Moving On Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class

Charts You Can Trust | April 19, 2012
Chart from "Moving on Up."

The last several years has seen significant cuts to federal student aid funding to shore up the budget of the Pell Grant program, the primary source of government aid to low-income students. But in a new Chart You Can Trust, Education Sector’s Stephen Burd argues that there’s a better way to keep the Pell Grant program viable: elimination of the American Opportunity Tax Credit and the other federal tuition tax break programs.

Moving On Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class takes a look at tax breaks that have been portrayed as a way to help middle-class families. But the data show that increasingly, it is families with the highest incomes that benefit.

Burd analyzed IRS data collected by the College Board. His analysis shows that in the years between 1999 and 2001, nearly 83 percent of the higher education tax benefits went to families earning less than $75,000 per year. By contrast, in the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits, while the share going to middle-income families sharply declined.

This trend is unlikely to change, says Burd. He points out that the government will spend about $55 billion on tuition tax break programs from 2010 through 2014. The largest amount and share of these benefits will likely go to families making over $100,000, not those students in most need.

“At a time when the budget axe is falling on the Pell Grant program, providing billions of dollars in tax benefits to upper-middle income families who would send their children to college without the help is a luxury that the government can no longer afford,” Burd argues. “Congress should allow the AOTC to expire at the end of this year, eliminate all of the other tuition tax breaks, and use the savings to ensure that the Pell Grant program remains on a sustainable path.