Federal Tax Credits for Higher Education Fail to Increase Enrollment and Access to College

New Research from Harvard Graduate School of Education Reveals Tax Credits' Goals Unachieved

New research from the Harvard Graduate School of Education finds no evidence of increased college enrollment among students eligible for federal tax credits, despite the tax credit's primary purpose to increase access to higher education. The analysis, conducted by HGSE Assistant Professor Bridget Terry Long, suggests the credits encouraged many states to increase the prices of public colleges where students were the greatest beneficiaries. Long's study, "The Impact of Federal Tax Credits for Higher Education Expenses," was prepared for the forthcoming National Bureau of Economic Research volume College Decisions: How Students Actually Make Them and How They Could (University of Chicago Press, summer 2004).

Long analyzed three years of data from the Internal Revenue Service to determine who benefited the most from the federal government introduction in 1997 of the progressive HOPE and Lifetime Learning Tax Credits. The passage of the HOPE and Lifetime Learning Tax Credits marked a shift in how the government would distribute support to postsecondary students and their families. While other studies have predicted likely outcomes of the tax credits, Long's is among the first to use data since enactment to estimate the actual impact of these tax credits.

Among the study's findings:

• What was intended to be a transfer to the middle class did benefit families with incomes between $30,000 and $75,000 the most;
• Many low-income individuals are prevented from qualifying for these benefits due to insufficient tax liability;
• There is no evidence of increased postsecondary enrollment among eligible students in spite of the stated goal to increase access to higher education;
• Many states and public institutions appear to have responded to incentives to increase the prices of colleges at which students face a low marginal cost due to the tax credits.

These findings document the importance of considering how a federal program affects the behavior of states and institutions in ways that might undermine the original policy.

The Tax Relief Act of 1997 introduced a new form of aid to college students. Subsequently, the HOPE and Lifetime Learning Tax Credits marked a dramatic shift in the manner of distributing support to postsecondary students and their families. After years of debating incremental changes to other federal college aid programs, the tax side of the budget has provided a way to disperse an estimated $9.7 billion in benefits to 13.1 million students each year. This projection is roughly equal to the total amount spent at the time on the Pell Grant and Federal Family Education Loans combined. However, unlike other aid programs, the tax credits have exceptionally broad eligibility requirements, and there is a delay between when a recipient enrolls in college and when they receive the benefit.

About the Researcher

Dr. Bridget Terry Long is an economist and assistant professor at the Harvard Graduate School of Education. Her research focuses on college access and outcomes, the effects of financial aid policy, and the behavior of postsecondary institutions. Current research projects include studies on the effect of remediation in higher education on student outcomes and the impact of aid policies on individual and institutional behavior. The Harvard Graduate School of Education seeks to improve education through the preparation of leading professionals, the design of model education programs, the identification of policies that have local, national, and global impact, and the advancement and dissemination of scientifically rigorous and relevant research.

For More Information

Contact Bridget Terry Long at 617-496-4355 or bridget_long@gse.harvard.edu .