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Wednesday, April 3, 2013

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Margot L. Crandall-Hollick
Analyst in Public Finance

Since 1997, education tax benefits have become an increasingly important component of federal
higher education policy. Fourteen tax benefits are currently available for college students and
their parents to help pay for higher education. The available tax benefits are a mixture of credits,
deductions, exclusions, and other incentives. The benefits can be placed into one of three general
categories: incentives for current year expenses, preferential tax treatment of student loans, and
incentives for saving for college. The Joint Committee on Taxation (JCT) estimates the cost to the
federal government of education tax benefits—the revenue foregone from offering these
benefits—to be $187.8 billion between 2013 and 2017.

This report provides a brief overview of the higher education tax benefits that are currently
available to students and their families. The report contrasts higher education tax benefits with
traditional student aid, presents a brief history of higher education tax policy over the past 60
years, summarizes key features of the available tax benefits, and provides JCT estimates of
revenue losses resulting from individual tax provisions. The summary is contained in Table 1 and
provides information on various aspects of each tax benefit including the type of benefit (credit,
deduction, etc.), the annual dollar amount of the benefit, what expenses qualify for the benefit,
what level of education the benefit can be claimed for, income levels at which the benefit phases
out, and if the provision is temporary, when it expires. Table 2 contains estimates of the annual
forgone federal revenue attributable to each provision.

Date of Report: March 18, 2013
Number of Pages: 11
Order Number: R41967
Price: $29.95

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