oversight

Higher Education: Improved Tax Information Could Help Families Pay for College

Published by the Government Accountability Office on 2012-05-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to the Committee on Finance,
             U.S. Senate



May 2012
             HIGHER EDUCATION

             Improved Tax
             Information Could
             Help Families Pay for
             College




GAO-12-560
                                              May 2012

                                              HIGHER EDUCATION
                                              Improved Tax Information Could Help Families Pay
                                              for College
Highlights of GAO-12-560, a report to the
Committee on Finance, U.S. Senate




Why GAO Did This Study                        What GAO Found
The federal government provides               Multiple Title IV programs and tax expenditures provided substantial aid to
billions of dollars in assistance each        populations across income levels. In 2009, 12.8 million students received Title IV
year to students and families through         aid, and approximately 18-million tax filers claimed a higher education tax benefit
federal student aid programs                  for current expenses. Recent increases in both programs from 2008 to 2009 may
authorized under Title IV of the Higher       be because of enrollment increases and legislative actions, among other factors.
Education Act of 1965 and through tax         Title IV grants tend to benefit students and families with incomes below the
expenditures, such as credits and             national median (about $52,000 from 2006–2010), while loans and work-study
deductions. GAO was asked to                  serve these students and those with family incomes above the median. Most tax
(1) describe the size and distribution of
                                              benefits from the tuition and fees deduction and the parental exemption for
Title IV student aid and tax
                                              dependent students went to households with incomes above $60,000, whereas
expenditures available to assist
students and families with higher
                                              the majority of benefits from the other higher education tax expenditures in
education expenses; (2) assess the            GAO’s review—such as the American opportunity credit—went to households
extent to which tax filers select higher      with lower incomes.
education provisions that maximize
their tax benefit; (3) summarize what is
                                              Tax filers do not always select tax expenditures that maximize their potential tax
known about the effect of student aid         benefits, possibly because filers are unaware of their eligibility for the tax credit or
and tax expenditures on student               deduction or are confused about their use. GAO analyzed 2009 IRS data for
outcomes; and (4) describe factors that       returns with information on education expenses and found about 14 percent of
contribute to the effectiveness and           filers (1.5 million of almost 11-million eligible returns) failed to claim a credit or
efficiency of federal student assistance      deduction for which they appear eligible. On average, these filers lost a tax
programs. GAO analyzed data from              benefit of $466. The Internal Revenue Service (IRS) and Department of
Education, IRS, and the Board of              Education (Education) have taken steps to provide information on these
Governors of the Federal Reserve, and         provisions, but the number of filers failing to claim a higher education tax
conducted a literature review for             provision suggests more could be done. Developing a coordinated,
original empirical research. GAO also         comprehensive strategy to better inform eligible students could improve take-up
developed a framework for evaluating          of these tax provisions.
federal assistance and validated it with
recognized experts of higher education        Despite efforts by Education, research on the effects of federal assistance for
finance.                                      higher education on student outcomes—such as the likelihood students will
                                              continue their education—remains limited. Researchers have examined the
What GAO Recommends                           effects of federal assistance on a limited basis, such as only for certain states or
GAO recommends (1) that IRS and               groups of students, but these studies provide an incomplete view of the effects of
Education work together to develop a          federal assistance. Continuing gaps in research on the effectiveness of federal
strategy to improve information               assistance may be due, in part, to data and methodological challenges that have
provided to tax filers who appear             proved difficult to overcome. Recent changes in Title IV aid and tax
eligible to claim a tax provision but do      expenditures—such as the introduction of the American opportunity credit in
not and (2) that Education sponsor and        2009—may provide opportunities for evaluative research, but Education officials
conduct evaluative research into the          told GAO they have not conducted such research. In an environment of
effects of Title IV programs and tax          constrained budgets, evaluative research can help inform policy decisions.
expenditures at improving student
outcomes. Education and IRS agreed            GAO identified factors that contribute to effective and efficient higher education
with GAO’s recommendations.                   assistance programs to help policymakers allocate limited resources among
Education noted that while it does not        multiple programs. Factors include assessing whether a program achieves its
have access to tax data, it will work         goals and contributes to demonstrable results and whether it facilitates use by
with IRS to assist in taxpayer outreach.      program beneficiaries. GAO developed a framework of questions that can be
View GAO-12-560. For more information,        used as a policy tool for considering improvements to current programs or
contact James R. White at (202) 512-9110 or   designing features of new programs.
whitej@gao.gov or George A. Scott at (202)
512-7215 or scottg@gao.gov.
                                                                                         United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  4
               Multiple Title IV Programs and Tax Expenditures Provided
                 Substantial Aid across Income Levels                                    11
               Taxpayers Do Not Always Select Provisions That Maximize
                 Potential Tax Benefits                                                  26
               Research on Effects of Federal Assistance for Higher Education
                 Remains Limited                                                         33
               Factors That Contribute to the Effectiveness and Efficiency of
                 Federal Higher Education Assistance Programs                            40
               Conclusions                                                               43
               Recommendations for Executive Action                                      44
               Agency Comments and Our Evaluation                                        44

Appendix I     Objectives, Scope, and Methodology                                        47



Appendix II    Descriptions of Title IV Programs and Higher Education-Related Tax
               Expenditures                                                              54



Appendix III   Text to Accompany Interactive Figures 1, 2, 6, 7, and 8                   61



Appendix IV    Comments from the Department of Education                                 80



Appendix V     Comments from the Internal Revenue Service                                82



Appendix VI    GAO Contacts and Staff Acknowledgments                                    85



Bibliography                                                                             86




               Page i                                             GAO-12-560 Higher Education
Related GAO Products                                                                          90



Tables
                       Table 1: Estimated Suboptimal Choices on Federal Tax Returns
                                Made by Taxpayers in 2009                                     28
                       Table 2: Research We Reviewed on the Effects of Federal
                                Assistance Is Limited and Cannot Be Generalized               33
                       Table 3: GAO Framework for Evaluating Federal Higher Education
                                Assistance Programs                                           41
                       Table 4: Percentage of Returns Included in GAO’s Analysis of
                                Taxpayers’ Maximizing Their Benefits in Tax Year 2009         50
                       Table 5: Description of Federal Student Aid Programs Authorized
                                under Title IV of the Higher Education Act                    54
                       Table 6: Description of Selected Higher Education Tax
                                Expenditures (Tax Year 2010)                                  56
                       Table 7: Text to Accompany Interactive Figure 1: Illustration of
                                Planning and Payment Processes for Higher Education
                                Expenses                                                      61
                       Table 8: Text to Accompany Interactive Figure 2: Size and
                                Characteristics of Title IV Aid Programs and Higher
                                Education Tax Expenditures                                    62
                       Table 9: Text to Accompany Interactive Figure 6: Number and
                                Percentage of Title IV Aid Recipients and Dollars
                                Received, by Income Category and Dependency Status,
                                2007–2008 (Information for Base Graphic)                      64
                       Table 10: Text to Accompany Interactive Figure 6: Number and
                                Percentage of Title IV Aid Recipients and Dollars
                                Received, by Income Category and Dependency Status,
                                2007–2008 (Information for Roll-over)                         66
                       Table 11: Text to Accompany Interactive Figure 7: Number and
                                Percentage of Campus-Based Aid Recipients and Dollars
                                Received, by Income Category and Dependency Status,
                                2007–2008 (Information for Base Graphic)                      69
                       Table 12: Text to Accompany Interactive Figure 7: Number and
                                Percentage of Campus-Based Aid Recipients and Dollars
                                Received, by Income Category and Dependency Status,
                                2007–2008 (Information for Roll-over)                         71




                       Page ii                                         GAO-12-560 Higher Education
          Table 13: Text to Accompany Interactive Figure 8: Number and
                  Percentage of Tax Filers Claiming Higher Education Tax
                  Expenditures and Total Benefits, by Income Category,
                  2009 (Information for Base Graphic)                              73
          Table 14: Text to Accompany Interactive Figure 8: Number and
                  Percentage of Tax Filers Claiming Higher Education Tax
                  Expenditures and Total Benefits, by Income Category,
                  2009 (Information for Roll-over)                                 76


Figures
          Figure 1: Illustration of Planning and Payment Processes for Higher
                   Education Expenses                                                9
          Figure 2: Size and Characteristics of Title IV Aid Programs and
                   Higher Education Tax Expenditures                               12
          Figure 3: Number of Recipients of Title IV Programs and Tax
                   Expenditures Who Pay for Current Expenses, 2006–2009            14
          Figure 4: Amount of Benefits from Selected Title IV Programs and
                   Tax Expenditures That Pay for Current Expenses, 2006–
                   2009                                                            15
          Figure 5: Tax Benefits Received by Tax Filers Claiming the Tuition
                   Deduction, Hope Credit, LLC, and AOC, 2006–2009                 18
          Figure 6: Number and Percentage of Title IV Aid Recipients and
                   Dollars Received, by Income Category and Dependency
                   Status, 2007–2008                                               20
          Figure 7: Number and Percentage of Campus-Based Aid Recipients
                   and Dollars Received, by Income Category and
                   Dependency Status, 2007–2008                                    22
          Figure 8: Number and Percentage of Tax Filers Claiming Higher
                   Education Tax Provisions and Total Benefits, by Income
                   Category, 2009                                                  24




          Page iii                                          GAO-12-560 Higher Education
Abbreviations

AOC               American opportunity credit
EFC               expected family contribution
EITC              Earned Income Tax Credit
ESA               education savings account
FAFSA             Free Application for Federal Student Aid
FSEOG             Federal Supplemental Educational Opportunity Grant
GAO               Government Accountability Office
GPRAMA            Government Performance and Results Act Modernization
                  Act of 2010
IES               Institute of Education Sciences
IRC               Internal Revenue Code
IRS               Internal Revenue Service
LLC               lifetime learning credit
NBER              National Bureau of Economic Research
NPSAS             National Postsecondary Student Aid Study
PLUS              Parent Loans for Undergraduate Students
QTP               qualified tuition program
SCF               Survey of Consumer Finances
SOI               Statistics of Income


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Page iv                                                      GAO-12-560 Higher Education
United States Government Accountability Office
Washington, DC 20548




                                   May 18, 2012

                                   The Honorable Max Baucus
                                   Chairman
                                   The Honorable Orrin Hatch
                                   Ranking Member
                                   Committee on Finance
                                   United States Senate

                                   The federal government provides billions of dollars in assistance each
                                   year to help millions of students and families meet the costs of higher
                                   education. This assistance is provided through federal student aid
                                   programs authorized under Title IV of the Higher Education Act of 1965,
                                   as amended, (Title IV) and through tax expenditures—reductions in
                                   federal tax liabilities that result from provisions in the tax code such as tax
                                   credits, deductions, exemptions, and tax-preferred savings programs.
                                   Providing federal financial assistance in these varied ways presents
                                   students and their families with multiple tools to help them pay higher
                                   education expenses. However, as we have previously reported, it may be
                                   difficult for families to understand higher education tax expenditures and
                                   use them correctly. 1 Moreover, policymakers have raised questions about
                                   the effect of federal assistance on student outcomes such as graduation
                                   rates, and whether there is an appropriate return on the federal
                                   investment. In addition, the existence of multiple programs with similar
                                   goals and beneficiaries could potentially be an indicator of overlap or
                                   duplication of federal efforts.

                                   Many meaningful results that the federal government seeks to achieve—
                                   including those for higher education—require the coordinated efforts of
                                   more than one agency. The GPRA Modernization Act of 2010
                                   (GPRAMA) 2 amended the Government Performance Results Act of 1993
                                   to establish a new framework for providing a more crosscutting and
                                   integrated approach to focusing on results and improving government


                                   1
                                    GAO, Higher Education: Multiple Higher Education Tax Incentives Create Opportunities
                                   for Taxpayers to Make Costly Mistakes, GAO-08-717T (Washington, D.C.: May 1, 2008)
                                   and Student Aid and Postsecondary Tax Preferences: Limited Research Exists on
                                   Effectiveness of Tools to Assist Students and Families through Title IV Student Aid and
                                   Tax Preferences, GAO-05-684 (Washington, D.C.: July 29, 2005).
                                   2
                                    Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011).




                                   Page 1                                                      GAO-12-560 Higher Education
performance. Moving forward, GPRAMA implementation can help inform
tough choices in setting priorities as government policymakers address
the rapidly building fiscal pressures facing our national government.

In response to your request, this report addresses the following
objectives: (1) describe the size and distribution of federal grants, loans,
and tax expenditures available to assist students and families with higher
education expenses; (2) assess the extent to which tax filers select higher
education provisions that maximize their tax benefit; (3) summarize what
is known about the effect of grants, loans, and tax expenditures on
student attendance, choice, persistence, 3 and completion; and (4)
describe factors that contribute to the effectiveness and efficiency of
federal higher education student assistance programs.

To describe Title IV aid and higher education tax expenditures, we
analyzed the most recently available data and reviewed relevant federal
laws, regulations, and guidance from the U.S. Department of Education
(Education), Internal Revenue Service (IRS), and the Board of Governors
of the Federal Reserve System (Federal Reserve). We selected Title IV
programs that served more than 500,000 participants in school year
2007–2008. We selected tax expenditures that (1) are designed to assist
students and their families save for, pay current expenses, or repay
expenses for higher education; (2) have eligibility requirements that are
not based on criteria other than income or higher education expenses; (3)
were available in tax years 2006–2009; and (4) had more than 50,000 tax
filers claim the benefit in 2009. 4 Our analysis of data from Education’s
2007–2008 National Postsecondary Student Aid Study (NPSAS), IRS’s
2006–2009 Statistics of Income (SOI) individual tax return file, and the
Federal Reserve’s 2007 Survey of Consumer Finances (SCF) are subject
to sampling errors because these data sets are based on samples.
Unless otherwise noted, all percentage estimates based on the SOI and
NPSAS have 95 percent confidence intervals that are within 10
percentage points of the estimate itself, and all numerical estimates other
than percentages have 95 percent confidence intervals that are within 10
percent of the estimate itself. The 95 percent confidence intervals for all



3
Persistence is the likelihood that students will continue their education.
4
  See app. I for details on our research scope. In total, we examined seven Title IV
programs and eight tax expenditures. Program descriptions for each are provided in app.
II.




Page 2                                                         GAO-12-560 Higher Education
SCF estimates are provided along with the estimates in table notes or
footnotes. To assess the reliability of the data we analyzed, we reviewed
agency documentation and interviewed agency officials familiar with the
data. We determined that these data were sufficiently reliable for our
purposes.

To assess the extent to which tax filers selected higher education tax
provisions that maximized their tax benefit, we combined information from
the SOI individual tax file with information from Form 1098-T Tuition
Statement, which provides information on students’ enrollment status at
an educational institution. We then calculated which tax provision would
maximize filers’ tax benefits based on program eligibility criteria for tax
year 2009. 5 Our analysis only covers a portion of all returns claiming an
education credit or tuition deduction. Our analysis is limited to tax filers
who appeared eligible for the lifetime learning credit (LLC) or tuition and
fees deduction (tuition deduction) in 2009, had a 1098-T with information
on the student’s education expenses, and had a tax liability after claiming
other tax benefits. After eliminating returns where eligibility was not clear,
we included only 29 percent of returns in our analysis of filers with a
1098-T but selecting neither the LLC nor the tuition deduction in 2009.
Appendix I provides details on the percentage of returns included in our
analysis. Our findings could also be influenced if institutions reported
inaccurate expense information on the 1098-T. Also, our analysis did not
consider whether a taxpayer who appeared to make a suboptimal choice
by not claiming an LLC or tuition deduction did so to avoid being subject
to alternative minimum tax liability. 6 To estimate the effect state tax laws
may have on the optimal choices of taxpayers filing their federal income
taxes, we utilized the National Bureau of Economic Research’s (NBER)
TAXSIM Model, a model that calculates estimated tax liabilities under
U.S. federal and state income tax laws.

To summarize what is known about the effect of grants, loans, and tax
expenditures on student attendance, choice, persistence, and completion,
we conducted a literature review for original research published since our



5
See app. I for a full discussion of our methodology and its limitations.
6
 All taxpayers subject to regular tax are also subject to the alternative minimum tax,
regardless of the income tax bracket or whether they claim certain exclusions, deductions,
or credits. Taxpayers may be limited in the credits they can claim based on their
alternative minimum tax calculations.




Page 3                                                         GAO-12-560 Higher Education
             previous report in 2005. 7 We searched literature that provides original
             empirical data analyses according to professional standards of
             econometric analysis for their methodological rigor and contains
             acceptably identified statistical estimates.

             We identified factors that contribute to the effectiveness and efficiency of
             federal higher education assistance programs by reviewing criteria from
             prior and ongoing GAO studies. We supplemented this review and
             validated our framework by conducting semi-structured interviews with
             five academic experts in higher education and economic policy. We
             selected experts based on the relevance of their published work on higher
             education assistance, their recognition in the professional community,
             their demonstrated expertise in Title IV programs or tax expenditures, and
             others’ recommendations. See appendix I for more information about our
             scope and methodology.

             We conducted this performance audit from June 2011 to May 2012 in
             accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             Title IV aid and tax expenditures help reduce the cost of attendance for
Background   students and families. Students and families may be eligible for multiple
             Title IV programs and tax expenditures, depending on each program’s
             rules. We identified seven Title IV programs and eight tax expenditures
             that help students and families save for, pay, and repay the costs of
             higher education; the seven Title IV programs we reviewed account for
             about 89 percent of the total aid available for higher education and
             training through Education in fiscal year 2011. 8 Two departments within


             7
              GAO-05-684. These student outcomes are used in higher education research and have
             been the focus of congressional concern as expressed in requests for our work from
             Congress and a statutorily established study committee report. While researchers have
             studied other metrics to measure student outcomes, such as labor market outcomes,
             these are outside the scope of this review.
             8
              These totals do not include all Title IV programs or higher education provisions listed in
             the Publication 970 Tax Benefits for Education. For details on which programs and tax
             expenditures we excluded from this review, see app. II.




             Page 4                                                         GAO-12-560 Higher Education
               the scope of this review have responsibility for federal higher education
               assistance: Education, which administers Title IV programs; and the
               Department of the Treasury (Treasury), which administers higher
               education tax provisions. In fiscal year 2010, Education provided
               approximately $37.5 billion in grants and made more than $104.3 billion in
               loan assistance available through Title IV programs reviewed in this
               report. 9 In the same year, revenue losses from higher education tax
               provisions reviewed in this report—the amount of revenue the
               government forgoes—were an estimated $25 billion. 10

               Students receive Title IV aid while they are in school and use it to pay for
               current education expenses. Tax expenditures, on the other hand, reach
               widely across students’ life spans. For example, tax-preferred savings
               vehicles allow families to save for future expenses; tax credits help
               families pay for current expenses; and the student loan interest deduction
               helps people repay expenses after their education. Major programs are
               summarized below, and detailed descriptions of Title IV programs and tax
               expenditures are in appendix II.


