New HGSE professor Susan Dynarski, formerly of the University of Michigan, testified on June 29 before the Oversight Subcommittee of the US Ways and Means Committee in a hearing titled Expanding Access to Higher Education and the Promise it Holds . Dynarski was joined as a witness by Marshall Anthony Jr., senior policy analyst at the Center for American Progress; Susan Whealler Johnston, President and CEO of the National Association of College and University Business Officers; Steven Rose, president of the Passaic County Community College; and Scott Pulsipher, president of Western Governors University.
Here is the testimony of Professor Dynarski:
Chairman Pascrell, Committee Members, I am honored to testify before you today.
College is a great investment
A college education is a great investment. Over the course of their lifetime, a person with a bachelor’s degree will earn an average of $ 1 million more than a worker with less education. Even with record tuition fees, a BA pays for itself many times over.
Growing educational gaps
But as the university has gained in value, it has also become more unequal. Low-income children are very unlikely to graduate with a bachelor’s degree when they grow up: only 9% do. The odds are six times higher for children from high-income families: 54% obtain a bachelor’s degree. And this gap is not closing – rather it is widening.
Expanding access to college
I’m giving you these statistics to get us thinking about our goals for tax incentives for education. Whether they were successful, after all, depends on the goals we set for them.
Is our goal of easing the tuition fee for high-income families whose kids attend expensive colleges? If so, then the tax incentives do a passable job.
But I think that our goal is much more ambitious: that we want to open the doors of the college to all those who can benefit from it. If this is our goal, then the current tax incentives are a complete failure.
Why? Tax incentives can only increase education if they put money in the hands of those for whom price is a barrier, when and where they need it.
- Most of these potential students come from low-income families. They attend community colleges, where tuition and fees average $ 3,800, or state university, where they average $ 10,600.
This is what we need to keep in mind when designing tax incentives for college: a low income person attending a public college.
Education tax incentives are not reaching the right students
Unfortunately, education tax incentives do very little for low-income students in public colleges. Perversely, they provide the most money to high income students in private colleges.
Here are some facts to make this claim clear:
- Tax credits are only partially refundable. A low-income student gets a loan of only $ 1,000 per year, while a richer student gets $ 2,500.
- The Full Lifetime Learning Credit only goes to students who pay tuition and fees over $ 10,000. Community colleges, which form a majority of undergraduates, charge less than half that amount.
- The tuition deduction and the interest deduction on student loans pay the most to families with the highest tax rates.
- The Coverdell and 529 savings plans benefit those who can afford to save and face high tax rates – i.e. the rich. And, if a low-income family saves, they are punished: Their assets count towards eligibility for federal student aid and safety net programs like SNAP.
Education tax incentives are complex and confusing
The regressiveness of tax incentives is not the only obstacle to their effectiveness. They are simply too complicated and confusing to affect school decisions. The IRS publication devoted to their explanation fills 95 pages! Families cannot respond to a price subsidy if they do not know or understand it.
We had better fund simple programs that work rather than trying to explain complex programs that do not work.
The limits of fiscal policy as an educational policy
If the goal is to expand access to college, tax incentives for higher education are a terrible policy. We must put aside the illusion that they are increasing education. The evidence is clear on this issue.
Simplify and target tax incentives for education
Right now, education tax incentives are basically a transfer program. They receive money for the households that have sent people to university. To do this modest job well, they should impose a minimum of paperwork and go to the families who need the money the most.
Here are some recommendations:
First, create a single, fully refundable credit that covers not only tuition and fees, but also books, room, and meals.
- This comprehensive definition of education expenditure is used for the 529 and Coverdell accounts, which primarily benefit affluent families. A narrower definition is used for loans, which help at least some low-income families.
Second, issue the credit at the time of college enrollment.
Finally, you asked me to talk about the endowment tax. It is proposed that this tax be waived if schools make sufficient efforts to be affordable. Here is one way to define such an effort:
Does a college meet all of the financial needs of its students, as defined by the FAFSA and Federal Methodology?
Many private colleges (and a handful of public ones) require students to complete the College Board’s PROFILE form and use its expanded data to measure need. This more than doubles the burden of paperwork for students and increases uncertainty for families.
PROFILE questions distinguish between the rich and the extremely rich. But even a student who gets an automatic EFC of zero has to fill out this complicated form. PROFILE should not be required of low income students.
Education tax breaks provide relief for high income earners who have gone to college. But they offer relatively little help to low-income families.
Clearly, tax incentives do nothing to expand access. They are not a substitute for federal financial aid or free college.