Federal higher-ed tax breaks now exceed cost of grants for lower-income students

[Connecticut allows the tuition and fees and student loan interest that residents pay to be deducted from their state income tax, as do most other states. Connecticut residents also are able to deduct up to $5,000 for college savings accounts – a greater amount than allowd by 18 other states. The following is a report on how the cost of these deductions compares to public support for low-income students attending college. — CTMirror]

The cost of tax deductions that previous research has shown disproportionately help wealthier families pay for college continues to outpace what the federal government spends on grants for low-income students, a new study points out.

The total amount of tax credits has increased 13-fold since 1990, when adjusted for inflation, and reached $34.5 billion in 2014, the last year for which the figures are available, according to the study, by the Pew Charitable Trusts.

That’s $4.1 billion more than went to the government’s Pell Grant program to help low-income students pay for college.

The program provides a tax break of up to $2,500 per undergraduate, per year, toward the cost of college expenses.

Another nearly $2 billion in tax credits were applied to investment earnings from so-called 529 college savings plans, Pew found. Only one in 10 families that earn less than $50,000 knows about 529 plans, a survey by the investment firm Edward Jones found.

These are among several ways federal, state and institutional financial aid and even private scholarships flow toward wealthier Americans.

A quarter of the students who get federal work-study jobs, for example, come from families whose annual income exceeds $80,000, and one in 10 from households with $100,000 in earnings or more, federal data show.

More than $16 billion a year in private scholarships is made available by the likes of fraternal organizations and chambers of commerce, College Board figures show; the U.S. Department of Education reports that more of it goes to students from families that earn $106,000 and up than to those with incomes under $30,000.

Pew also tried to calculate the cost of state-level tax credits for higher-education costs. It found that such credits totaled $167 million in Pennsylvania and $121 million in Massachusetts in 2014; $457 million in New York in 2013; and $443 million in California in 2012. All were the most recent years for which the figures were available.

This story was first published in the Hechinger Report on Feb. 23.

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