influential voters who are worried about their children’s future.

Given that choice, which option looks more politically attractive?

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer