Tax Preferences for Higher Education and Adult College Enrollment

Abstract

The federal government delivers substantial college aid through the tax code, after introducing education tax credits in 1998 and a tuition deduction in 2002. The design of the Lifetime Learning tax credit and the tuition deduction may make them particularly useful to older students. This paper investigates how these provisions have affected college attendance of individuals in their 30s and 40s. For most adults, there is no effect on college attendance. Among men whose 1998 educational attainment falls short of earlylife educational expectations, eligibility for an education tax preference is associated with a 2.5 to 3.4 percentage point increase in the probability of college attendance.Starting in the late 1990s, the U.S. federal government has substantially expanded the amount of college aid it provides through the tax system. Two higher education tax credits, the Hope and Lifetime Learning tax credits, were introduced in 1998, and a tuition deduction was introduced in 2002. Many authors have pointed out that tax-based aid is targeted to a different group of students than is traditional federal college aid: While Pell grants are primarily for low-income individuals, tax-based aid tends to benefit the middle class. The possibility that tax-based college aid may be particularly useful to older students has been largely overlooked.In this paper I investigate the role of recent federal tax incentives for higher education on the college attendance decisions of adults in their 30s and 40s.The Hope tax credit is designed for those who fit the profile of a traditional college student.It is available only to students who are enrolled half-time or more in the first two years of an

Is Information Enough? The Effect of Information about Education Tax Benefits on Student Outcomes

“…2 As tax benefits for college have grown, several studies have considered their effect on student outcomes. These studies have generally found that they did not affect college enrollment (Bulman & Hoxby, 2015;Hoxby & Bulman, 2016;LaLumia, 2012;Long, 2004). A notable exception is Turner (2011a), who found an increase in enrollment with tax aid generosity using changes in benefit generosity over time.…”

“…However, for individual students, the information sent in this study is still relevant because they will receive less tax aid if they do not claim the benefits. LaLumia () focuses on older students using a person‐fixed effect approach and finds no effects for the sample as a whole, but positive effects for some subsamples.…”

Taxes and Investment in Skills

“…In contrast, the tax relief measures do not appear to affect part-time enrolment in the first two years of college. Among adults aged 33 to 41, Lalumia (2010) found that eligibility for one of these three tax provisions increased the probability of college enrolment for people whose educational attainment expectations as teenagers had not been previously met.…”

“…This points to the importance of public awareness and ease of compliance to ensure effective take-up of tax relief for the costs of education. In spite of these issues, there is also evidence that tax relief can ultimately have a positive impact on enrolment (Lalumia, 2010;Turner, 2011a). Overall, more research is needed in OECD countries to empirically evaluate the impact of personal tax relief on human capital investments, particularly regarding lifelong learning financed by individuals where no evidence is available.…”

What Works to Reduce Inequalities in Higher Education? A Systematic Review of the (Quasi-)Experimental Literature on Outreach and Financial Aid

“…Similarly, short-term loans covering tuition fees in South African public universities were estimated to double enrollment rates of admitted disadvantaged students (Gurgand, Lorenceau, & Mélonio, 2011). In contrast, the available evidence on tax incentives does not suggest any positive impact for disadvantaged groups' access to higher education (Table C.6 in Appendix C) as two studies in the U.S. fail to identify an effect on enrollment for disadvantaged students (Bulman & Hoxby, 2015;LaLumia, 2012) As these tax incentives only provide income relief about 10.5 months after enrollment, these may not be very effective in addressing unmet financial need. Moreover, these tax incentives tend to benefit middle-and upper-income families, as lowest-income families do not pay taxes and are thus not eligible for them.…”