Title IV Aid   Federal assistance is provided to students and families through multiple
               Title IV grant and loan programs. Grants such as Pell Grants reduce the
               cost of higher education for the student and do not need to be repaid.
               Federal student loans, which include subsidized and unsubsidized Direct
               Stafford loans and Parent Loans for Undergraduate Students (PLUS)



               9
                This total does not include consolidation loans—which allow borrowers to combine one or
               more of their federal education loans into a new loan—because these loans are outside
               the scope of this report. Throughout this report, we present the face value of Title IV loans
               awarded to students, rather than their economic subsidy value to the student or the credit
               subsidy cost—the estimated long-term cost to the government of a direct loan or loan
               guarantee. Although Title IV loans must be repaid, they can provide a subsidy by offering
               funds to students who could not otherwise find lenders and by offering lower interest rates
               than are available in the non-Title IV private loan market.
               10
                 This is the net sum of estimates from the Fiscal Year 2012 Analytical Perspectives,
               Budget of the U.S. Government for the following tax expenditures: American opportunity
               credit, lifetime learning credit, tuition and fees deduction, student loan interest deduction,
               state prepaid tuition plans (a type of qualified tuition program), Coverdell education
               savings accounts, and the parental exemption for students aged 19 to 23. Sums of tax
               expenditure estimates must be interpreted carefully. While summing the individual tax
               expenditure estimates is useful for gauging the general magnitude of the federal revenue
               involved, it does not take into account possible interactions between the individual tax
               code provisions.




               Page 5                                                          GAO-12-560 Higher Education
                   loans, also help students and their families finance the costs of higher
                   education but must be repaid. Title IV also authorizes programs that are
                   funded by the government and administered by participating higher
                   education institutions, which are collectively known as campus-based
                   aid. 11

                   A substantial portion of Title IV aid is awarded based on the amount of a
                   student’s financial need, which is generally the difference between a
                   student’s cost of attendance and an estimate of the student’s (and his or
                   her family’s ability in the case of a dependent student) ability to pay these
                   costs—called the expected family contribution (EFC). To apply for Title IV
                   aid, students or families submit a Free Application for Federal Student Aid
                   (FAFSA), which includes information on the student’s and/or family’s
                   income, assets, and federal income tax expenses. After Education
                   processes an applicant’s FAFSA, a report summarizing the EFC and the
                   student’s federal aid eligibility is sent to the applicant or made available
                   online. After admission, colleges send applicants award letters that
                   include the types and amounts of federal, state, and institutional aid for
                   which the student would be eligible, should the student decide to enroll.


Tax Expenditures   Federal assistance is also provided to students and families through
                   multiple tax expenditures. For tax year 2010, IRS guidance on higher
                   education tax expenditures, Publication 970, Tax Benefits for Education,
                   describes several tax credits, deductions, and tax-preferred savings
                   vehicles that help students and families pay for qualified higher education
                   expenses. 12

                   Tax credits such as the American opportunity credit (AOC) and the
                   lifetime learning credit (LLC) reduce tax filers’ income tax liability on a
                   dollar-for-dollar basis for qualified education expenses. Tax deductions,
                   such as the tuition and fees deduction (tuition deduction), permit tax filers
                   to subtract qualified education expenses from income that would


                   11
                     Specifically, these programs are Federal Work-Study, Federal Perkins Loan programs,
                   and Federal Supplemental Education Opportunity Grants (FSEOG). Work-study is
                   employment in on-campus and certain off-campus jobs that pay students at least the
                   current federal minimum wage. The college or off-campus employer pays a portion of the
                   student’s wages, while the federal government pays the remainder.
                   12
                     For details on each tax provision, including the tax benefits and eligibility requirements,
                   see app. II.




                   Page 6                                                          GAO-12-560 Higher Education
                            otherwise be taxable. 13 Therefore, deductions reduce filers’ tax liability
                            less than credits for any given amount claimed. 14 To benefit from a higher
                            education tax credit or the tuition deduction, a tax filer must use tax form
                            1040 or 1040A and have an adjusted gross income 15 below the tax
                            provisions’ statutorily specified income limits, among other requirements.

                            Tax-preferred savings vehicles, including qualified tuition programs (also
                            known as 529 plans) and Coverdell education savings accounts (ESA)
                            allow tax filers to save for education expenses (using post-tax income),
                            and in some cases prepay tuition, without paying tax on the income from
                            those investments. Tax penalties apply if the funds are not used for
                            qualified education expenses.

                            Parents of children attending college can also benefit from tax provisions
                            not listed in the Publication 970. For example, filers can claim a parental
                            personal exemption for a dependent who is age 19 through 23 and a full-
                            time student at least 5 months of the year. Exemptions reduce taxable
                            income by permitting tax filers to deduct a certain amount from their gross
                            income for each dependent they claim. In addition, certain eligible tax
                            filers with earned income and a qualifying child who is aged 19 through
                            23 and a full time student at least 5 months of the year can claim a larger
                            Earned Income Tax Credit (EITC).


Planning, Predicting, and   To benefit from both Title IV aid and tax expenditures, students and
Applying for Assistance     families must navigate many uncertainties.

                            Planning for future college expenses. Saving for a child’s college
                            education requires families to make complicated decisions about the best
                            strategy to finance a child’s future college education. For example,
                            families have to make decisions about whether their child will go to



                            13
                              The tuition deduction expired December 31, 2011, and as of May 10, 2012, has not
                            been extended. Tax legislation can influence this and other tax expenditures by repealing
                            or limiting tax expenditures, enacting new ones, or extending the life of expiring tax
                            expenditures.
                            14
                              The amount of tax relief per dollar that a taxpayer receives using a deduction depends
                            on the taxpayer’s marginal tax rate. Generally, the higher the taxpayer’s marginal tax rate,
                            the greater the tax savings from these tax expenditure types.
                            15
                              Adjusted gross income is defined as gross income minus adjustments to income.




                            Page 7                                                        GAO-12-560 Higher Education
college, the amount to save, and whether to use a tax-preferred savings
vehicle (and if so, which one). In addition, parents need to make their best
guesses about the price of the school the child will attend or whether the
child will be a dependent at the time he or she becomes a college
student.

Predicting the amount and time frames of assistance. A key
challenge students and families face is that they must make college
application decisions before knowing their eligibility for federal assistance,
as illustrated in figure 1 below. For Title IV aid, students receive eligibility
information after they apply for and are accepted to a school, generally in
the spring of their senior year in high school, but before they need to
accept an offer of admission and enroll in a school. Students applying to
colleges and their families also may not know for certain if they are
eligible for one of the tax provisions or what the amount of the tax benefit
will be until they prepare and file their tax returns well into the student’s
first year in college. This makes it difficult for families to predict and plan
for the true cost of college prior to enrolling.




Page 8                                                GAO-12-560 Higher Education
 Interactive graphic      Figure 1: Illustration of Planning and Payment Processes for Higher Education Expenses




Directions:
Roll over time
spans in the chart
below for more
details.




                                        Before college                                    During college                                     After college

                                                                          A     S   O    N   D   J   F   M   A   M   J   J   A   S   O   N    D   J   F   M   A   M   J   J

                           Birth through senior year of high school      Each academic year                                  Monthly



                                  Senior year of high school                  August

                                 Fall through Spring
                                                                                    January through March                                     January
                                   January through March
                                                                                        January through April 15th                       January through April 15th
                                         March through April


                               Eligibility notification periods
                          Sources: GAO (information); Digital Vision (photo).
                          Notes: This graphic provides one example of the timing for financial aid, tax, and loan repayment decisions. The process may
                          differ for nontraditional students. For example, students that attend school less than half time or at times other than the fall through
                          spring semesters may make decisions and payments at times other than those depicted in this illustration. Also, individuals other
                          than parents—such as legal guardians—may be involved in financial aid and tax decisions.
                          FAFSA deadlines vary by state, and the Department of Education Web site often directs students to contact their financial aid 		
                          administrator for deadlines. Each college within a state may also have a different deadline. For 2011-2012, the federal deadline 		
                          is June 30, 2012.
                          a Some education institutions may require a FAFSA before families have filed a tax return.




     Print instructions   To print text version of this graphic, go to appendix III.


                                     Page 9                                                                                            GAO-12-560 Higher Education
In response to a statutory requirement designed to provide students and
families a better understanding of the net price of a college, 16 higher
education institutions have posted net price calculators on their Web
sites. The calculators use institutional data to provide estimated net price
information to current and prospective students and their families based
on a student’s individual circumstances. However, the net price
calculation includes consideration of grant aid but does not take into
account tax benefits a student or family may receive.

Applying for assistance. While Title IV aid and tax expenditures differ in
who is responsible for obtaining aid, they both provide challenges to
families in understanding and applying for assistance. With Title IV aid,
Education and higher education institutions are responsible for
determining aid eligibility and award amounts. While families do not need
to learn the eligibility rules for each Title IV program, they have to answer
numerous questions when applying for aid. Many experts, both within and
outside of government, have expressed concern about the length and
complexity of the FAFSA, including the possibility that the application
process itself may discourage some students from applying. 17 With tax
expenditures, the responsibility for selecting among and properly using
them rests with tax filers, who face many challenges in selecting the best
choice from among the numerous tax expenditures available for higher
education.




16
  The Higher Education Opportunity Act required all institutions receiving Title IV funds to
provide net price calculators on their Web sites. Pub. L. No. 110-315, § 111, 122 Stat.
3078, 3098 (Aug. 14, 2008), codified at 20 U.S.C. § 1015a. Schools were required to
publish a net price calculator by October 29, 2011.
17
   See also GAO, Federal Student Aid: Highlights of a Study Group on Simplifying the Free
Application for Federal Student Aid, GAO-10-29 (Washington, D.C.: Oct. 29, 2009) and
Susan Dynarski and Mark Wiederspan, Student Aid Simplification: Looking Back and
Looking Ahead, NBER Working Paper No. 17834 (Cambridge, MA: National Bureau of
Economic Research, 2012). In addition, a 2009 study found that families that received
information about aid and assistance in completing the FAFSA were substantially more
likely to submit the aid application and enroll in college; Eric Bettinger et. al, The Role of
Simplification and Information in College Decisions: Results from the H&R Block FAFSA
Experiment, NBER Working Paper No. 15361 (Cambridge, MA: National Bureau of
Economic Research, 2009).




Page 10                                                        GAO-12-560 Higher Education
Multiple Title IV
Programs and Tax
Expenditures
Provided Substantial
Aid across Income
Levels

Title IV Aid and Tax     Multiple Title IV programs and tax expenditures are available to help
Expenditures Are         eligible students and families pay for higher education. Figure 2 gives an
Substantial and Have     overview of the number and type of programs included in this review,
                         along with total benefits and recipients for each program, the median
Generally Increased in   amount of each award, and the median income of recipients.
Recent Years




                         Page 11                                            GAO-12-560 Higher Education
  Interactive graphic                Figure 2: Size and Characteristics of Title IV Aid Programs and Higher Education Tax Expenditures

                                     Directions:
                                           Roll over each program beneath the dotted line of the flowchart below to see the number of
                                           beneficiaries, the total dollars of the benefit, the average amount of each benefit, and the median
                                           income of recipients.



                                                                                                                              Tax
                                 Title IV                                                                                 Expenditures




                                                             Other                       Tax                                             Savings
       Grants                     Loans                                                                       Deductions                                          Exemptions
                                                            Title IV                   credits                                            Plans




                                    Subsidized                   Federal                                                                     529 QTPs/                    Parental
                                                                  Work                                                Tuition                                             personal
               Pell                                                                           AOC                                             Coverdell
                                     Stafford                                                                        and fees                  ESAs                      exemption
                                                                  Study



                                   Unsubsidized                                            Lifetime                    Student
            FSEOG                                                                                                        loan
                                     Stafford                                              learning
                                                                                                                       interest



                                        PLUS                                                 EITC
                                                                                                                     Key:

                                                                                                                             Programs used to pay for current expenses

                                                                                                                             Programs used to save for future expenses
                                      Perkins
                                                                                                                             Programs used to repay expenses


Source: GAO analysis of U.S. Department of Education documents, school-year 2007-2008 NPSAS data, IRS SOI data for tax year 2009, and the 2007 Federal Reserve Survey of Consumer Finance.


Note: For estimates of tax expenditures other than QTPs and ESAs, we report the tax benefit a filer receives from claiming the tax expenditure. All figures
presented are sample estimates and are subject to sampling error. We are 95 percent confident that in 2006, between 3.5 and 4.9 million households held a
QTP or ESA; that the median account balance was between $7,500 and $12,000; and that the median gross income of households was between $106,000
and $138,000. Data for QTPs and ESAs are presented together because the public SCF data file does not provide separate estimates for the two accounts.
Our estimates for the number of filers claiming an education tax benefit only include those filers that reduced their tax liability by claiming these expenditures.
All other estimates in this figure have 95% confidence intervals that are within +/- 10 percent of the estimate itself.


        Print instructions            To print text version of this graphic, go to appendix III.


                                                  Page 12                                                                                            GAO-12-560 Higher Education
Since 2006, the number of recipients and the value of benefits provided
through Title IV aid and tax expenditures have generally increased,
though the overall size of each program differed. 18 The number of
students receiving Title IV aid increased by 23 percent from 2006–2009,
from 10.4 million to 12.8 million. The number of tax filers benefiting from
an education tax expenditure was larger, and increased by 25 percent
from 2006 to 2009, from 14.4 million to 18.0 million (see fig. 3). The total
number of Title IV and tax recipients should not be added together, as in
some cases students and families may be eligible for benefits from both
types of programs.




18
  In this and following sections, we estimate the tax benefit that tax filers receive when
claiming a higher education-related tax provision using SOI data for tax year 2009. Our
estimates only include those filers that have a benefit after claiming other tax benefits.
These estimates are not equivalent to revenue loss estimates presented previously in the
background section of this report. For example, our SOI estimates include the tax benefit
a filer receives from claiming the EITC for a student ages 19-23. Revenue loss estimates
for this specific tax expenditure are not available in Analytical Perspectives, Budget of the
U.S. Government. Also, revenue loss estimates presented in the background section are
for fiscal year 2010, whereas our analysis uses SOI data for tax year 2009.




Page 13                                                        GAO-12-560 Higher Education
Figure 3: Number of Recipients of Title IV Programs and Tax Expenditures Who Pay
for Current Expenses, 2006–2009




Note: Title IV data are presented by federal fiscal year (October–September) and IRS data are by tax
year (January–December). The number of Title IV aid recipients may include students and families
who also filed for tax benefits as well, and vice versa. Within Title IV and tax expenditures, separately,
the number of recipients is unduplicated. For example, a family with two students claiming AOC’s for
both students would be counted as one tax filer. For the number of recipients, Title IV programs
include grants, work-study, and loans within the scope of this review. These figures also include
programs we did not review, including Academic Competitiveness Grants, National Science &
Mathematics Access to Retain Student Talent Grants, and Leveraging Educational Assistance
Partnership Grants. Tax expenditures include the AOC, Hope credit, LLC, tuition deduction, EITC for
students ages 19–23, and the parental exemption for dependent students ages 19–23. Estimated
number of recipients from IRS data have 95 percent confidence intervals that are within 10 percent of
the estimate itself.


From 2006 to 2009, tax filers claimed a roughly comparable dollar amount
of tax benefits as students received through Title IV grants during these
years (see fig. 4). This analysis focuses on Title IV grants because they




Page 14                                                                GAO-12-560 Higher Education
are most comparable to tax expenditures. 19 The dollar value of both tax
benefits and grants increased from 2006 to 2009. Tax benefits increased
by about 78 percent ($16.4 billion in 2006 to $29.2 billion in 2009) and
grants by 97 percent ($15.5 billion in 2006 to $30.5 billion in 2009). 20

Figure 4: Amount of Benefits from Selected Title IV Programs and Tax Expenditures
That Pay for Current Expenses, 2006–2009




19
  Student loans and work-study have different terms, including repayment and
employment, which require different methods of estimating costs and benefits. In contrast
to Title IV grants and tax expenditures, the dollar value of student loans provided through
Title IV decreased between fiscal years 2006 and 2009. The amount of loan assistance
(face value) through the Title IV programs decreased by over $40 billion from $152.5
billion in 2006 to $110.4 billion in 2009, although borrowing limits increased for Stafford
and Perkins loans during this time.
20
 These figures are in constant 2012 dollars.




Page 15                                                       GAO-12-560 Higher Education
Note: Values are reported in 2012 constant dollars. Title IV data are presented by federal fiscal year
(October–September) and IRS data are by tax year (January–December). For the Title IV benefits,
only Pell Grants and Federal Supplemental Educational Opportunity Grants are included. Tax
expenditures include the AOC, Hope credit, LLC, tuition deduction, EITC for students ages 19–23,
and the parental exemption for dependent students ages 19–23. Dollar estimates from IRS data have
95 percent confidence intervals that are within 10 percent of the estimate itself.


The sharp increase in benefits for both tax expenditures and Title IV
grants from 2008 to 2009 may be due to increases in enrollment and
legislative changes, among other factors. The overall number of students
enrolling in college increased 11.9 percent from 2007 to 2009—from 18.2
million to 20.4 million. The most recent national recession—which lasted
from December 2007 through June 2009—may have led more individuals
to enroll in college. Researchers have found that as unemployment
increases during a recession, unemployed individuals may return to
school to obtain additional skills, certifications, or degrees. 21 In addition to
these factors, legislative changes influenced the increase in benefits from
2008 to 2009. For example, for Title IV programs, Congress increased the
maximum Pell Grant award by 13 percent, from $4,731 in the 2008–2009
school year to $5,350 in the 2009–2010 school year. 22 During this period,
the total benefits provided through Pell Grants increased by
approximately $10 billion. 23 For tax expenditures, legislation in 2009
replaced the Hope credit with the AOC. Compared to the Hope credit, the
AOC is available to a broader range of tax filers because it:

•     is larger (the maximum available credit increased from $1,800 to
      $2,500);
•     has higher income phase-out limits;
•     adds required course materials to the definition of qualified education
      expenses;
•     is available for the first 4 years of higher education, instead of the first
      2; and



21
  See Julian R. Betts and Laurel L. McFarland, “Safe Port in a Storm: The Impact of Labor
Market Conditions on Community College Enrollments,” Journal of Human Resources
30(4), Autumn 1995, 741-765; Harris Dellas and Vally Koubi, “Business Cycles and
Schooling,” European Journal of Political Economy 19 (2003), 843-859; and Harris Dellas
and Plutarchos Sakellaris, “On the Cyclicality of Schooling: Theory and Evidence,” Oxford
Economic Papers 55, January 2003, 148-172.
22
    The maximum Pell Grant has subsequently increased to $5,550. See app. II.
23
  At the same time, the number of Pell recipients increased by 26 percent from 6.1 million
in 2008 to 7.7 million in 2009.




