By the Numbers: Education Tax Benefits to Cost Feds $16 Billion Annually
The federal government’s higher education tax benefits will provide $78.9 billion in credits, deductions, and exemptions over the next five years, according to estimates by the Congressional Research Service (CRS).
There are 14 educational tax benefits available to students and parents this year, including a deduction for student loan interest that will cost the federal government $4.1 billion in lost tax revenue from 2011 to 2015. The government’s parental personal exemption for students ages 19-23 will cost $13.1 billion during the same period.
The bulk of the five-year cost of education tax benefits comes from the American Opportunity Tax Credit (AOTC), which is temporarily replacing the Hope scholarship credit. The AOTC is scheduled to expire at the end of 2012 and revert back to the less generous Hope credit. The CRS estimates that both these credits will cost $24.4 billion between 2011 and 2015.
The AOTC provides a credit of up to $2,500 per student toward the cost of tuition, fees, books, supplies and equipment. The credit is available even to Americans who don’t pay federal income taxes, although only up to $1,000.
The Lifetime Learning credit will have a $12.9 billion impact on the federal budget over the next five years. This credit provides a tax credit of up to $2,000 per tax return for qualified education expenses. The government does not limit the number of years a student can claim this credit. Unlike the AOTC, this credit is non-refundable so the maximum credit is limited to the amount of taxes owed.
The exclusion of scholarship and fellowship income from taxable income under certain circumstances will cost the federal government $12.6 billion in lost tax revenue over the five-year span.
The exclusion of employer-provided educational assistance from taxable income will cost the federal government more than $4.7 billion in lost tax revenue from 2011 to 2015.
The report does not investigate how effective this $79 billion is in increasing access to higher education for students and families that wouldn't otherwise be able to afford higher education.
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