Working Paper: NBER ID: w22127
Authors: Susan Dynarski; Judith Scott-Clayton
Abstract: National efforts to promote college enrollment are increasingly delivered through tax-based assistance, including tax credits and deductions for tuition and fees, tax-advantaged college savings plans, and student loan interest deductions. This paper outlines the main tax-based student aid programs and describes their history and growth over time. We then provide an economic perspective on tax-based student aid, and an assessment of their impact on student behavior. We conclude with a discussion of what the tax system does particularly well and what it does particularly poorly in comparison to traditional Department of Education-based student aid programs, and highlight opportunities for productive reform. At a minimum, a simpler system of education tax benefits would decrease the administrative and time costs of transferring funds to households with postsecondary expenses. At best, simplification would clarify incentives and increase investments in human capital.
Keywords: Tax benefits; College attendance; Higher education; Federal tax policy
JEL Codes: H2; H52; I22; I28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income (E25) | tax benefits' effects (H20) |
| complexity of the tax system (H26) | optimization of tax benefits (H21) |
| optimization of tax benefits (H21) | impact of tax policies (H31) |
| simplification of education tax benefits (H20) | investments in human capital (J24) |
| tax credits and deductions for education (H52) | human capital accumulation (J24) |
| tax credits and deductions for education (H52) | college enrollment rates (I23) |