Page 16                                                              GAO-12-560 Higher Education
•   is refundable up to 40 percent of the credit (up to $1,000 a year),
    allowing filers without income tax liability to receive a benefit they
    would not get under the Hope credit, which was not refundable.
In 2008, before the legislative change, approximately 7.7 million tax filers
claimed a Hope credit or LLC, receiving $7.6 billion in benefits. 24 In 2009,
after the change, 12.5 million tax filers claimed an AOC, LLC, or Hope
credit, 25 receiving about $18.7 billion in benefits. This increase more than
offset a concurrent decrease in the number of tax filers’ claiming the
tuition deduction. From 2008 to 2009, the number of tax filers claiming the
tuition deduction decreased from about 3.3 million to about 1.7 million,
and the amount of benefits received decreased from about $1.5 billion to
about $658 million (see fig. 5).




24
  Dollar values in this paragraph are presented in 2012 constant dollars in accordance
with the multiyear comparison in fig. 5.
25
  While the AOC replaced the Hope credit for most filers in 2009, students attending an
eligible institution in a Midwestern disaster area were eligible for a larger Hope credit
($3,600 maximum) if they met eligibility requirements.




Page 17                                                       GAO-12-560 Higher Education
                         Figure 5: Tax Benefits Received by Tax Filers Claiming the Tuition Deduction, Hope
                         Credit, LLC, and AOC, 2006–2009




                         Note: Values are presented in 2012 constant dollars. We are 95 percent confident that our estimate
                         for the 2009 Hope credit is between about $270 million and $382 million. All other dollar estimates
                         have 95 percent confidence intervals that are within 10 percent of the estimate itself.


Title IV and Tax
Expenditures Offer
Assistance to Students
across Income Levels

Title IV Programs        Title IV grants tend to benefit students and families 26 with incomes below
                         the national median (which was about $52,000 from 2006–2010), while


                         26
                           In the case of dependent students, we refer to family income.




                         Page 18                                                             GAO-12-560 Higher Education
loans and work-study benefit these students and families with incomes
well above the national median. The income distribution of students
served by the two largest Title IV programs—the Pell Grant and Stafford
loan programs—differs by dependency status because independent
students generally have lower incomes and less accumulated savings
than dependent students and their families. 27 Funds from these programs
were generally spread across various income levels for dependent
students, but concentrated at lower income levels for independent
students, as shown in figure 6. For example, nearly 90 percent of
subsidized Stafford funds for independent students went to the 91 percent
of independent students with incomes $60,000 and below. In contrast,
about 60 percent of subsidized Stafford funds for dependent students
went to students and families with incomes $60,000 and below. 28




27
  Overall, more independent students received Title IV aid than dependent students in the
2007-2008 school year (12.8 million and 10.5 million, respectively) and independent
students received more benefits than dependent students ($52.4 billion and $36.5 billion,
respectively). Dollar figures in this section are not adjusted for inflation.
28
 A proportional 60 percent of dependent students receiving subsidized Stafford funds
were from families with incomes $60,000 and below.




Page 19                                                     GAO-12-560 Higher Education
                               Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by Income
 Interactive graphic Category and Dependency Status, 2007-2008

Directions: Roll over each
program for more details.



          Program                                  Dependent students                                                        Independent students

                                                                                      Share of                                                                   Share of
                               Dollars received                                       benefits           Dollars received                                        benefits

                                                                     $2,993,296,755        45%                                                $5,708,275,819        72%
          Pell grant
                                                                     $2,962,215,274        44%                       $2,033,734,008                                 26%
                                       $708,298,173                                        11%            $220,020,619                                               3%
                               $8,350,502                                                   0%           $0                                                          0%
                               $0                                                           0%           $0                                                          0%
                               $0                                                           0%           $0                                                          0%

                                                  $1,576,033,411                           15%                   Dollars received           $9,421,293,323          50%
                                                              $2,600,677,516               24%                               $5,143,430,349                         27%
   Subsidized Stafford Loan                                 $2,399,719,215                 22%                    $2,332,929,154                                    12%
                                                     $1,777,159,779                        17%                $1,065,865,463                                         6%
                                             $1,145,483,437                                11%               $831,217,599                                            4%
                                              $1,268,645,799                               12%          $0                                                           0%


                                    $480,773,388                                            8%                                                $9,539,027,035        46%
                                      $706,246,969                                         11%                              $4,980,847,097                          24%
                                      $668,956,702                                         11%                      $2,688,876,994                                  13%
  Unsubsidized Stafford Loan
                                        $863,722,923                                       14%                  $1,531,454,768                                       7%
                                          $1,055,285,595                                   17%                  $1,474,347,793                                       7%
                                                               $2,539,426,756              40%               $702,578,936                                            3%


                                 $306,178,690                                               4%
                                     $791,392,564                                           9%                   Figure includes PLUS loans for parents of
                                       $1,069,231,412                                      13%                dependent students only. Grad PLUS loans for
         PLUS Loan                                                                                           independent students are not in the scope of this
                                          $1,332,716,460                                   16%
                                                                                                                review because they served under 500,000
                                           $1,434,575,441                                  17%
                                                                                                                           students in 2007-2008.
                                                                 $3,567,182,411            42%


                                                   Income

                                                             $0-$20,000

                                                             $20,001-$40,000

                                                             $40,001-$60,000

                                                             $60,001-$80,000

                                                             $80,001-$100,000

                                                             Greater than $100,000

                                                   Source: GAO analysis of Education NPSAS 2007-2008 data.
                                                   Note: Numbers may not add due to rounding. See app. III for confidence intervals.




                                                  Page 20                                                                         GAO-12-560 Higher Education
The distribution of the three small campus-based aid programs (FSEOG,
Perkins, and Federal Work-Study) has some similarities and differences
with the larger Title IV programs. While the larger Title IV programs—Pell
Grants, Stafford loans, and PLUS loans—distributed more funds to
independent students, more campus-based aid went to dependent
students. 29 Like Pell Grants, and as intended, campus-based FSEOG
primarily benefited students and families with incomes below the national
median household income. 30 Like subsidized Stafford loans, the majority
of all campus-based Perkins loan recipients with incomes $40,000 and
under received the majority of funds from the program. See figure 7 for
additional detail.




29
  In 2007-2008, $4.3 billion of campus-based aid was distributed to dependent students
compared with $2.1 billion for independent students.
30
  The 91 percent of all FSEOG recipients with incomes $40,000 and under received
nearly 90 percent of FSEOG funds.




Page 21                                                     GAO-12-560 Higher Education
                             Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars Received, by
 Interactive graphic Income Category and Dependency Status, 2007-2008

Directions: Roll over each
program for more details.



 Campus-Based Aid Programs                       Dependent students                                                       Independent students

                                                                                      Share of                                                        Share of
                             Dollars received                                         benefits         Dollars received                               benefits

                                      $209,167,876                                       40%                        $287,140,334                         79%
                                       $229,314,569                                      44%              $64,666,358                                    18%
           FSEOG
                                $74,901,541                                              14%           $12,253,894                                        3%
                             $5,224,562                                                   1%           $198,775                                           0%
                                        Cannot provide estimate due to sample size.                    $0                                                 0%
                                                                                                       $0                                                 0%

                                    $152,790,728                                         17%                               $433,717,269                  73%
                                         $259,282,922                                    28%               $95,943,420                                   16%
                                       $220,640,219                                      24%            $38,661,997                                       7%
     Federal Perkins Loan
                                  $118,530,334                                           13%           $7,690,437                                         1%
                                $67,018,955                                               7%           $15,385,335                                        3%
                                 $95,266,510                                             10%          $0                                                  0%


                                             $349,134,109                                12%                                           $707,382,578      63%
                                                        $605,006,564                     21%                      $238,661,357                           21%
                                                     $535,082,448                        19%               $97,670,405                                    9%
      Federal Work Study
                                                $434,541,331                             15%             $51,330,515                                      5%
                                             $342,452,892                                12%            $21,051,799                                       2%
                                                       $580,623,357                      20%           $2,987,375                                         0%


                                                 Income

                                                             $0-$20,000

                                                             $20,001-$40,000

                                                             $40,001-$60,000

                                                             $60,001-$80,000

                                                             $80,001-$100,000

                                                             Greater than $100,000

                                                 Source: GAO analysis of Education NPSAS 2007-2008 data.
                                                 Note: Numbers may not add due to rounding. See app. III for confidence intervals.




                                                Page 22                                                                         GAO-12-560 Higher Education
                   While FSEOG and Perkins provide aid in the form of grants and loans
                   (respectively) for students with exceptional financial need, the Federal
                   Work-Study program provides funding for the employment of students
                   with any financial need. This difference in targeted populations is
                   reflected in the distribution of work-study funds by income. For example,
                   36 percent of the funds went to the 36 percent of recipients from families
                   with incomes over $60,000. The share of work-study funds distributed to
                   students from families with incomes over $100,000 grew significantly from
                   the 2003–2004 school year to the 2007–2008 school year, from 9 percent
                   to 15 percent. 31

Tax Expenditures   Most tax benefits from the tuition and fees deduction and the parental
                   exemption for dependent students went to households with incomes
                   above $60,000, whereas the majority of benefits for the other higher
                   education tax expenditures in our review (e.g., student loan interest
                   deduction, AOC, LLC, and EITC) went to households with incomes below
                   $60,000. 32 Figure 8 summarizes the distribution of tax benefits to filers, by
                   income.




                   31
                     Similarly, the share of work-study recipients from families with incomes over $100,000
                   grew from 8 percent in 2003-2004 to 15 percent in 2007-2008.
                   32
                      Specifically, 67 percent of tax benefits from the tuition and fees deduction ($419.5
                   million) and 75 percent of the exemption for dependent students ($4 billion) went to tax
                   filers with incomes above $60,000 in 2009.




                   Page 23                                                       GAO-12-560 Higher Education
                                     Figure 8: Number and Percentage of Tax Filers Claiming Higer Education Tax Expenditures and
 Interactive graphic Total Benefits, by Income Category, 2009                                                              	

Directions: Roll over each
program for more details.



                                 Program                                                                              Program


                        Tuition and fees deduction                                                       American opportunity credit

                                                          Share of                                                                                   Share of
     Total benefits                                       benefits                   Total benefits                                                  benefits

     $23,237,000                                                4%                                              $2,410,738,000                            15%
     $60,962,000                                               10%                                                       $3,415,061,000                   21%
      $125,127,000                                             20%                                                $2,592,059,000                          16%
      $78,621,000                                              13%                                             $2,228,655,000                             14%
     $55,363,000                                                9%                                         $1,795,974,000                                 11%
        $285,550,000                                           45%                   $0                                   $3,526,694,000                  22%

                      Student loan interest deduction                                                       Lifetime learning credit


      $56,757,000                                               4%                      $177,536,000                                                        7%
        $271,208,000                                           20%                           $717,486,000                                                  30%
         $341,352,000                                          26%                          $573,645,000                                                   24%
       $204,966,000                                            15%                         $453,702,000                                                    19%
       $177,270,000                                            13%                        $375,959,000                                                     16%
        $282,212,000                                           21%                     $113,646,000                                                         5%

             Parental exemption for students ages 19-23                                    Earned Income Tax Credit for students ages 19-23


      $49,874,000                                               1%                                      2,012,304,000                                      61%
           $615,251,000                                        12%                              1,271,618,000                                              39%
           $669,819,000                                        13%                   Cannot provide estimate due to sample size                             0%
           $675,441,000                                        13%                   $0                                                                     0%
           $662,782,000                                        12%                   $0                                                                     0%
                                $2,664,082,000                 50%                   $0                                                                     0%


                                                           Income

                                                                       $0-$20,000

                                                                       $20,001-$40,000

                                                                       $40,001-$60,000

                                                                       $60,001-$80,000

                                                                       $80,001-$100,000

                                                                       Greater than $100,000

                                                           Source: GAO analysis of IRS SOI data.
                                                           Note: Numbers may not add due to rounding. See app. III for confidence intervals. Our estimates for the percentage of filers
                                                           claiming the intuition and fees deduction and the student loan interest deduction only include those filers that reduced their tax liability
                                                           by claiming these deductions.




                                                        Page 24                                                                                          GAO-12-560 Higher Education
With the introduction of the AOC, the distribution of filers claiming tax
credits in the lowest and highest income categories changed. In 2008, 14
percent of tax filers claiming a Hope credit had incomes under $20,000,
and they received 6 percent of the total benefits provided. In 2009,
however, 28 percent of tax filers claiming the AOC had incomes under
$20,000, receiving 15 percent of the total benefits provided. Similarly, tax
filers making more than $100,000 made up only 5 percent of the tax filers
who claimed the Hope credit in 2008 (receiving 4 percent of benefits), but
accounted for 16 percent of tax filers claiming the AOC in 2009 (receiving
22 percent of the total benefits). Almost half of tax filers receiving an AOC
in 2009 (about 4.2 million of the 9.1 million who claimed the credit)
received a refundable credit that exceeded their tax liability.

Education savings accounts are primarily used by households with
incomes greater than the national median. Education savings accounts
are more advantageous to families with higher incomes and tax liabilities
because, among other reasons, these families have more available
money to save and have a higher marginal tax rate, and thus benefit the
most from these tax preferences. According to our analysis of the 2007
Survey of Consumer Finances, the most recent year which survey results
are available, we found that the gross income of households with
Coverdell and 529 accounts is significantly higher than households
without these accounts, across all income ranges we reviewed. For
example, in 2007, households with these accounts had a median income
of $122,400, whereas households without these accounts had a median
income of $43,400. 33 In addition, we found that 12 percent of households
with incomes above $100,000 held these accounts. In contrast, about 4
percent of households with incomes from $50,001 to $100,000 and about
1 percent of households with incomes below $50,000 held these
accounts. 34




33
  We are 95 percent confident that the median income of households with a 529 account
or Coverdell ESA is between $106,460 and $138,340. For households without these
accounts, the median income is between $41,439 and $45,361.
34
  We are 95 percent confident the percentage of households with these accounts ranged
from: 10.2 percent to 14.3 percent for households with incomes greater than $100,000;
2.7 percent to 5.2 percent for households with incomes between $50,001 and $100,000;
0.37 percent to 1.1 percent for households with incomes less than $50,000.




Page 25                                                   GAO-12-560 Higher Education
Taxpayers Do Not
Always Select
Provisions That
Maximize Potential
Tax Benefits

Some Filers Do Not Claim    Taxpayers may not maximize their tax benefits if they 1) claim no credit or
a Tax Credit or Deduction   deduction when they are eligible or 2) choose a credit or deduction that
When Eligible, and Others   yields less of a tax benefit than another provision would, also known as
                            making a “suboptimal choice.” 35 Our analysis only covers a portion of all
Choose One That Does Not
                            returns claiming an education credit or tuition deduction. Our analysis is
Give Them the Largest       limited to tax filers who appeared eligible for the LLC or tuition deduction
Available Tax Benefit       in 2009, had a 1098-T with information on the student’s education
                            expenses, and had a tax liability after claiming other tax benefits. After
                            eliminating returns where eligibility was not clear, we included only 29
                            percent of returns in our analysis of filers with a 1098-T but selecting
                            neither the LLC nor the tuition deduction in 2009. Our findings could also
                            be influenced if institutions reported inaccurate expense information on
                            the 1098-T. In addition, some of the students we include in our analysis
                            have qualified tuition and related expenses reported on a 1098-T but may
                            not be eligible to use those expenses to claim an education credit or the
                            tuition deduction. For example, a tax filer cannot claim an AOC based on
                            the same expenses paid for with a private scholarship, but the
                            educational institution may not know to include this amount on box 5,
                            “scholarships or grants” on the 1098-T. In addition, we examined whether
                            taxpayers’ choices were suboptimal when state income taxes were taken
                            into account. See appendix I for a full description of our methodology and
                            its limitations.

                            Claiming no credit or deduction. Since 2005, we have repeatedly found
                            that some taxpayers fail to claim the LLC or tuition deduction for which
                            they appear eligible. 36 This continues to be the case. We estimate that


                            35
                              We use the term “suboptimal” only to describe a filer’s failure to minimize his or her
                            federal tax liability. Because understanding tax provisions’ eligibility rules and calculating
                            the optimal choice can be complex, filers may conclude that investing the time needed to
                            maximize their benefit is not worth the effort.
                            36
                              GAO-05-684 and GAO-08-717T.




                            Page 26                                                         GAO-12-560 Higher Education
almost 11 million filers could have claimed the LLC or the tuition
deduction and thereby reduced their taxes in 2009. However, about 14
percent of those filers, representing more than 1.5 million returns, failed to
claim either of them. 37 On average, taxpayers who claimed no credit or
deduction could have claimed benefits of $466. We estimate that the total
amount of tax benefits filers did not claim was approximately $726 million
in 2009. We found no cases where filers’ combined state and federal tax
liability would have been higher if they had claimed one of those benefits
on their federal return.

Choosing a credit or deduction that yields less of a tax benefit. We
found a portion of filers who appeared eligible for the LLC or the tuition
deduction made suboptimal choices in 2009. For example, of the
approximately 588,000 filers who claimed the tuition deduction, about
237,000 (40 percent) would have increased their tax benefit by claiming
the LLC instead. On average, these filers failed to increase their tax
benefit by $284. We estimate that the total amount of tax benefit filers did
not claim was approximately $67.2 million in 2009. In some states,
lowering AGI (as the deduction does) can reduce state income tax liability
enough to compensate for the higher federal income tax paid. Among
filers who appeared to make a suboptimal choice at the federal level by
claiming the tuition deduction (i.e., they claimed the tuition deduction but
would have maximized their federal tax benefit by claiming the LLC),
about one third (about 79,000 of 237,000 filers) actually maximized their
combined federal and state tax benefit by selecting the tuition deduction,
even though their federal income tax was higher. Table 1 summarizes
other suboptimal choices we found among 2009 federal filers.




37
  For perspective, entitlement programs, which are those programs that provide benefits
to all applicants who meet program eligibility criteria, have lower take-up rates than higher
education tax benefits we reviewed in this study. We reported in 2005 that of the selected
entitlement programs we reviewed, the proportion of those eligible for the program who
were enrolled ranged from about 50 percent to more than 70 percent. While it may not be
feasible for programs to serve 100 percent of those eligible for benefits, information on
take-up rates and on particular recipient groups can help program managers more
effectively address issues related to program access. GAO, Means-Tested Programs:
Information on Program Access Can Be an Important Management Tool, GAO-05-221
(Washington, D.C.: Mar. 11, 2005).




