Federal tax credits for college tuition have no effect on college attendance and other educational indicators, according to a new study published by the National Bureau of Economic Research.
“There are no discernible causal effects of the tax credits on any of the following outcomes: attending postsecondary school at all, attending at least half-time, attending a four-year college, attending a two-year college, instructional resources, core educational resources, the ‘list’ tuition and fees of the student’s college, the grant and scholarships the student receives, and the tuition the student pays,” according to the study.
The tax credit cost the federal government $23 billion in 2014, a 177 percent increase from 2008. Since the credit has no effect on improving education, it is unlikely the government earns this money back through any kind of higher incomes or economic growth.
9 Important Areas Where Tax Credits for College Tuition Don’t Work Out |Create infographics
The study’s authors had hoped to calculate the economic and societal returns of the tax credits, but such calculations would have found no return since the tax credits have no effect on educational indicators. In theory, more college attendance might raise incomes and reduce crime, but no such conclusion can be drawn. “Mechanisms for social returns all rely on a policy actually affecting education attainment in some way,” the study said. “Thus, regardless of how education generates social returns, we will necessarily find that society will earn a zero return on the tax credits.”
The study focused on annual incomes between $53,000 and $90,000 for single filers and $107,000 and $180,000 for married, joint filers. The results should not be extrapolated outside those incomes, but that’s a fairly large portion of middle- and upper-class families.
Even though the tax credits do not improve educational outcomes, they still affect other factors. The credits effectively act as transfer, from individuals that don’t claim the credit to those that do.
The study was authored by George Bulman, an economics professor at the University of California, Santa Cruz, and Caroline Hoxby, an economics professor at Stanford. It was published as part of the NBER Working Paper Series.
The study gives fodder to conservatives looking to simplify the tax code by reducing the number of credits. On the other hand, it hurts the argument that universities are using financial aid to hike tuition higher and waste money on amenities instead of instruction. Still, other types of financial aid, such as Pell Grants, may be used for these purposes.
