Postsecondary Education: Multiple Tax Preferences and Title IV Student Aid Programs Create a Complex Education Financing Environment Page: 2 of 41
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SGAO
aAccountabiity Integrity-Reliability
Highlights
Highlights of GAO-07-262T, testimony
before the Committee on Finance, U.S.
SenateWhy GAO Did This Study
Federal assistance helps students
and families pay for postsecondary
education through several policy
tools-grant and loan programs
authorized by title IV of the Higher
Education Act of 1965 and more
recently enacted tax preferences.
This testimony summarizes and
updates our 2005 report on (1) how
title IV assistance compares to that
provided through the tax code
(2) the extent to which tax filers
effectively use postsecondary tax
preferences, and (3) what is known
about the effectiveness of federal
assistance.
This hearing is an opportunity to
consider whether any changes
should be made in the
government's overall strategy for
providing such assistance or to the
individual programs and tax
provisions that provide the
assistance. This statement is based
on previously published GAO work
and reviews of relevant literature.
GAO does not make new
recommendations in this
testimony. In 2002, GAO
recommended, among other things,
that the Department of Education
sponsor research into key aspects
of effectiveness of title IV
programs. In April 2006, Education
announced it would make
multiyear grants available starting
in 2007 to conduct research on
topics addressed in this statement.
www.gao.gov/cgi-bin/getrpt?GAO-07-262T.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Michael
Brostek at (202) 512-9039 or George Scott at
(202) 512-7215.POSTSECONDARY EDUCATION
Multiple Tax Preferences and Title IV
Student Aid Programs Create a Complex
Education Financing EnvironmentWhat GAO Found
Title IV student aid and tax preferences provide assistance to a wide range of
students and families in different ways. While both help students meet
current expenses, tax preferences also assist students and families with
saving for and repaying postsecondary costs. Both serve students and
families with a range of incomes, but some forms of title IV aid-grant aid, in
particular-provide assistance to those whose incomes are lower, on
average, than is the case with tax preferences. Tax preferences require more
responsibility on the part of students and families than title IV aid because
taxpayers must identify applicable tax preferences, understand complex
rules concerning their use, and correctly calculate and claim credits or
deductions. While the tax preferences are a newer policy tool, the number of
tax filers using them has grown quickly, surpassing the number of students
aided under title IV in 2002.
Recipients of Title IV Assistance and Tax Filers Claiming an Education Tax Credit or Tuition
Deduction, 1997-2004
Recipients and tax filers (in millions)
12
8
6
21997 1998 1999 2000 2001 2002
2003 2004
Year
Title IV aid recipients
l Tax returns claiming postsecondary tax credits and/or tuition deduction
Sources: GAO analysis of Budget of the United States Government and Internal Revenue Service data.
Some tax filers do not appear to make optimal education-related tax
decisions. For example, among the limited number of 2002 tax returns
available for our analysis, 27 percent of eligible tax filers did not claim either
the tuition deduction or a tax credit. In so doing, these tax filers failed to
reduce their tax liability by $169, on average, and 10 percent of these filers
could have reduced their tax liability by over $500. One explanation for these
taxpayers' choices may be the complexity of postsecondary tax provisions,
which experts have commonly identified as difficult for tax filers to use.
Little is known about the effectiveness of title IV aid or tax preferences in
promoting, for example, postsecondary attendance or school choice, in part
because of research data and methodological challenges. As a result,
policymakers do not have information that would allow them to make the
most efficient use of limited federal resources to help students and families.United States Government Accountability Office
L
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United States. Government Accountability Office. Postsecondary Education: Multiple Tax Preferences and Title IV Student Aid Programs Create a Complex Education Financing Environment, text, December 5, 2006; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc291567/m1/2/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.