Page 27                                                        GAO-12-560 Higher Education
Table 1: Estimated Suboptimal Choices on Federal Tax Returns Made by Taxpayers in 2009

                                                                                                                            Number of filers
                                                                                                                           who appeared to
                                                                                                                           make suboptimal
                                                                                                                       choice at the federal
                                                                          Average amount                                level but maximized
                           Number of taxpayers        Percent of eligible tax filer failed to         Total amount of        their combined
Type of suboptimal          making suboptimal       taxpayers making a increase their tax              tax benefit not federal and state tax
choice                                  choice       suboptimal choice               benefit                  claimed                benefit
Claiming no credit or                1.5 million                              14             $466          $726 million                             0
deduction
                                                                                                  a                     a
Claimed the LLC                         38,000                                     2                                                                0
instead of the tuition
deduction
Claimed the tuition                    237,000                                40             $284         $67.2 million                      79,000
deduction instead of the
LLCb
                                           Source: GAO analysis of IRS SOI data.

                                           Note: Because of data limitations, we were unable to assess whether a filer claiming the LLC or
                                           tuition deduction would have increased his or her tax benefit by claiming the AOC instead. Our
                                           estimates for the number of filers making a suboptimal choice only include those filers that had a tax
                                           liability after claiming other tax benefits. See app. I for details.
                                           a
                                            Sample size is too small to estimate the average amount the tax filers failed to increase their tax
                                           benefit.
                                           b
                                            In some states, lowering AGI (as the deduction does) can reduce state income tax liability enough to
                                           compensate for higher federal income tax paid. Among filers who appeared to make a suboptimal
                                           choice at the federal level by claiming the tuition deduction (i.e., they claimed the tuition deduction but
                                           would have maximized their federal tax benefit by claiming the LLC), about one-third actually
                                           maximized their combined federal and state tax benefit by selecting the tuition deduction, even
                                           though their federal income tax was higher.


                                           Suboptimal tax choices were not limited to tax filers who prepared their
                                           own tax returns without assistance. We estimate that about 16 percent of
                                           returns prepared with software (representing about 689,000 returns) and
                                           17 percent of returns filed by paid preparers (representing about 912,000
                                           returns) did not select a credit or deduction that maximized higher
                                           education tax benefits in tax year 2009. However, filers preparing their tax
                                           returns without the aid of a paid preparer or software appeared more
                                           likely to make suboptimal choices. In tax year 2009, 38 percent of filers
                                           (about 206,000 of 539,000 paper returns filed) made a suboptimal choice.




                                           Page 28                                                                 GAO-12-560 Higher Education
Taxpayers May Be            It is good practice for tax systems to be transparent and understandable,
Unaware of Tax Provisions   giving as much certainty as possible to taxpayers and allowing them to
or Confused about Their     better plan for decisions about employment, investment, and
                            consumption. 38 However, as we have previously reported, the apparently
Use
                            suboptimal use of higher education tax expenditures may arise, in part,
                            from the complexity of these provisions. 39

                            Unaware of tax provisions or misunderstanding eligibility rules. Tax
                            filers may fail to maximize their tax benefits because they are unaware of
                            their eligibility for the provision. In addition, determining one’s eligibility to
                            claim a credit or deduction for qualified education expenses is a complex
                            process. In the case of the AOC, a student (or tax filer on behalf of the
                            student) is only eligible to claim the credit in the student’s first 4 years of
                            higher education. 40 Since the academic year of the student is determined
                            by the educational institution and is not equivalent to a calendar year,
                            determining whether a student meets the AOC’s academic eligibility
                            requirement—particularly for students who do not follow a traditional path
                            of 4 years of college—can be challenging.

                            For example, a student enrolls more than half time at an eligible
                            community college in 2005 and then takes 4 calendar years to complete 2
                            academic years’ worth of credits. He claims a Hope credit in 2007 and
                            2008. In his fifth year, he enrolls full-time at a 4-year university. Although
                            he is in his fifth calendar year of school, the student may be eligible for an
                            AOC if the 4-year university considers him to be in his third academic
                            year.

                            Number of provisions. The number of higher education tax provisions
                            may make it harder for taxpayers to determine which one is best for them.
                            For example, 12 higher education tax benefits are outlined in IRS
                            Publication 970, Tax Benefits for Education: For Use in Preparing 2010
                            Returns. Publication 970 does not include the parental personal
                            exemption and the Earned Income Tax Credit, which may also be
                            available to parents supporting dependents who are full-time students.


                            38
                             GAO, Understanding the Tax Reform Debate: Background, Criteria, & Questions,
                            GAO-05-1009SP (Washington, D.C.: Sept. 1, 2005).
                            39
                              GAO-05-684 and GAO-08-717T.
                            40
                              26 U.S.C. § 25A(i)(2). See app. II for a description of the AOC’s other eligibility
                            requirements.




                            Page 29                                                         GAO-12-560 Higher Education
Not all of the benefits are available to all tax filers, and the number of
available benefits may make it more difficult to determine eligibility.

Similarity of provisions. If provisions are similar, it may be difficult for
taxpayers to determine which one is best for them. For example, IRS
Publication 970 includes four different tax expenditures for educational
saving, each with different requirements and benefits to the taxpayer.

Differences in key definitions. What tax filers are allowed to claim as a
qualified higher-education expense varies among some of the higher
education savings and credit provisions in the tax code. For example,
while Coverdell education savings accounts and qualified tuition
programs under Section 529 of the Internal Revenue Code permit tax
filers to include room and board as qualified expenses if the student is
enrolled at least half time, the AOC and the LLC do not. Tax filers must
keep track of expenses separately, applying some expenses to certain
tax provisions, but not others.

Also, although IRS requires educational institutions to report on Form
1098-T information about qualifying educational expenses to taxpayers
and IRS, the information reported may not be easily understood by tax
filers or it may not include all eligible expenses. Institutions can report the
amount billed or paid, but these amounts may not equal the expenses the
filer can use to claim a credit or deduction. For example, Form 1098-T
may not account for all scholarships or grants the student received. In
such cases, correctly reported qualified expenses on the tax return will
not match the 1098-T. Conversely, if institutions do not provide
information on other eligible expenses, such as books or equipment,
taxpayers may underreport educational expenses. Because many of the
higher education tax benefits are based on the expenses paid, taxpayers
who underreport expenses may receive less of the benefit for which they
would otherwise be eligible to receive. Also, if an institution reports the
amount billed on the 1098-T, but the filer pays the bill in the following tax
year, the 1098-T will not reflect the amount that can be reported on the
tax return because a filer can only claim a higher education tax benefit in
the year the filer paid for qualified education expenses.

Coordination with other tax provisions. In addition to learning about,
comparing, and selecting tax provisions, tax filers must also understand
how the use of one tax provision affects the use of others. The use of
multiple education-related tax provisions is coordinated through rules that
prohibit the application of the same qualified higher education expenses
for the same student to more than one education-related tax preference,


Page 30                                              GAO-12-560 Higher Education
                             sometimes referred to as “anti-double-dipping rules.” These rules are
                             important because they prevent tax filers from underreporting their tax
                             liability. Nonetheless, anti-double-dipping rules are potentially difficult for
                             tax filers to understand and apply, and misunderstanding them may have
                             consequences for a filer’s tax liability.

                             State tax rules may add complexity. As discussed earlier, figuring out
                             how to maximize tax benefits is complicated by interactions with state tax
                             codes. Some states offer tax incentives for higher education, including
                             benefits for qualified state tuition programs and student loan interest
                             deductions. To maximize their combined federal and state tax benefit, tax
                             filers may also need to take into account the state treatment of federal
                             higher education tax expenditures. A recent study found that filers may be
                             more aware of federal tax effects than state tax effects, since some tax
                             filers may not be aware of the state tax implications of higher education
                             provisions. 41


IRS and Education Have       While IRS and Education have taken steps to provide information on
Taken Steps to Inform        higher education tax benefits to students and their families, the number of
Filers, but Additional Tax   filers failing to claim a higher education tax benefit suggests more could
                             be done. Publication 970, Tax Benefits for Education provides
Information Could            information—including eligibility rules and how to coordinate tax benefits
Improve Take-Up of Tax       with other forms of financial aid—on the tax provisions available to save
Benefits                     or pay for higher education expenses. IRS also developed a
                             communication plan for the AOC and other higher education tax benefits
                             in 2009 and took steps to implement the plan. For example, IRS reached
                             out to tax professionals at the IRS Nationwide Tax Forum and provided
                             information through traditional and social media, including IRS.gov.
                             Officials also stated they coordinated with software providers to ensure
                             that tax preparation software provided links to the relevant higher
                             education forms, including the Form 8863 Education Credits and the
                             Form 8917 Tuition and Fees Deduction. Education’s Federal Student Aid


                             41
                               In a review of individual tax returns claiming the tuition deduction or LLC in 2002-2008,
                             Turner (2011) finds that roughly one out of four returns fail to select a provision that
                             minimizes federal and state tax liabilities. One reason for this is that taxpayers, paid
                             preparers, and tax software are more aware of federal tax effects than state tax effects,
                             since federal tax effects are the result of an active choice, whereas state tax effects are
                             not explicitly selected on state tax forms. See Nicholas Turner, “Why Don’t Taxpayers
                             Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection,” The
                             B.E. Journal of Economic Analysis & Policy, vol. 11, no. 1 (2011).




                             Page 31                                                       GAO-12-560 Higher Education
Web site provides a link to IRS’s Publication 970, Tax Benefits for
Education. Education officials told us they are considering whether they
could provide additional information to increase students’ and families’
awareness of these tax benefits.

IRS and Education officials have begun to coordinate their efforts to
inform students and families of tax benefits. In its AOC communication
plan, IRS indicates it is coordinating with the Department of Education
and state education agencies to discuss communication options.
Education officials told us that they have a general agreement with IRS
on what tax benefit information Education will provide to students and
families. Education officials told us they were willing to provide additional
information to students and families, as long as it does not contradict
guidance provided by IRS. Also, Education officials told us they are
discussing the possibility of sharing information with IRS to help the IRS
target outreach to students and families that may be eligible for higher
education tax benefits.

It may be possible to reduce the number of filers who fail to claim a higher
education tax benefit and improve students’ and families’ ability to pay for
college. A possible starting point could be for IRS to identify the key
characteristics of filers who appear eligible for higher education tax
provisions but fail to claim them. IRS could then work with software
developers and tax preparers to identify reasons why filers using these
services are not claiming benefits for which they appear eligible. IRS
could also provide additional assistance to students and families by
developing a calculator (similar to the net price calculator) that students
and families could use to estimate their tax benefits for the upcoming
school year. In addition, Education officials stated that they could
coordinate with IRS to provide tax benefit information before students and
families need to make key financial decisions. For example, Education
officials expressed interest in working with IRS to provide a link to the
Publication 970 in the College Scorecard and the Model Financial Aid
Offer Form, which Education is developing to assist students and families
in comparing college costs and financial aid offers. Given the number of
filers not claiming benefits, it should be possible for IRS and Education
officials to design outreach efforts in such a way that the potential benefits
outweigh the costs.




Page 32                                              GAO-12-560 Higher Education
                        Since 2005, when we last reported on this subject, 42 research into the
Research on Effects     effects of federal assistance for higher education on the student
of Federal Assistance   outcomes of attendance, choice, persistence, and completion has
for Higher Education    addressed more Title IV aid programs and tax expenditures, but some
                        forms of assistance and outcomes remain largely unstudied (see table
Remains Limited         2). 43 In addition to new studies that complement existing research on
                        federal grants, loans, and tax credits, a few researchers have recently
                        examined the effects of the Federal Work-Study program and the tuition
                        deduction, which we previously reported had not been the subject of any
                        evaluative research. We did not, however, identify evaluative research
                        into these student outcomes for a number of federal tax expenditures for
                        higher education including 529 savings plans, Coverdell ESAs, the
                        student loan interest deduction, or the parental personal exemption. The
                        studies we identified did not cover the effects of any single program or tax
                        provision on all four student outcomes. We found that researchers have
                        examined the effects of Title IV aid and federal tax expenditures on a
                        limited basis—in particular, only for certain states, types of schools, and
                        groups of students. The studies we reviewed suggest that federal
                        assistance has varying effects, depending on the students and situations
                        involved and provide an incomplete view of the effects of federal
                        assistance because of the studies’ narrow focus. As a result, research on
                        federal assistance for higher education continues to provide an
                        incomplete picture of the effectiveness of federal assistance for higher
                        education.

                        Table 2: Research We Reviewed on the Effects of Federal Assistance Is Limited and
                        Cannot Be Generalized

                        Federal assistance for higher
                        education                              Attendance Choice Persistence Completion
                                  a
                        Grants                                                             
                        Student loans                                                                     
                        Work-study                                                                         
                        Tax expenditures
                             Tuition and fees deduction                                                    
                             Student loan interest deduction




                        42
                         See GAO-05-684.
                        43
                         A bibliography of the studies we reviewed is included at the end of this report.




                        Page 33                                                       GAO-12-560 Higher Education
                              Federal assistance for higher
                              education                                 Attendance Choice Persistence Completion
                                  Parental exemption for
                                  students 19 to 23
                                  American opportunity credit
                                  Hope credit                                 
                                  Lifetime learning credit                                                                
                                  Earned income tax credit for
                                  students 19 to 23
                                  Coverdell education savings
                                  account
                                  529 Qualified tuition program
                          Source: GAO analysis.

                          Note: We did not find research that could be generalized. A check mark indicates that one or more
                          Title IV aid or tax provisions in the category has been studied for certain states, types of school, or
                          groups of students.
                          a
                          Research conducted into the effects of Pell Grants but not Federal Supplemental Educational
                          Opportunity Grants.


                          Although evaluative research linking federal assistance to student
                          outcomes remains limited, a number of studies address other issues that
                          promote or complicate the effective use of federal assistance, and
                          researchers have also studied the effects of nonfederal student-aid
                          programs. For example, researchers have determined that a lack of
                          information on the costs and benefits of higher education can limit
                          students’ choice of institutions to attend. In addition, researchers have
                          provided mixed evidence on the extent to which schools raise their tuition
                          or decrease the institutional aid they offer in response to federal
                          assistance. There is also a wide body of research into the effectiveness of
                          both need- and merit-based state, regional, and institutional aid
                          programs. Researchers we interviewed told us they have turned to the
                          study of state-based student aid—for which there may be better data than
                          for federal programs, and some of which are designed to allow for high
                          quality evaluation—because these studies can yield informative lessons
                          about the effects of assistance for higher education.


Data and Methodological   Continuing gaps in research-based evidence on the effectiveness of Title
Challenges Remain         IV aid and tax expenditures may be due, in part, to data and
Persistent Obstacles to   methodological challenges that have proved difficult to overcome. Data
                          from Education necessary to conduct evaluative research on Title IV aid
Research                  are fragmented and not routinely available to researchers. Education
                          commissioned a 2011 study to report on issues associated with



                          Page 34                                                                 GAO-12-560 Higher Education
Education’s sources of data on federal grants, loans, and work-study. 44
According to the study, multiple offices within Education are responsible
for tracking and compiling data and the datasets produced by these
offices are often incompatible with each other. For example, Education
does not have a uniform method for assigning codes to identify college
and university campuses. As a result, researchers are unable to combine
information from the datasets to create comprehensive, comparable, and
accurate data that would allow them to estimate the effect of Title IV aid
programs on student outcomes. Additionally, some of Education’s data
sources are subject to time lags, and others are not regularly made
available for research. According to Education officials, data for individual
students developed primarily for the administration of Title IV aid are also
protected by privacy laws and generally unavailable to researchers. 45 In
some cases, the data that Education does make publicly available are
preliminary and subject to change with little public notice. The study
recommended that Education should assess the feasibility of making its
data more compatible and accessible, acknowledging that this would
require additional resources and could place increased reporting burdens
on higher education institutions.

Education officials reported they are addressing the study’s
recommendations through several recently completed and ongoing
initiatives intended to make its data more accessible and useable. For
example, in March 2012 Education expanded an ongoing effort to provide
school districts with data on which students have submitted a FAFSA and
whether their submissions were complete. Education told us these data
are intended to help high school principals and guidance counselors
increase FAFSA filings and attendance at institutions of higher education



44
  Steele, P. (2011). Suggestions for Improvements to the Collection and Dissemination of
Federal Financial Aid Data (NPEC 2012-834). U.S. Department of Education. Washington,
D.C.: National Postsecondary Education Cooperative. Available from
http://nces.ed.gov/pubsearch (accessed Dec. 19, 2011).
45
  We have previously reported that sharing data from a student’s records must be done in
accordance with the Family Educational Rights and Privacy Act (FERPA), 20 U.S.C. §
1232g, which limits the disclosure of those records to third parties. See GAO-10-927,
Postsecondary Education: Many States Collect Graduates’ Employment Information, but
Clearer Guidance on Student Privacy Requirements Is Needed (Washington, D.C.: Sept.
27, 2010). For more information on key constraints agencies face in using administrative
data for research, see GAO, Federal Statistical System: Agencies Can Make Greater Use
of Existing Data, but Continued Progress Is Needed on Access and Quality Issues
GAO-12-54 (Washington, D.C.: Feb. 24, 2012).




Page 35                                                    GAO-12-560 Higher Education
by their students. Education also reported taking steps intended to
facilitate higher education research by improving the accuracy of its data
on the student outcome of completion and by developing a tool for
possible release in 2012 that will address differences between
Education’s various data sources in the codes used to identify colleges
and universities. Education told us these steps will allow for more precise
measurement of student outcomes for Title IV recipients and may enable
researchers to merge some of Education’s data sources to create reports
on institutions of higher education. Education is also pursuing a process
for the release of additional data both to the public and to fulfill specific
research requests while protecting the privacy of federal aid recipients.
Education estimates that one of the steps required to do this could take
between 2 and 6 months to complete while the other could take close to a
year or more to complete.

Individual taxpayer data needed to evaluate federal tax expenditures are
subject to privacy restrictions or are not collected by IRS. Although tax
expenditures are now a well-established source of assistance for students
and their families, tax information that may be useful for research is
unavailable to most researchers. Section 6103 of the Internal Revenue
Code protects tax returns and other tax information collected by IRS as
confidential, and it prohibits disclosure of federal tax information, except
as specifically authorized by statute. Also, IRS in general only collects tax
information required for administering the tax code. For example, while
the IRS collects data on distributions from 529 plans, it does not collect
information on contributions to these accounts, as these plans do not
have a defined contribution limit. 46

Methodological challenges also add to the difficulty of measuring the
effect of federal assistance efforts. Opportunities are limited within the
study of higher education financial aid for researchers to conduct the type
of experiments that allow them to isolate the effects of a particular federal
aid program or tax expenditure. This is because, in addition to sufficient
data, evaluative research requires some level of variation in a Title IV
program or tax expenditure that allows researchers to compare outcomes
across students before and after a change. Most of the federal


46
  Section 529(b)(6) of the Internal Revenue Code states that a program shall not be
treated as a qualified tuition program unless it provides adequate safeguards to prevent
contributions on behalf of a designated beneficiary in excess of those necessary to
provide for the qualified higher education expenses of the beneficiary.




Page 36                                                      GAO-12-560 Higher Education
                            government’s major Title IV programs and higher education tax
                            expenditures have been in place for many years and have changed
                            incrementally over this time. Changes often affect all eligible students
                            nationwide in the same way, which makes it hard to determine students’
                            behavior in the absence of a change. Also, it is difficult to separate the
                            effects of a change from larger social or economic events that can affect
                            student outcomes. For example, using the introduction of the AOC in
                            2009 to measure the effects of tax credits on student outcomes might be
                            complicated by economic changes attributable to the national recession,
                            which lasted through June of that year. Although capitalizing on the
                            opportunities substantive changes provide for evaluative research can be
                            challenging, recent changes in Title IV aid and higher education tax
                            expenditures—such as the introduction of the AOC in 2009—could
                            provide the needed variation to conduct evaluations of these programs.

                            Researchers can in some cases mitigate such challenges through the use
                            of various statistical techniques and research designs. For example,
                            program administrators can create experiments in which individuals are
                            randomly divided into a treatment group that is subject to a change in
                            benefits and a control group that is not. Short of such efforts by federal
                            agencies to create experiments in partnership with the higher education
                            community, substantive changes, including the introduction and expiration
                            of federal programs and tax provisions, are among the most viable
                            opportunities for evaluative research. For example, one researcher used
                            the introduction of unsubsidized Stafford loans in 1992, which extended
                            federal loans to previously ineligible families, to estimate the effects of
                            student loans on attendance. 47


Education Has Taken         Education’s efforts to sponsor and undertake research into the effects of
Steps to Address Research   Title IV aid represent an important step, but research available at present
Limitations                 still lacks evaluative information on the effects of federal grants, loans,
                            and work-study. Education has taken steps to sponsor research into the
                            effects of student aid programs. In 2006, Education’s Institute of
                            Education Sciences (IES) funded the National Center for Postsecondary



                            47
                              In addition, Education used the introduction of two new grant programs under Title IV—
                            the Academic Competitiveness Grant and National Science and Mathematics Access to
                            Retain Talent Grant programs—to conduct evaluative research, but Education officials told
                            us these programs expired prior to learning the results of their evaluation. Funding for
                            these programs expired at the end of fiscal year 2011.




                            Page 37                                                     GAO-12-560 Higher Education
Research with a grant of about $9.8 million. The center conducts
research on the effectiveness of programs designed to reduce barriers to
higher education and improve student outcomes such as attendance,
persistence, and completion. In 2011, IES funded the Center for Analysis
of Postsecondary Education and Employment with a grant of about $10
million to conduct research on labor market outcomes for higher
education students, including ongoing research into the effects of Federal
Work-Study on students in Florida. 48 IES has also awarded a number of
grants funding research into, among other things, efforts to increase
access to, persistence in, and completion of higher education. Although
these steps have not resulted in published research evaluating the effects
of federal assistance on student outcomes, they have resulted in a
number of published and ongoing studies, including experimentation with
efforts to simplify the application process for Title IV aid 49 and encourage
savings for higher education, 50 and research into the effects of state and
local financial aid programs. 51

In addition to sponsoring research, Education has also taken steps to
directly undertake experimental research in partnership with the higher
education community. The Secretary of Education has flexibility to grant
higher education institutions waivers from federal requirements in order to
test alternate methods for administering Title IV programs. 52 Using this
flexibility, Education is soliciting participation in an Experimental Site
Initiative that will allow participating institutions to set up evaluations


48
  Both the National Center for Postsecondary Research and the Center for Postsecondary
Education and Employment are research partnerships housed within Columbia University.
The centers collaborate with other entities such as nonprofit organizations and academic
institutions, as well as state partners.
49
  See Bettinger, Long, Oreopolous, and Sanbonmatsu (2009).
50
  Education sponsors an ongoing experiment in the use of College 529 savings plans by
families of high school students in Ohio.
51
  Education funds such research on the basis of a competitive peer review of research
proposals by experts in the higher education research community. Proposals are selected
based on the strength and feasibility of the research design and a consideration of the
importance of the programs being studied. For example, Education funds ongoing studies
of a state-based student aid program in Florida, a state with a large population, and a local
student aid program in Michigan that may yield lessons for similar programs used around
the country. In some cases, this type of research might also produce insights that can be
applied to federal student aid programs.
52
  20 U.S.C. § 1094a(b)(3).




Page 38                                                       GAO-12-560 Higher Education
including random experiments to test, among other things, specific
aspects of the Pell Grant and Stafford Loan programs. For example,
Education is inviting institutions to set up an experiment to test whether
allowing low-income students who have a bachelor’s degree to receive a
Pell Grant in order to complete vocational training would reduce
unemployment. 53

Education’s efforts to date have not resulted in direct evidence of Title IV
aid’s effect on student outcomes. 54 Although policymakers may in some
cases be able to draw on lessons learned from studies of nonfederal aid
programs, state and institutional aid programs are different from federal
programs in important ways—such as the types of incentives they offer
and the requirements they make of students—that make direct
comparisons difficult. While Education’s initiatives to conduct
experimental research in conjunction with institutions of higher education
may provide insights into specific aspects of Title IV programs, these
initiatives are fairly narrow in scope due in part to both limitations in
Education’s authority to waive Title IV provisions and in the level of
resources Education officials told us they devote to such experimentation.
As a result, these initiatives are unlikely to yield broadly applicable
lessons about the effects of Title IV aid on student attendance, choice,
persistence, or completion. Recent and future substantive changes to
Title IV grants and loans may represent valuable opportunities to study
the effects of these programs, but Education officials told us they have
not have not sponsored or conducted such research.




53
  The Secretary’s authority to waive Title IV requirements is limited. For example, the
Secretary can modify eligibility provisions, but may not generally waive provisions with
respect to award rules, see 20 U.S.C. § 1094a(b)(3)(B).
54
  Congress has directed Education to provide reliable information about the effectiveness
of federal programs by conducting and sponsoring evaluative research. See Education
Sciences Reform Act of 2002, Pub. L. No. 107-279, 116 Stat. 1940, (Nov. 5, 2002).
Standards for internal control in the federal government cite a number of roles for
evaluations including control activities such as top level performance reviews to support
goals, plans, and objectives, as well as reviews at the functional or activity level.
Evaluations are also a component of relevant, reliable, and timely communications
necessary for an agency to achieve its objectives. Evaluations conducted by program
officials and external parties improve the agency’s ability to assess the quality of
performance over time. See GAO, Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1, 1999).




Page 39                                                       GAO-12-560 Higher Education
                        We have long recommended greater scrutiny of tax expenditures, 55 as tax
                        expenditures and their relative contributions toward achieving federal
                        missions and goals are often less visible than spending programs, which
                        are subject to more systematic review. To date, IRS and Treasury have
                        not conducted studies on the effects of tax expenditures, and have no
                        plans to do so. Also IRS officials stated that their focus is on
                        administering programs as opposed to evaluating their effectiveness.


                        The challenges that students and families face in planning for and
Factors That            choosing among federal higher education benefits and that researchers
Contribute to the       face in determining the impact of federal higher education assistance on
                        student outcomes, raise questions about the effectiveness and efficiency
Effectiveness and       of federal higher education assistance programs and the potential for
Efficiency of Federal   improving them. In this challenging fiscal climate, policymakers face
                        difficult choices in allocating limited resources among multiple programs.
Higher Education        In response to these issues, we identified factors that contribute to
Assistance Programs     effective and efficient higher-education assistance programs and
                        developed a framework of questions to help assess whether programs
                        incorporate these elements in their design. 56

                        This framework can be used as a policy tool for considering
                        improvements to current programs, consolidating programs, eliminating
                        programs, or designing features of new programs (table 3). It guides the
                        user to think strategically about both program design and implementation.
                        Some of the questions raised in the framework may be difficult to answer
                        completely, but are important to analyze and consider. For example,
                        determining whether the program has clearly defined purposes may yield
                        different results as policymakers modify the program over time. A few
                        concepts appear in multiple places within the framework, highlighting the
                        importance of certain program characteristics. For example, the timing of
                        the assistance, and information provided about it, may influence whether
                        students seek out the aid at all and whether they use it to inform their
                        decisions about attendance. Timing is also a factor in how effectively the


                        55
                          GAO, Government Performance and Accountability: Tax Expenditures Represent a
                        Substantial Federal Commitment and Need to Be Reexamined, GAO-05-690
                        (Washington, D.C.: Sept. 23, 2005) and Tax Policy: Tax Expenditures Deserve More
                        Scrutiny, GAO/GGD/AIMD-94-122 (Washington, D.C.: June 3, 1994).
                        56
                         We consulted subject-matter experts and our prior work as we identified these factors.
                        See app. I for more information on our methodology.




                        Page 40                                                     GAO-12-560 Higher Education
                                          program interacts with other federal assistance—Title IV programs tend to
                                          provide benefits while the student is enrolled in school and tax
                                          expenditures cover a range of timeframes. The examples below provide
                                          an illustration of how each factor is relevant to federal higher education
                                          assistance programs. The examples indicate how considering each factor
                                          could help improve a program or policy scenario, but they are not
                                          intended to be specific suggestions.

Table 3: GAO Framework for Evaluating Federal Higher Education Assistance Programs

Factors                    Key questions                                              Example
Achieves program goals and 1.   Does the program have clearly defined and             Considering the program’s purpose may help
produces demonstrable           measurable goals or objectives?                       align the structure or features of the program
        a
results                         a. If so, do the program’s stated goals reflect the   with intended outcomes. For example, if the
                                     current objectives of various policymakers       purpose of a given program is to encourage
                                     and practitioners?                               students to attend school in the first place, the
                                                                                      program could be designed to maximize
                                b. If not, what should be the goals and               benefits in the first years of school. Because
                                     objectives of the program?                       education is a long-term investment,
                           2.   To what extent does the program produce               considering how the program’s benefits are
                                benefits that are timely and sufficient to achieve    distributed to different groups across time could
                                its purpose, e.g., encouraging choice, attendance,    help in assessing whether and how well the
                                persistence, and completion?                          program produces benefits.
                           3.   Does the program produce long-term results for
                                the individual, institutions, and society?
Provides appropriate       4.   Is it clear what behaviors the program is designed    Some programs target assistance to students
incentives for targeted         to incentivize?                                       and families with specific income ranges, while
populations                5.   Is it clear what population the program is designed   others distribute benefits to a broader range of
                                to target?                                            incomes. Considering these key questions can
                                                                                      help clarify whether a given program is meant,
                           6.   Does the program provide appropriate incentives       for example, to target low-income students and
                                to individual students who are likely to change       incentivize them to complete school, or
                                their behavior?                                       whether the program is meant to help students
                           7.   Are there disincentives associated with the           from all income levels to complete school. This
                                program that adversely affect individuals’            can inform decisions about the distribution of
                                participation, such as the risk of debt and default   assistance and allocation of resources.
                                for those participating in federal student loan
                                programs?
                           8.   Does the program reasonably address how
                                different populations may respond to incentives,
                                such as the different responses that independent
                                and dependent students may have?
                           9.   To what extent does the program minimize
                                “windfalls,” i.e., rewarding beneficiaries for
                                activities that they would have undertaken without
                                the aid?




                                          Page 41                                                        GAO-12-560 Higher Education
Factors                      Key questions                                             Example
Facilitates use of the       10. Does the program provide sufficient and timely        The administration of a program can affect the
program by beneficiaries         information to make students and families aware       public’s ability to take advantage of benefits for
                                 of the assistance available and manage                which they may be eligible. For example,
                                 expectations?                                         researchers have raised questions about the
                                 a. Can families obtain timely and reliable            length and complexity of the application
                                      estimates of how much assistance they are        process for Title IV aid and whether the FAFSA
                                      eligible to receive?                             could be simplified. In addition, tax filers face
                                                                                       challenges in selecting the best choice from
                                 b. Does the program provide sufficient guidance       among the numerous tax expenditures
                                      so that families can make informed and           available for higher education. Considering
                                      appropriate decisions about college              whether the design and administration of these
                                      attendance and financing their postsecondary     tax programs are user-friendly may help
                                      education?                                       determine how to minimize confusing choices
                                 c. Do students and families understand whether        and provide further guidance to facilitate
                                      and how the program interacts with other         program use.
                                      programs?
                             11. How do the procedures for accessing and using
                                 the program affect individuals’ participation? For
                                 example, is the application process simple
                                 enough to understand and complete?
                             12. Does the timing of the assistance facilitate
                                 participation in the program?
Interacts effectively with   13. To what extent does the program effectively           It is important to consider how programs
other programs                   complement other programs, in terms of                function together to assist students with the
                                 incentives created, populations served, reducing      costs of higher education. For example,
                                 the cost of attendance, and the timing of the         students and families generally receive Title IV
                                 assistance?                                           benefits early in the school year, and tax
                                                                                       benefits toward the end. Considering how
                                                                                       programs interact could also help avoid
                                                                                       duplication, for example, by incorporating
                                                                                       provisions similar to current rules that prevent
                                                                                       double dipping. Additionally, identifying
                                                                                       whether multiple programs serve similar needs
                                                                                       for similar populations could help in
                                                                                       redesigning programs to reduce overlap or
                                                                                       fragmentation.
Minimizes costs and risks    14. Does the design of the program reasonably and         Addressing issues of cost and risk can help
                                 appropriately address costs and risks (e.g., the      protect taxpayer funds and improve efficiency.
                                 compliance burden placed on individuals or the        Different mechanisms of providing higher
                                 risk of fraud) to the individual, institutions, and   education assistance may involve different
                                 society?                                              costs and risks. For example, student loans
                             15. Can the program produce its benefit while             must be repaid and therefore may come at a
                                 minimizing administrative, compliance, budget,        low cost to the government and a high cost to
                                 and tax revenue costs?                                the individual. However, the risk of loan default
                                                                                       is borne by the government and taxpayers.
                             16. Does the program incorporate safeguards to
                                 protect against fraud, waste, abuse, and
                                 mismanagement?




                                            Page 42                                                        GAO-12-560 Higher Education
Factors                      Key questions                                                 Example
Establishes monitoring and   17. To what extent does the program establish                 Performance measurement and program
evaluation mechanisms            mechanisms for continuous monitoring and                  evaluation help agencies assess the impact of
                                 periodic evaluations?                                     their programs and learn how to improve
                             18. How does the program’s performance compare                results. Considering whether programs have
                                 with similar programs, particularly with regard to        sufficient mechanisms for this would help to
                                 efficiency and effectiveness?                             determine the need for a new or revised
                                                                                           performance monitoring mechanism or data
                             19. Is it clear which entities are responsible for            collection process to analyze program
                                 collecting data and evaluating the program?               performance in relation to its objectives. In the
                             20. Are the data necessary for evaluation available on        case of a new program, considering whether to
                                 a continuous or timely basis?                             establish these mechanisms at the outset
                                                                                           would create opportunities for evaluating the
                                                                                           program in future years.
                                           Source: GAO.

                                           Note: Programs include federal assistance through Title IV grants, loans, and work-study, and tax
                                           expenditures directed at future, current, and past education expenses.
                                           a
                                            The first factor, Achieves program goals and produces demonstrable results, can be assessed at the
                                           program level and also underlies many of the key questions under other factors. Generally, the other
                                           factors are most relevant at the individual level, such as changing individuals’ behavior or minimizing
                                           costs and risk to the individual.


                                           This framework can help shed light on how well a program is designed
                                           and how well it functions. The user should consider which issues in the
                                           framework are most applicable when considering the design or
                                           implementation of a given program. While this framework focuses on
                                           characteristics of federal higher education assistance programs, it may
                                           also provide insight on other policy areas.


                                           Higher education tax provisions should be transparent and
Conclusions                                understandable. Students and families need sufficient and timely
                                           information on these provisions to ensure they are aware of their eligibility
                                           and understand how to claim the tax benefits. The multiple higher
                                           education tax expenditures available to help offset current education
                                           expenses fall short of this principle in that tax filers must be aware that
                                           they are eligible to claim tax expenditures and understand the provisions’
                                           eligibility requirements as well as the interaction of those provisions.
                                           Identifying the key characteristics of filers who appear eligible for higher
                                           education tax expenditures but fail to claim them could provide important
                                           information on why some filers are not claiming these benefits. While IRS
                                           and Education have taken steps in providing information to students and
                                           families, developing a coordinated and comprehensive strategy that
                                           seeks to better inform eligible students could improve eligible taxpayers’
                                           take-up of these programs. Without such information, some tax filers will




                                           Page 43                                                               GAO-12-560 Higher Education
                      continue to fail to maximize their tax benefit—in some cases forgoing
                      hundreds of dollars in benefits.

                      Evaluative research on the effects of federal assistance for higher
                      education continues to be limited. Without this kind of research,
                      policymakers will be challenged to make fact-based decisions on the
                      merits and value of various federal assistance efforts. While
                      methodological and data limitations pose considerable obstacles to
                      conducting evaluative research on these federal programs, program
                      administrators and researchers have shown that it is possible to take
                      advantage of changes in Title IV programs and tax expenditures to
                      conduct evaluative research. In an environment of constrained budgets,
                      evaluative research can help inform decisions to build on successful
                      programs and make changes to less effective programs.


                      To help ensure individuals who are eligible to claim a higher education tax
Recommendations for   expenditure are aware of their eligibility and the benefit they may receive,
Executive Action      we recommend that the Commissioner of Internal Revenue and the
                      Secretary of Education work together to

                      •   identify characteristics of tax filers who are not claiming a higher
                          education tax expenditure when they appear to be eligible for one and
                          possible reasons for this, and
                      •   use this information to identify strategies to improve information
                          provided to eligible students and families.
                      To provide federal policymakers information on the relative effectiveness
                      of Title IV programs and higher education tax expenditures, we
                      recommend the Secretary of Education take advantage of opportunities
                      presented by recent and anticipated substantive program changes to
                      sponsor and conduct evaluative research into the effectiveness of Title IV
                      programs and higher education tax expenditures at improving student
                      outcomes.


                      We provided a draft of this report to the Secretary of Education, Secretary
Agency Comments       of the Treasury, and the Commissioner of Internal Revenue for comment.
and Our Evaluation    In written comments, reproduced in appendix IV, Education agreed with
                      our two recommendations. Education noted that it does not currently have
                      jurisdiction over or access to tax data to determine which filers may be
                      eligible for tax benefits but have not claimed such benefits, or their
                      reasons for not claiming such benefits. Education said that after IRS



                      Page 44                                            GAO-12-560 Higher Education
identifies such individuals, Education will work with IRS to explore how
Education may assist with outreach to these individuals and further
disseminate information on tax expenditures to assist students and their
families. Education also recognized the need for more research into the
effects of federal assistance for higher education and said it will
determine whether additional data can be made available to support such
research.

With respect to Education’s access to taxpayer data, our recommendation
was not meant to imply that Education should have access to taxpayer
data or that IRS could disclose taxpayer data to Education without
authorization in Section 6103 of the Internal Revenue Code. Rather, the
recommendation was meant to suggest other means by which Education
and IRS can coordinate in their efforts to provide information on higher
education tax benefits to eligible students and families.

In written comments, reproduced in appendix V, IRS agreed with our
recommendation to identify characteristics of taxpayers claiming sub-
optimal benefits and devise strategies to improve the information
available to them. IRS noted that improved clarity around higher
education tax benefits can assist taxpayers in determining which
provisions will yield the greatest benefit. IRS also stated that the nuances
of each taxpayer’s situation affecting their eligibility for education credits
or deductions are not evidenced by information reported on their tax
return or by information reported by educational institutions on Form
1098-T, Tuition Statement. For this reason, IRS considered education
and outreach effective means of addressing this issue. IRS stated that it
is taking steps to simplify the decision-making process faced by taxpayers
by revising Form 8863, Education Credits (American Opportunity and
Lifetime Learning Credits) to use a series of questions for the taxpayers
to ascertain eligibility on a per-student basis.

Treasury and Education provided technical comments on our draft report,
which we incorporated as appropriate.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Secretary of
Education, the Secretary of the Treasury, and the Commissioner of
Internal Revenue. In addition, the report will be available at no charge on
the GAO Web site at http://www.gao.gov.



Page 45                                             GAO-12-560 Higher Education
If you or your staff have any questions about this report, please contact
James R. White at (202) 512-9110 or George A. Scott at (202) 512-7215.
You may also reach us by email at whitej@gao.gov or scottg@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff who made
key contributions to this report are listed in appendix VI.




James R. White
Director, Strategic Issues




George A. Scott
Director, Education, Workforce, and Income Security Issues




Page 46                                          GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
                       Appendix I: Objectives, Scope, and
                       Methodology



Methodology

Objectives and Scope   This appendix describes our methodology for addressing the following
                       objectives: (1) describe the size and distribution of federal grants, loans,
                       and tax expenditures available to assist students and families with higher
                       education expenses; (2) assess the extent to which tax filers select higher
                       education provisions that maximize their tax benefit; (3) summarize what
                       is known about the effect of grants, loans, and tax expenditures on
                       student attendance, choice, persistence, and completion; and (4)
                       describe factors that contribute to the effectiveness and efficiency of
                       federal higher education student assistance programs.

                       To address these objectives, we reviewed federal student aid—including
                       grants, loans, and work-study—authorized under Title IV of the Higher
                       Education Act of 1965, as amended, and tax expenditures—reductions in
                       federal tax liabilities that result from provisions in the tax code such as tax
                       credits, deductions, exemptions, and tax-preferred savings programs. We
                       selected Title IV programs that served more than 500,000 participants in
                       school year 2007–2008. We excluded Academic Competitiveness Grants
                       and the National Science & Mathematics Access to Retain Talent Grants
                       because these programs expired at the end of fiscal year 2011. We
                       selected tax expenditures that: (1) are designed to help students and their
                       families save for, pay current expenses, or repay expenses for higher
                       education; (2) have eligibility requirements that are not based on criteria
                       other than income or higher education expenses; (3) were available in tax
                       years 2006–2009; and (4) had more than 50,000 tax filers claim the
                       benefit in 2009. We did not include the tax exclusion for scholarships and
                       fellowships, which may include awards based upon scholastic
                       achievement or promise. We selected these years because they were the
                       most recent years data that were available. Appendix II summarizes Title
                       IV aid and higher education-related tax expenditures, including those not
                       reviewed in this report.


Methodology            To describe the size and distribution of Title IV aid and higher education
                       tax expenditures, we analyzed data from the U.S. Department of
                       Education (Education), Internal Revenue Service (IRS), and the Board of
                       Governors of the Federal Reserve System (Federal Reserve). We also
                       reviewed statutes, regulations, and guidance relevant to federal student
                       aid and tax expenditures. Our analysis of data from Education’s 2007–
                       2008 National Postsecondary Student Aid Study (NPSAS), IRS’s 2006–
                       2009 Statistics of Income (SOI) individual tax return file, and the Federal
                       Reserve’s 2007 Survey of Consumer Finances (SCF) are subject to
                       sampling errors because these data sets are based on samples. Because
                       NPSAS, the SOI files, and SCF follow a probability procedure based on


                       Page 47                                              GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
Methodology




random selections, they represent only one of a large number of samples
that could have been drawn. Since each sample could have provided
different estimates, we express our confidence in the precision of our
particular sample’s results as a 95 percent confidence interval (e.g., plus
or minus 2.5 percentage points). This is the interval that would contain the
actual population value for 95 percent of the samples we could have
drawn. Unless otherwise noted, all percentage estimates based on the
SOI and NPSAS have 95 percent confidence intervals that are within 10
percentage points of the estimate itself, and all numerical estimates other
than percentages have 95 percent confidence intervals that are within 10
percent of the estimate itself. The 95 percent confidence intervals for all
SCF estimates are provided along with the estimates in table notes or
footnotes. We also reviewed studies by GAO, the Congressional Budget
Office, Congressional Research Service, Education, and the Department
of the Treasury.

The 2007–2008 NPSAS, 2009 SOI, and 2007 SCF were the most recent
data available at the time of our engagement. NPSAS is a comprehensive
study that examines how students and their families pay for higher
education. It includes nationally representative samples of 113,535
undergraduates, 12,585 graduate students, and 1,581 first-professional
students 1 enrolled during the 2007–2008 academic year. The NPSAS
data are based on administrative records and student interviews, and
NPSAS includes survey results from both students who received financial
aid and those who did not. The SOI individual tax return file is a stratified
probability sample of income returns filed with IRS. The SOI sample of
230,364 returns represented approximately 140.5-million tax returns filed
for 2009. The SCF sample of 4,418 households represented
approximately 116-million households in 2007.

To estimate the number of households that hold Coverdell education
savings accounts (ESA) or qualified tuition programs (also known as 529
plans), we analyzed 2007 data from the Federal Reserve’s SCF. This
survey is conducted every 3 years to provide detailed information on the
finances of U.S. households. The SCF collects detailed financial
characteristics on an economically dominant single individual or couple
(married or living as partners) in a household. For our analysis, we



1
 First-professional students are students pursuing degrees in fields such as pharmacy,
dentistry, medicine, or law.




Page 48                                                     GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
Methodology




aggregated the financial information of these persons to obtain
household-level financial information, including whether the household
possessed a Coverdell ESA or 529 account and the balances of those
accounts. We were unable to analyze Coverdell ESAs or 529 accounts
separately because SCF combines these into one variable. Our analysis
does not incorporate possible changes in account trends due to the
recession ending in June 2009, as the most recent survey data publicly
available are for 2007.

To assess the extent to which tax filers selected higher education tax
provisions that maximized their tax benefit, we combined information from
the SOI individual tax file with information from tax filers’ Form 1098-T
Tuition Statement. 2 We then calculated which tax provision would
maximize filers’ tax benefit based on program eligibility criteria for tax
year 2009. We calculated filers’ tax benefit using the instructions on IRS
Forms 1040 U.S. Individual Income Tax Return, 8917 Tuition and Fees
Deduction, and 8863 Education Credits. Our analysis included the lifetime
learning credit (LLC) and the tuition and fees deduction (tuition
deduction). Details on these tax provisions’ eligibility rules are included in
appendix II. Our analysis did not consider whether a taxpayer who
appeared to make a suboptimal choice by not claiming an LLC or tuition
deduction did so to avoid being subject to alternative minimum tax
liability. 3

Form 1098-T includes the student’s name, address, social security
number, and the education institution’s federal identification number.
Form 1098-T also indicates if students were graduate students and if they
were enrolled at least half-time. Education institutions have the option of
providing information on the payments they have received or the amounts
billed for qualified tuition and related expenses. By combining information
on the Form 1098-T with information on the tax return, we were able to
identify the higher education student population in the SOI sample and
the choices that tax filers made concerning education-related tax


2
 Eligible higher educational institutions must file Form 1098-T. An eligible educational
institution that is a government unit, or an agency or instrumentality of a government unit,
is subject to the reporting requirements of Form 1098-T.
3
 All taxpayers subject to regular tax are also subject to the alternative minimum tax,
regardless of the income tax bracket or whether they claim certain exclusions, deductions,
or credits. Taxpayers may be limited in the credits they can claim based on their
alternative minimum tax calculations.




Page 49                                                        GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
Methodology




provisions. Because of data limitations, we were unable to assess
whether a tax filers who selected an LLC or tuition deduction would have
increased their tax benefits by selecting the AOC. Since the AOC is
available only during a student’s first 4 years of higher education, a
student claiming the tuition deduction or the LLC may not be eligible for
the AOC. Information on whether students are in their first 4 years of
higher education is not included in the Form 1098-T. Our analysis may
also be limited if institutions reported inaccurate information on Form
1098-T.

We excluded tax returns where filers were ineligible to claim the tuition
deduction or LLC. We excluded returns from filers that:

•      were claimed as a dependent on someone else’s tax return;
•      filed using a married filing separately filing status;
•      used a Form 1040-EZ;
•      had (1) income that exceeded the program thresholds for the relevant
       tax year, (2) no taxable income, (3) no tax liability after claiming other
       tax credits, or (4) no net educational expenses after accounting for
       scholarships and grants as reported on the Form 1098-T;
•      received an education tax credit or tuition deduction but did not
       receive a Form 1098-T; and
•      received a Form 1098-T with no information concerning students’
       education expenses because we could not analyze the corresponding
       tax returns without these data. We only used Form 1098-Ts that
       reported amounts paid in the current year.
This limited our analysis of SOI data to approximately 10.3-million returns
in 2009. Table 4 summarizes the percentage of returns we included in our
suboptimal analyses.

Table 4: Percentage of Returns Included in GAO’s Analysis of Taxpayers’
Maximizing Their Benefits in Tax Year 2009

                                                                              Percent of returns
    Credit selected                 Other option                           included in analysisa
    Lifetime learning credit        Choosing the tuition and fees                                57
                                    deduction
    Tuition and fees deduction      Choosing lifetime learning credit                            35
    Selected no higher education Choosing lifetime learning credit                               29
    credit or deduction          or the tuition and fees deduction
Source: GAO analysis of IRS data.
a
 The denominators for the first two rows are those returns that claimed the provision. For the
“selected no credit or deduction” category, the denominator includes those returns with a Form 1098-
T that appear to be eligible for either the credit or deduction.



Page 50                                                             GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
Methodology




In our analysis of taxpayers who would have reduced their liability by
choosing a different tax benefit, in addition to using data from the 1098-
Ts, we also used data reported by the taxpayer elsewhere on their tax
return. For example, for tax filers who claimed the tuition and fees
deduction we used the expenses they reported on the Form 8917 to
calculate their potential benefit from claiming the LLC. Using these
expenses rather than expenses reported on 1098-Ts allowed us to
directly compare the benefits by using the same expenses for a taxpayer.
Relying on the amounts the taxpayer reported in claiming the tuition
deduction or LLC should take into account expenses that cannot be used
in claiming an education tax provision. These include expenses paid with
tax-exempt assistance, such as the tax-exempt portion of a distribution
from a Coverdell ESA or a 529 account, scholarship, grant, or employer
assistance.

Of the returns that we included in our analysis of taxpayers who claimed
LLC but possibly could have reduced their tax liability by choosing the
tuition deduction, 46 percent of the cases had expenses reported on the
Form 8863 and 1098-T that were the same. Forty percent of the cases
had a 1098-T with reported expenses that were larger than those the filer
reported on the Form 8863. This is consistent with the idea that these
taxpayers adjusted their education expenses to account for tax-exempt
aid that cannot be used to claim a higher education tax provision.

To estimate the effect state tax laws may have on the optimal choices of
taxpayers filing their federal income taxes, we utilized the National
Bureau of Economic Research’s (NBER) TAXSIM Model, a
microsimulation model of U.S. federal and state income tax systems.
TAXSIM calculates estimated liabilities under U.S. federal and state
income tax laws from actual tax returns prepared for public uses by the
Statistics of Income Division of the Internal Revenue Service. 4

To identify available academic research on the effects of Title IV aid
programs and higher education tax expenditures within our research
scope, we reviewed studies that examined whether the programs or tax
expenditures affect college choice, attendance, persistence, and
completion. We looked for these measures because they are utilized by



4
 See Daniel Feenberg and Elisabeth Coutts, “An Introduction to the TAXSIM Model,”
Journal of Policy Analysis and Management, vol. 12, no. 1, (1993): 189-194.




Page 51                                                   GAO-12-560 Higher Education
Appendix I: Objectives, Scope, and
Methodology




academic researchers and administrators of student aid programs; they
allow for comparison with past GAO literature reviews; and they have
been the focus of congressional concern as expressed in requests for our
work from Congress and a statutorily established study committee report.
We searched literature published since 2005, when we published a
similar literature review. 5 We searched information sources such as
EconLit, the NBER Web site, JSTOR, Social SciSearch, Education
Research Information Center, Nexis, and ProQuest Dissertations &
Theses. These online sources are nationally recognized databases that
index research results. Our search terms included phrases such as “tax
relief and education,” “tuition and college,” “financial aid and tuition,”
program names such as “American opportunity credit,” and the names of
authors included in our 2005 literature review.

Of the over 300 studies we identified, 12 studies met the following criteria:
(1) provided original empirical data analyses according to professional
standards of econometric analysis for their methodological rigor, (2)
contained acceptably identified statistical estimates, or (3) are cited in
studies by other researchers. We used the results of the studies that we
judged to contain acceptably identified statistical estimates to form the
basis of the findings about the availability of information concerning the
relative effectiveness of major federal financial assistance programs.
Because few studies met our criteria for evaluative research, we selected
examples of studies on the effects of nonfederal student-aid programs to
provide context for other forms of higher education studies that have been
published. These included studies on the effects of state, regional, and
institutional financial aid programs. Our selection of non-federal studies is
not exhaustive. We also found related research on the responses of
institutions of higher education to federal assistance. A bibliography of
studies we reviewed is provided at the end of this report.

For our fourth objective, we developed a framework to help identify
factors that contribute to the effectiveness and efficiency of federal higher
education programs. To develop the framework, we reviewed criteria from
prior and ongoing GAO studies, as well as relevant work from other
federal agencies. We informed and validated our framework by
conducting semi-structured interviews with five academic experts in
higher education and economic policy. We interviewed a small number of



5
GAO-05-684.




Page 52                                             GAO-12-560 Higher Education
                             Appendix I: Objectives, Scope, and
                             Methodology




                             experts since the framework was developed using previous GAO reports.
                             We selected experts based on their recognition in the professional
                             community, the relevance of their published work on higher education
                             assistance, demonstrated expertise in Title IV programs or tax
                             expenditures, and others’ recommendations. We also consulted with
                             these experts to provide context for the challenges researchers face in
                             studying the effects of federal assistance for higher education on college
                             choice, attendance, persistence, and completion.


Data Reliability and Audit   To assess the reliability of the NPSAS, SOI, and SCF data we analyzed,
Standards                    we reviewed agency documentation and interviewed agency officials
                             familiar with the data. We determined that these data were sufficiently
                             reliable for our purposes.

                             We conducted this performance audit from June 2011 to May 2012 in
                             accordance with generally accepted government auditing standards.
                             Those standards require that we plan and perform the audit to obtain
                             sufficient, appropriate evidence to provide a reasonable basis for our
                             findings and conclusions based on our audit objectives. We believe that
                             the evidence obtained provides a reasonable basis for our findings and
                             conclusions based on our audit objectives.




                             Page 53                                           GAO-12-560 Higher Education
Appendix II: Descriptions of Title IV
                                           Appendix II: Descriptions of Title IV Programs
                                           and Higher Education-Related Tax
                                           Expenditures


Programs and Higher Education-Related Tax
Expenditures
                                           Tables 5 and 6 below provide descriptions of Title IV programs and higher
                                           education-related tax expenditures reviewed in this report.

Table 5: Description of Federal Student Aid Programs Authorized under Title IV of the Higher Education Act

Title IV student aid program   Program details                                     Annual award amounts (school year 2010–2011)
Pell Grants                    Grant amounts are based on the student’s            For the 2010 – 2011 school years, undergraduates
                                                                                                                    a
                               enrollment status and the difference between        can receive from $555 to $5,550.
                               the expected family contribution and cost of
                               attendance, up to the maximum Pell Grant
                               allowed under the Higher Education Act.
Federal Supplemental           Schools administer grant funds, which are           Undergraduates can receive up to $4,000 per year
Educational Opportunity        awarded to undergraduate students with              (up to $4,400 for students participating in an
Grants (FSEOG)                 exceptional financial need, with a priority given   approved study-abroad program). The minimum
                               to students who receive Pell Grants. Schools        award amount is $100.
                               are generally required to match at least 25
                               percent of the federal funds allocated.
Federal Work-Study             Schools administer federal funds and make           No specific limits. Net earnings may not exceed the
                               part-time employment available to                   student’s financial need.b
                               undergraduate, graduate and professional
                               students with federally defined financial need.
                               Participating schools or nonprofit employers
                               generally contribute at least 25 percent of the
                               student’s earnings (50 percent in the case of
                               for-profit employers).
Federal Perkins Loans          Loans are made to undergraduate, graduate           Undergraduates can borrow up to $5,500 annually,
                               and professional students with priority given to    up to a total of $11,000 for undergraduates who
                               those with exceptional financial need. Schools      have not completed two academic years and
                               administer funds for the low-interest (5 percent)   $27,500 for undergraduates who have completed
                               loans, comprised of federal capital                 two academic years.
                               contributions and school matching funds (at         Graduate or professional students can borrow up to
                               least one-third of federal contributions).          $8,000 annually, up to a total of $60,000, including
                               Repayment is made to the school.                    loans borrowed as an undergraduate.
                                                                                                                          c


Subsidized Direct Stafford     Loans are made on the basis of financial need       Undergraduate students can borrow between
      d
Loans                          to undergraduate, graduate and professional         $3,500—the maximum available in their first year—
                               students who are enrolled at least half-time.       and $5,500 annually, up to a total of $23,000.
                               The federal government pays the interest costs      Graduate or professional students can borrow up to
                               on subsidized loans while the student is in         $8,500 per year up to a total of $65,500.
                               school, for a grace period of 6 months after the
                               student leaves school, and during subsequent
                               periods if needed.e




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                                           Appendix II: Descriptions of Title IV Programs
                                           and Higher Education-Related Tax
                                           Expenditures




Title IV student aid program   Program details                                                   Annual award amounts (school year 2010–2011)
Unsubsidized Direct Stafford   Loans are made to undergraduate graduate                          Undergraduate students and graduate or
Loans                          and professional students who are enrolled at                     professional students can borrow between $5,500
                               least half-time.                                                  and $20,500 annually, depending on their year of
                               Unlike subsidized Stafford Loans, students are                    schooling and dependent status (including any
                               responsible for interest costs throughout the life                subsidized loan amounts received for the same
                               of the loan. Annual and aggregate borrowing                       period).
                               limits for unsubsidized Stafford Loans include                    Aggregate limits are $31,000 for dependent
                               any subsidized Stafford Loans taken by the                        undergraduate students, $57,500 for independent
                               student.                                                          undergraduate students, and $138,500 for graduate
                                                                                                 or professional students.
                                                                                                 Students completing coursework in certain health
                                                                                                 professions can borrow an additional amount
                                                                                                 between $12,500 and $26,667 annually, up to a
                                                                                                 total of $224,000.f
Parent Loans for               Loans are made to parents of dependent                            There are no fixed annual or aggregate loan limits
Undergraduate Students         undergraduates and to graduate and                                for PLUS loans. Parents, graduate students, and
(PLUS) Loans                   professional students who are enrolled at least                   professional students can borrow up to the cost of
                               half-time. Borrowers are subject to a credit                      attendance minus any financial aid the student
                               check for adverse credit history and may be                       receives.
                               denied a loan. Borrowers are responsible for
                               paying all interest on the loan.
                                           Source: GAO analysis of applicable federal laws, regulations, and Education guidance.
                                           a
                                            The maximum annual Pell Grant award has increased over $1,000 since school year 2007–2008,
                                           with the largest increase occurring in school year 2009–2010, when the annual maximum Pell Grant
                                           Award increased by over $600. Additionally, under the Student Aid and Fiscal Responsibility Act, part
                                           of the Health Care and Education Reconciliation Act of 2010,(Pub. L. No. 111-152, Title II, Subtitle A)
                                           the maximum EFC for Pell Grant eligibility increased in school year 2010–2011.
                                           b
                                            Student’s gross earnings can exceed the student’s financial need by the amount of taxes and job-
                                           related expenses the student pays.
                                           c
                                            Perkins loan limits were increased by the Higher Education Opportunity Act of 2008, Pub. L. No.
                                           110-315.
                                           d
                                            The Student Aid and Fiscal Responsibility Act terminated the authority to make new Federal Family
                                           Education Loans as of July 2010.
                                           e
                                            Borrowers can temporarily suspend repayment of their loans if for example they pursue additional
                                           higher education studies, provide military service, or experience economic hardships.
                                           f
                                           In the Deficit Reduction Act of 2005, Pub. L. No. 109-171, Congress increased Stafford loan limits for
                                           school year 2007–2008—the first such increase since school year 1993–1994—in order to help
                                           students finance higher education amid concerns about high tuition rates. For undergraduates, the
                                           higher limits reflected an increase of between $875 and $1,000 depending on the undergraduate’s
                                           class level, dependency status, and whether the student was receiving a subsidized or an
                                           unsubsidized loan. Congress increased Stafford loan limits more recently in the Ensuring Continued
                                           Access to Student Loans Act of 2008, Pub. L. No. 110-227.




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                                              Appendix II: Descriptions of Title IV Programs
                                              and Higher Education-Related Tax
                                              Expenditures




Table 6: Description of Selected Higher Education Tax Expenditures (Tax Year 2010)

                                                               Income ranges
Tax                                                            for phasing out
                                                                       a
expenditure       Eligibility                                  benefits           Eligible expenses   Tax benefit
American          Tax filer on behalf of self, spouse, or      Single filer:      Tuition, fees and   Maximum credit: $2,500 per
opportunity       dependent who:                               $80,000–$90,000    required course     each eligible student. Credit
credit            (1) for at least one academic period                            materialsb          rate is 100 percent on first
                                                               Joint return:                          $2,000 of qualified education
                  during the tax year, is working toward
                  an undergraduate degree, certificate or      $160,000–                              expenses and 25 percent on
                  other recognized education credential;       $180,000                               the next $2,000.
                  (2) is enrolled at least half-time for at                                           Forty percent of credit may be
                  least one academic period that begins                                               refundable as long as the
                  during the tax year;                                                                student is not a child whose
                                                                                                      income is subject to the “kiddie”
                  (3) has not completed the first four                                                tax.c
                  years of higher education (including any
                  year(s) Hope credit was claimed); and
                  (4) has not been convicted of a federal
                  or state felony offense for possession or
                  distribution of a controlled substance.
Lifetime          Tax filer on behalf of self, spouse or       Single filer:      Tuition and fees    Maximum credit: $2,000 per
learning credit   dependent who is enrolled in a course        $50,000–$60,000    required for        return (20 percent of the first
                  that is part of a higher education degree                       enrollment          $10,000 of qualified education
                  program or taken by the student to           Joint return:                          expenses).
                  acquire or improve job skills.d Credit is    $100,000–                              Nonrefundable credit limited to
                  available for one or more courses at an      $120,000                               the amount of tax paid on
                  eligible institution and there is no limit                                          taxable income.
                  on the number of years the credit can
                  be claimed.
Tuition and     Tax filer on behalf of self, spouse or         Single filer:      Tuition and fees    Maximum deduction:
fees deductione dependent who is enrolled in one or            $65,000–$80,000    required for        $4,000 per return for single
                more courses at an eligible educational                           enrollment          filers whose modified adjusted
                institution.                                   Joint return:
                                                                                                      gross income does not exceed
                                                               $130,000–                              $65,000 ($130,000 for joint
                                                               $160,000                               filers); $2000 per return for
                                                                                                      single filers whose modified
                                                                                                      adjusted gross income is more
                                                                                                      than $65,000 but does not
                                                                                                      exceed $80,000 (more than
                                                                                                      $130,000, but does not exceed
                                                                                                      $160,000 for joint filers).
Student loan      Tax filer on behalf of self, spouse or       Single filer:      Eligible loans are    Maximum deduction: $2,500
interest          dependent. Student must have been            $60,000–$75,000    those used to pay for interest paid on eligible
deduction         enrolled at least half-time in a program                        tuition, fees, room   education loans
                  leading to a degree, certificate or other    Joint return:      and board, books,
                  recognized educational credential.f          $120,000–          supplies and
                                                               $150,000           equipment, and
                                                                                  other necessary
                                                                                  expenses (e.g.,
                                                                                  transportation).




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                                               Appendix II: Descriptions of Title IV Programs
                                               and Higher Education-Related Tax
                                               Expenditures




                                                              Income ranges
Tax                                                           for phasing out
                                                                      a
expenditure         Eligibility                               benefits             Eligible expenses       Tax benefit
Section 529         For use by designated beneficiary. No    No income limits      Tuition, fees, books,   No tax is due on a distribution
qualified tuition   eligibility requirements but withdrawals                       supplies, and           from an account unless the
programs            must be used for qualified higher                              equipment if            amount distributed is greater
(QTP)               education expenses at an eligible                              required for            than the beneficiary’s adjusted
                    educational institution. QTPs are                              enrollment or           qualified education expenses.
                    established and maintained by states or                        attendance.             Contributions cannot be more
                    higher education institutions and                              Expenses paid to        than the amount necessary for
                    eligibility for enrollment varies by                           purchase computer       the qualified education
                    program.                                                       technology or           expenses of the beneficiary.g
                                                                                   Internet access in
                                                                                   2009 or 2010. Room
                                                                                   and board if enrolled
                                                                                   at least half-time.


Coverdell           Beneficiary must be under age 18 or be    For contributions,   Tuition, fees, books,   No tax is due on a distribution
education           a special needs beneficiary when the      single filer:        supplies, and           from an account unless the
savings             account is established and when any                            equipment if            amount distributed is greater
accounts (ESA)      contributions are made.                   $95,000–             required for            than the beneficiary’s adjusted
                                                              $110,000;            enrollment or           qualified education expenses.h
                    Account must be closed within 30 days
                    after the earlier of the beneficiary      Joint returns:       attendance. Room        Total annual contribution limit is
                    reaching age 30, unless it’s a special    $190,000–            and board if enrolled   $2,000 per beneficiary from all
                    needs beneficiary, or the beneficiary’s   $220,000.            at least half-time.     sources (through age 17 unless
                    death.                                                                                 he or she is a special needs
                                                                                                           beneficiary).


Parental            Tax filer can claim an exemption for a    No income limits     N/A                     Taxpayer is allowed an
personal            dependent who is a child ages 19                                                       exemption of $3,650 per
exemption for       through 23 and a full-time student at                                                  dependent
students ages       least five months of the year. Other
19–23               dependency tests must also be met.




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                                           Appendix II: Descriptions of Title IV Programs
                                           and Higher Education-Related Tax
                                           Expenditures




                                                               Income ranges
Tax                                                            for phasing out
                                                                       a
expenditure      Eligibility                                   benefits                      Eligible expenses               Tax benefit
Earned Income    Tax filer with earned income and a            Tax filer’s adjusted N/A                                      Maximum credit:
Tax Credit for   qualifying child who is ages 19 through       gross income                                                  $5,666 with 3 or more
students ages    23 and a full time student at least 5         must be less than:                                            qualifying children
19–23            months of the year can claim a larger         Single filer:
                 EITC.i Other requirements must also be                                                                      $5,036 with two qualifying
                 met.                                          $43,352 (if 3 or                                              children
                                                               more qualifying                                               $3,050 with one qualifying child
                                                               children);
                                                                                                                             Credit is refundable.
                                                               $40,363 (if 2
                                                               qualifying
                                                               children);
                                                               $35,535 (if 1
                                                               qualifying child,
                                                               Joint returns:
                                                               $48,362 (if 3 or
                                                               more qualifying
                                                               children);
                                                               $45,373 (if 2
                                                               qualifying
                                                               children);
                                                               $40,545 (if 1
                                                               qualifying child)
                                           Source: GAO analysis of the Internal Revenue Code, Treasury regulations, and applicable IRS guidance.
                                           a
                                            Unless otherwise noted, amounts refer to modified adjusted gross income, which is the taxpayer’s
                                           adjusted gross income increased by amounts which were excluded as foreign income or income from
                                           Puerto Rico or other U.S. Territories.
                                           b
                                            Course materials mean books, supplies, and equipment needed for a course of study whether or not
                                           the materials are purchased from the educational institution as a condition of enrollment or
                                           attendance.
                                           c
                                            You do not qualify for a refund if (1) you were (a) under 18 at the end of the tax year; or (b) 18 at the
                                           end of tax year and your earned income was less than one-half of your support, or (c) a full time
                                           student over 18 and under 24 at the end of the tax year and your earned income was less than one-
                                           half of your support; (2) at least one of your parents was alive at the end of the tax year; and (3) you
                                           are filing as a single filer, head of household, qualifying widow(er) or married filing separately for
                                           2010. 26 U.S.C. § 25A(i)(6); 26 U.S.C. § 1(g); see also IRS Publication 970.
                                           d
                                               Student does not need to be pursuing a degree or other recognized education credential.
                                           e
                                               The tuition deduction expired December 31, 2011 and as of May 10, 2012, has not been extended.
                                           f
                                               Includes graduate school.
                                           g
                                            Contributors are permitted to contribute to both a Section 529 program and Coverdell ESA account
                                           in the same year for the same designated beneficiary.
                                           h
                                            Beneficiary must pay taxes on distributions in excess of qualified education expenses for the year.
                                           Beneficiary must pay a 6 percent excise tax each year on excess contributions (more than $2000 per
                                           year) in the account at end of the year.
                                           i
                                            Tax filers do not need a qualifying child to claim the EITC provided other rules are met.


                                           While the Hope credit was not available in 2010, our analysis of tax
                                           expenditures from 2006 to 2009 includes this credit. The American



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Appendix II: Descriptions of Title IV Programs
and Higher Education-Related Tax
Expenditures




opportunity credit replaced the Hope credit for most taxpayers in 2009.
However, a larger Hope credit (up to $3,600) was available for students in
2008 and 2009 who attended an eligible institution in a Midwestern
disaster area and met other eligibility requirements.

We did not review the following higher education tax expenditures in this
report:

Education Savings Bond Program. Tax filers may exclude the tax due
on interest accrued on qualified U.S. savings bonds if the interest is used
to pay for qualified education expenses and other eligibility criteria are
met.

Education Exception to Additional Tax on Early IRA Distributions.
Generally, taxpayers must pay an additional 10 percent tax on
distributions from IRA accounts before they reach age 59½. However, if
taxpayers use these distributions for qualified higher education expenses,
they may not have to pay the 10 percent additional tax.

Scholarships, Fellowships, Grants, and Tuition Reductions.
Scholarships and fellowships received by degree-candidate students at
eligible educational institutions and used to pay for tuition, fees, books,
supplies, and equipment required for enrollment are not taxed as income.
Pell Grants and other Title IV need-based education grants are treated as
scholarships for tax purposes. Tuition reductions, where tax filers are
allowed to study tuition free or for a reduced rate, are not counted as
income for tax purposes provided certain requirements are met. The rules
for determining whether a tuition reduction is tax free depend on whether
the education provided is below the graduate level or is graduate
education.

Employer-Provided Educational Assistance. Tax filers who receive
educational assistance benefits from their employers under an
educational assistance program do not have to count a certain amount of




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Appendix II: Descriptions of Title IV Programs
and Higher Education-Related Tax
Expenditures




that assistance as income for tax purposes. 1 Only funds used to pay for
tuition, fees, books, equipment, and similar expenses are tax-free.

Student Loan Cancellations and Repayment Assistance. Tax filers
whose student loans are cancelled or who receive repayment assistance
in exchange for working for a certain period of time, in certain
professions, and for any of a broad class of employers may qualify for
tax-free treatment of cancelled loan or repayment assistance.

Business Deduction for Work-Related Education. Tax filers may
deduct the cost of work-related education as business expenses if the
education meets one of the following tests: 1) the education is required by
the tax filer’s employer or the law to maintain the tax filer’s present salary,
status, or job; or 2) the education maintains or improves skills needed in
the tax filer’s present work. Deductible expenses include tuition, books,
supplies, lab fees, certain transportation and travel costs and other
education expenses.

Gift Tax Educational Exclusion. Tuition paid directly to a qualifying
education institution for another person as a gift is not a taxable gift. No
exclusion is allowed for amounts paid for books, supplies, room and
board, or other expenses that are not direct tuition costs.




1
  Under the Working Condition Fringe Benefit Exclusion, employer-provided educational
assistance that exceeds $5,250 in 2010 does not have to be counted as income, provided
it is used to pay for any educational expenses that are required by the employer or the law
to maintain the tax filer’s present salary, status, or job and maintain or improve skills
needed in the tax filer’s present work.




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Appendix III: Text to Accompany Interactive
                                            Appendix III: Text to Accompany Interactive
                                            Figures 1, 2, 6, 7, and 8



Figures 1, 2, 6, 7, and 8

Table 7: Text to Accompany Interactive Figure 1: Illustration of Planning and Payment Processes for Higher Education
Expenses

Before college                                         During college                                        After college
Birth through senior year of high school               Each academic year                                    Monthly
Parents make financial planning decisions for          (Repeats until end of college)                        Student or parents repay federal
future educational expenses. For example,              Student or parents track expenses they can            student loans.
parents decide whether to invest in tax-preferred      use toward education-related tax provisions.
savings plans.
Senior year of high school                             August                                                January
Fall through spring                                    1. Student or parents begin paying tuition for        Student or parents receive a
1. Student applies to college.                         fall semester.                                        1098-E Student Loan Interest
                                                       2. Student or parents use financial aid package       Statement.
2. College receives application and admits
student.                                               (tax-preferred saving, grants, and loans) and         January through April 15th
                                                       other savings to pay for college expenses.            Student or parents claim the
January through March
                                                       January through March                                 student loan interest deduction
1. Student or parents receive information returns                                                            on individual income tax return.
(such as a W-2 Wage and Tax Statement) that            Student or parents receive information returns
help complete their individual tax return.             that help them complete their individual tax
                                                       return. For example, student or parents receive
2. Student or parents file a tax return by April.      a 1098-T Tuition Statement. The 1098-T may
3. Student or parents complete a Free Application      not have all the information needed to claim
for Federal Student Aid (FAFSA) using information      education tax provisions.
                                                  a
from their income tax return and other sources.        January through April 15th
4. Education processes FAFSA to calculate the          On or before April 15th
family’s expected family contribution (EFC) and
reports the EFC to the student and schools.            Student or parents file an individual income tax
                                                       return (i.e., a 1040) with supporting forms if
March through April                                    claiming an education tax credit or tuition
Student learns aid eligibility.                        deduction.
[Eligibility notification period.]                     [Eligibility notification period.]


                                            Sources: GAO (information); Digital Vision (photo).

                                            Notes: This graphic provides one example of the timing for financial aid, tax, and loan repayment
                                            decisions. The process may differ for nontraditional students. For example, students who attend
                                            school less than half time or at times other than the fall through spring semesters may make
                                            decisions and payments at times other than those depicted in this illustration. Also, individuals other
                                            than parents—such as legal guardians—may be involved in financial aid and tax decisions.
                                            FAFSA deadlines vary by state, and the Department of Education Web site often directs students to
                                            contact their financial aid administrator for deadlines. Each college within a state may also have a
                                            different deadline. For 2011-2012, the federal deadline is June 30, 2012.
                                            a
                                             Some education institutions may require a FAFSA before families have filed a tax return.




                                            Page 61                                                                GAO-12-560 Higher Education
Appendix III: Text to Accompany Interactive
Figures 1, 2, 6, 7, and 8




Table 8: Text to Accompany Interactive Figure 2: Size and Characteristics of Title IV
Aid Programs and Higher Education Tax Expenditures

Pell Grants                              School Year 2007-2008:
                                         Total grants awarded: 5.7 million
                                         Total dollars awarded: $14.6 billion
                                         Average grant award: $2,559
                                         Median income of recipients: $18,128
Federal Supplemental Educational School Year 2007-2008:
Opportunity Grants (FSEOG)       Total grants awarded: 1.3 million
                                 Total dollars awarded: $883.7 million
                                 Average grant award: $696
                                 Median income of recipients: $15,806
Federal Work-Study                       School Year 2007-2008:
                                         Total awards: 1.6 million
                                         Total dollars awarded: $4.0 billion
                                         Average award: $2,461
                                         Median income of recipients: $44,045
Federal Perkins Loans                    School Year 2007-2008:
                                         Total loans made: 674,700
                                         Total face value of loans: $1.5 billion
                                         Average loan amount: $2,230
                                         Median income of recipients: $31,939
Subsidized Direct Stafford Loans         School Year 2007-2008:
                                         Total loans made: 7.4 million
                                         Total face value of loans: $29.6 billion
                                         Average loan amount: $3,972
                                         Median income of recipients: $30,286
Unsubsidized Direct Stafford             School Year 2007-2008:
Loans                                    Total loans made: 5.8 million
                                         Total face value of loans: $27.2 billion
                                         Average loan amount: $4,731
                                         Median income of recipients: $33,473
PLUS Loans                               School Year 2007-2008:
                                         Total loans made: 790,600
                                         Total face value of loans: $8.5 billion
                                         Average loan amount: $10,753
                                         Median income of recipients: $80,396




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Appendix III: Text to Accompany Interactive
Figures 1, 2, 6, 7, and 8




 American opportunity credit (AOC) Tax Year 2009:
                                   Total filers claiming: 9.1 million
                                   Total amount claimed: $16 billion
                                   Average tax benefit: $1,755
                                   Median income of filers claiming credit: $39,287
 Lifetime learning credit                              Tax Year 2009:
                                                       Total filers claiming: 3.4 million
                                                       Total amount claimed: $2.4 billion
                                                       Average tax benefit: $714
                                                       Median income of filers claiming credit: $42,903
 Tuition and fees deduction                            Tax Year 2009:
                                                       Total filers deducting: 1.7 million
                                                       Total amount deducted: $628.9 million
                                                       Average tax benefit: $378
                                                       Median income of filers using deduction: $73,277
 Student loan interest deduction                       Tax Year 2009:
                                                       Total filers deducting: 9 million
                                                       Total amount deducted: $1.3 billion
                                                       Average tax benefit: $148
                                                       Median income of filers using deduction: $53,959
 Section 529 qualified tuition                         Tax Year 2006:
 programs (QTP)                                        Total households holding QTPs or Coverdell
 and                                                   ESAs: 4.2 million
 Coverdell education savings                           Median account balance: $9,880
 accounts (ESAs)                                       Median gross income of households with QTPs or
                                                       Coverdell ESAs: $122,400
 Parental personal exemption for                       Tax Year 2009:
 students ages 19-23                                   Total filers claiming: 7 million
                                                       Total amount claimed: $5.3 billion
                                                       Average tax benefit: $765
                                                       Median income of filers claiming: $77,070
 Earned Income Tax Credit for                          Tax Year 2009:
 students ages 19-23                                   Total filers claiming: 1.8 million
                                                       Total amount claimed: $3.3 billion
                                                       Average tax benefit: $1,849
                                                       Median income of filers claiming: $20,100
Source: GAO Analysis of U.S. Department of Education documents and school year 2007-2008 NPSAS data, IRS SOI data for tax year
2009, and the 2007 Federal Reserve Survey of Consumer Finance.




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                                         Appendix III: Text to Accompany Interactive
                                         Figures 1, 2, 6, 7, and 8




                                         Note: For estimates of tax expenditures other than QTPs and ESAs, we report the tax benefit a filer
                                         receives from claiming the tax expenditure. All figures presented are sample estimates and are
                                         subject to sampling error. We are 95 percent confident that in 2006, between 3.5- and 4.9-million
                                         households held a QTP or ESA; that the median account balance was between $7,500 and $12,000;
                                         and that the median gross income of households was between $106,000 and $138,000. Data for
                                         QTPs and ESAs are presented together because the public SCF data file does not provide separate
                                         estimates for the two accounts. Our estimates for the number of filers claiming an education tax
                                         benefit only include those filers that reduced their tax liability by claiming these expenditures. All other
                                         estimates in this figure have 95 percent confidence intervals that are within +/- 10 percent of the
                                         estimate itself.




Table 9: Text to Accompany Interactive Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by
Income Category and Dependency Status, 2007–2008 (Information for Base Graphic)

                                                                                   Dependent                                 Independent
                                                                                   Dollars        Share of                    Dollars     Share of
                                                                                 received         benefits                  received      benefits
Pell Grant           $0 - $20,000         Estimate                        $2,993,296,755                  45         $5,708,275,819               72
                                          Lower bound                      2,893,105,484                  44          5,566,262,444               71
                                          Upper bound                      3,093,488,026                  46          5,850,289,195               73
                     $20,001- $40,000     Estimate                         2,962,215,274                  44          2,033,734,008               26
                                          Lower bound                      2,864,070,740                  43          1,945,340,927               25
                                          Upper bound                      3,060,359,808                  46          2,122,127,088               27
                     $40,001-$60,000      Estimate                           708,298,173                  11             220,020,619               3
                                          Lower bound                        668,348,738                  10             196,167,834               2
                                          Upper bound                        748,247,608                  11             243,873,403               3
                     $60,001-$80,000      Estimate                              8,350,502                   0                         0            0
                                          Lower bound                           6,005,886                   0                         0            0
                                          Upper bound                          10,695,117                   0                         0            0
                     $80,001-$100,000     Estimate                                         0                0                         0            0
                                          Lower bound                                      0                0                         0            0
                                          Upper bound                                      0                0                         0            0
                     Greater than         Estimate                                         0                0                         0            0
                     $100,000             Lower bound                                      0                0                         0            0
                                          Upper bound                                      0                0                         0            0
Subsidized Stafford $0 - $20,000          Estimate                         1,576,033,411                  15          9,421,293,323               50
Loan
                                          Lower bound                      1,502,686,977                  14          9,159,128,415               49
                                          Upper bound                      1,649,379,845                  15          9,683,458,230               51
                     $20,001- $40,000     Estimate                         2,600,677,516                  24          5,143,430,349               27
                                          Lower bound                      2,497,875,430                  23          4,854,802,992               26
                                          Upper bound                      2,703,479,602                  25          5,432,057,707               29




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                                   Figures 1, 2, 6, 7, and 8




                                                                       Dependent                      Independent
                                                                        Dollars    Share of            Dollars    Share of
                                                                      received     benefits          received     benefits
                $40,001-$60,000     Estimate                    2,399,719,215           22       2,332,929,154         12
                                    Lower bound                 2,298,193,364           21       2,127,127,031         11
                                    Upper bound                 2,501,245,066           23       2,538,731,277         13
                $60,001-$80,000     Estimate                    1,777,159,779           17       1,065,865,463          6
                                    Lower bound                 1,689,883,373           16         948,015,973          5
                                    Upper bound                 1,864,436,185           17       1,183,714,953          6
                $80,001-$100,000    Estimate                    1,145,483,437           11         831,217,599          4
                                    Lower bound                 1,072,613,678           10         687,503,308          4
                                    Upper bound                 1,218,353,195           11         974,931,890          5
                Greater than        Estimate                    1,268,645,799           12                   0          0
                $100,000
                                    Lower bound                 1,193,721,012           11                   0          0
                                    Upper bound                 1,343,570,586           12                   0          0
Unsubsidized    $0 - $20,000        Estimate                      480,773,388            8       9,539,027,035         46
Stafford Loan
                                    Lower bound                   439,589,679            7       9,167,175,297         44
                                    Upper bound                   521,957,098            8       9,910,878,773         47
                $20,001- $40,000    Estimate                      706,246,969           11       4,980,847,097         24
                                    Lower bound                   653,568,889           10       4,650,336,624         22
                                    Upper bound                   758,925,049           12       5,311,357,570         25
                $40,001-$60,000     Estimate                      668,956,702           11       2,688,876,994         13
                                    Lower bound                   614,035,030           10       2,419,228,606         12
                                    Upper bound                   723,878,374           11       2,958,525,381         14
                $60,001-$80,000     Estimate                      863,722,923           14       1,531,454,768          7
                                    Lower bound                   803,916,870           13       1,386,552,806          7
                                    Upper bound                   923,528,976           15       1,676,356,730          8
                $80,001-$100,000    Estimate                    1,055,285,595           17       1,474,347,793          7
                                    Lower bound                   986,143,816           16       1,246,749,487          6
                                    Upper bound                 1,124,427,374           18       1,701,946,098          8
                Greater than        Estimate                    2,539,426,756           40         702,578,936          3
                $100,000            Lower bound                 2,435,744,774           39         571,149,930          3
                                    Upper bound                 2,643,108,738           41         834,007,942          4
                                                                                                              a          a
PLUS Loan       $0 - $20,000        Estimate                      306,178,690            4
                                                                                                              a          a
                                    Lower bound                   248,794,084            3
                                                                                                              a          a
                                    Upper bound                   363,563,296            4
                                                                                                              a          a
                $20,001- $40,000    Estimate                      791,392,564            9
                                                                                                              a          a
                                    Lower bound                   642,770,660            8




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                                         Figures 1, 2, 6, 7, and 8




                                                                                         Dependent                      Independent
                                                                                         Dollars     Share of            Dollars     Share of
                                                                                       received      benefits          received      benefits
                                                                                                                                a           a
                                             Upper bound                          940,014,468              11
                                                                                                                                a           a
                     $40,001-$60,000         Estimate                           1,069,231,412              13
                                                                                                                                a           a
                                             Lower bound                          915,551,532              11
                                                                                                                                a           a
                                             Upper bound                        1,222,911,292              14
                                                                                                                                a           a
                     $60,001-$80,000         Estimate                           1,332,716,460              16
                                                                                                                                a           a
                                             Lower bound                        1,186,491,288              14
                                                                                                                                a           a
                                             Upper bound                        1,478,941,632              17
                                                                                                                                a           a
                     $80,001-$100,000        Estimate                           1,434,575,441              17
                                                                                                                                a           a
                                             Lower bound                        1,272,533,699              15
                                                                                                                                a           a
                                             Upper bound                        1,596,617,182              19
                                                                                                                                a           a
                     Greater than            Estimate                           3,567,182,411              42
                     $100,000                Lower bound                        3,278,117,463              39                   a           a

                                                                                                                                a           a
                                             Upper bound                        3,856,247,358              44
                                         Source: GAO analysis of Education NPSAS 2007-2008 data.

                                         Note: Numbers may not add due to rounding.
                                         a
                                          Figure includes PLUS loans for parents of dependent students only. Grad PLUS loans for
                                         independent students are not in the scope of this review because they served under 500,000
                                         students in 2007-2008.




Table 10: Text to Accompany Interactive Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by
Income Category and Dependency Status, 2007–2008 (Information for Roll-over)

                                                                                        Dependent                        Independent
                                                                              Number of              Share of     Number of          Share of
                                                                              Recipients           Recipients     Recipients       Recipients
Pell Grant          $0 - $20,000        Estimate                                   877,503                36        2,218,880             67
                                        Lower bound                                848,046                35        2,164,529             66
                                        Upper bound                                906,959                37        2,273,231             68
                    $20,001- $40,000    Estimate                                1,079,892                 45         907,156              27
                                        Lower bound                             1,046,185                 44         870,299              26
                                        Upper bound                             1,113,599                 46         944,013              28
                    $40,001-$60,000     Estimate                                   434,219                18         183,458               6
                                        Lower bound                                412,524                17         164,970               5
                                        Upper bound                                455,915                19         201,947               6
                                                                                                                            a               a
                    $60,001-$80,000     Estimate                                     18,717                1
                                                                                                                            a               a
                                        Lower bound                                  13,767                1




                                         Page 66                                                                GAO-12-560 Higher Education
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                                   Figures 1, 2, 6, 7, and 8




                                                                      Dependent                        Independent
                                                               Number of           Share of     Number of       Share of
                                                               Recipients        Recipients     Recipients    Recipients
                                                                                                          a             a
                                   Upper bound                      23,668               1
                                                                          a               a               a             a
                $80,001-$100,000   Estimate
                                                                          a               a               a             a
                                   Lower bound
                                                                          a               a               a             a
                                   Upper bound
                                                                          a               a               a             a
                Greater than       Estimate
                $100,000           Lower bound                            a               a               a             a

                                                                          a               a               a             a
                                   Upper bound
Subsidized      $0 - $20,000       Estimate                        456,220              15        2,156,910           50
Stafford Loan
                                   Lower bound                     434,945              14        2,098,700           49
                                   Upper bound                     477,494              15        2,215,119           51
                $20,001- $40,000   Estimate                        729,441              23        1,236,366           29
                                   Lower bound                     700,807              23        1,179,975           27
                                   Upper bound                     758,074              24        1,292,757           30
                $40,001-$60,000    Estimate                        671,967              22         516,525            12
                                   Lower bound                     643,347              21         478,359            11
                                   Upper bound                     700,587              22         554,692            13
                $60,001-$80,000    Estimate                        520,841              17         246,789             6
                                   Lower bound                     494,685              16         223,258             5
                                   Upper bound                     546,998              18         270,321             6
                $80,001-$100,000   Estimate                        343,004              11         179,982             4
                                   Lower bound                     321,623              10         156,697             4
                                   Upper bound                     364,385              12         203,266             5
                                                                                                          a             a
                Greater than       Estimate                        385,491              12
                $100,000                                                                                  a             a
                                   Lower bound                     362,872              12
                                                                                                          a             a
                                   Upper bound                     408,110              13
Unsubsidized    $0 - $20,000       Estimate                        156,545               8        1,771,762           46
Stafford Loan
                                   Lower bound                     143,131               7        1,717,257           45
                                   Upper bound                     169,960               9        1,826,267           47
                $20,001- $40,000   Estimate                        251,950              13        1,057,347           28
                                   Lower bound                     233,387              12        1,002,933           26
                                   Upper bound                     270,512              14        1,111,761           29
                $40,001-$60,000    Estimate                        240,232              12         479,163            13
                                   Lower bound                     220,852              12         441,852            12
                                   Upper bound                     259,611              13         516,474            13




                                   Page 67                                                    GAO-12-560 Higher Education
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                               Figures 1, 2, 6, 7, and 8




                                                                              Dependent                        Independent
                                                                    Number of              Share of     Number of       Share of
                                                                    Recipients           Recipients     Recipients    Recipients
            $60,001-$80,000    Estimate                                  293,565                15         260,392              7
                               Lower bound                               273,213                14         236,564              6
                               Upper bound                               313,916                16         284,220              7
            $80,001-$100,000   Estimate                                  309,798                16         194,390              5
                               Lower bound                               289,829                15         170,907              5
                               Upper bound                               329,768                17         217,874              6
            Greater than       Estimate                                  670,456                35           70,133             2
            $100,000
                               Lower bound                               643,657                34           56,753             1
                               Upper bound                               697,255                36           83,512             2
                                                                                   a              a               b                 b
PLUS Loan   $0 - $20,000       Estimate
                                                                                   a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                                                                                   a              a               b                 b
            $20,001- $40,000   Estimate
                                                                                   a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                                                                                   a              a               b                 b
            $40,001-$60,000    Estimate
                                                                                   a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                                                                                   a              a               b                 b
            $60,001-$80,000    Estimate
                                                                                   a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                                                                                   a              a               b                 b
            $80,001-$100,000   Estimate
                                                                                   a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                                                                                   a              a               b                 b
            Greater than       Estimate
            $100,000                                                               a              a               b                 b
                               Lower bound
                                                                                   a              a               b                 b
                               Upper bound
                               Source: GAO analysis of Education NPSAS 2007-2008 data.

                               Note: Numbers may not add due to rounding.
                               a
                                Cannot provide estimate due to sample size.
                               b
                                PLUS loans for independent students are not in the scope of this review because they served under
                               500,000 students in 2007-2008.




                               Page 68                                                                GAO-12-560 Higher Education
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                                       Figures 1, 2, 6, 7, and 8




Table 11: Text to Accompany Interactive Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars
Received, by Income Category and Dependency Status, 2007–2008 (Information for Base Graphic)

                                                                          Dependent                     Independent
                                                                          Dollars     Share of           Dollars   Share of
                                                                        Received      Benefits         Received    Benefits
FSEOG              $0 - $20,000       Estimate                      $209,167,876           40      $287,140,334          79
                                      Lower bound                    191,444,182           38        267,377,116         76
                                      Upper bound                    226,891,570           43        306,903,553         81
                   $20,001- $40,000   Estimate                       229,314,569           44         64,666,358         18
                                      Lower bound                    208,201,016           41         56,314,225         16
                                      Upper bound                    250,428,122           47         73,018,492         20
                   $40,001-$60,000    Estimate                        74,901,541           14         12,253,894          3
                                      Lower bound                     65,006,580           13          8,076,542          2
                                      Upper bound                     84,796,502           16         16,431,247          4
                   $60,001-$80,000    Estimate                          5,224,562           1            198,775          0
                                      Lower bound                       2,582,049           0                  0          0
                                      Upper bound                       7,867,076           2            477,611          0
                                                                                 a           a
                   $80,001-$100,000   Estimate                                                                 0          0
                                                                                 a           a
                                      Lower bound                                                              0          0
                                                                                 a           a
                                      Upper bound                                                              0          0
                                                                                 a           a
                   Greater than       Estimate                                                                 0          0
                   $100,000                                                      a           a
                                      Lower bound                                                              0          0
                                                                                 a           a
                                      Upper bound                                                              0          0
Federal Perkins    $0 - $20,000       Estimate                       152,790,728           17        433,717,269         73
Loan
                                      Lower bound                    132,647,243           15        392,867,642         70
                                      Upper bound                    172,934,213           19        474,566,897         77
                   $20,001- $40,000   Estimate                       259,282,922           28         95,943,420         16
                                      Lower bound                    233,558,609           26         79,398,864         14
                                      Upper bound                    285,007,236           31        112,487,976         19
                   $40,001-$60,000    Estimate                       220,640,219           24         38,661,997          7
                                      Lower bound                    195,048,110           22         26,745,360          5
                                      Upper bound                    246,232,329           27         50,578,633          8
                   $60,001-$80,000    Estimate                       118,530,334           13          7,690,437          1
                                      Lower bound                    100,699,980           11          3,375,164          1
                                      Upper bound                    136,360,688           15         12,005,710          2
                   $80,001-$100,000   Estimate                        67,018,955            7         15,385,335          3
                                      Lower bound                     50,713,975            6          6,394,314          1
                                      Upper bound                     83,323,934            9         24,376,356          4




                                       Page 69                                                   GAO-12-560 Higher Education
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                                    Figures 1, 2, 6, 7, and 8




                                                                                  Dependent                     Independent
                                                                                 Dollars      Share of           Dollars   Share of
                                                                               Received       Benefits         Received    Benefits
                Greater than       Estimate                                  95,266,510            10                  0          0
                $100,000
                                   Lower bound                               74,989,999             8                  0          0
                                   Upper bound                              115,543,021            12                  0          0
Federal Work-   $0 - $20,000       Estimate                                 349,134,109            12        707,382,578         63
Study
                                   Lower bound                              312,290,322            11        644,186,709         59
                                   Upper bound                              385,977,896            14        770,578,448         67
                $20,001- $40,000   Estimate                                 605,006,564            21        238,661,357         21
                                   Lower bound                              547,875,239            19        199,985,943         18
                                   Upper bound                              662,137,889            23        277,336,772         24
                $40,001-$60,000    Estimate                                 535,082,448            19         97,670,405          9
                                   Lower bound                              488,470,952            17         70,377,114          6
                                   Upper bound                              581,693,944            20        124,963,696         11
                $60,001-$80,000    Estimate                                 434,541,331            15         51,330,515          5
                                   Lower bound                              388,756,824            14         26,856,536          2
                                   Upper bound                              480,325,837            17         75,804,494          7
                $80,001-$100,000   Estimate                                 342,452,892            12         21,051,799          2
                                   Lower bound                              297,724,485            11          9,357,957          1
                                   Upper bound                              387,181,298            13         32,745,640          3
                Greater than       Estimate                                 580,623,357            20          2,987,375          0
                $100,000
                                   Lower bound                              528,212,793            19                  0          0
                                   Upper bound                              633,033,922            22          7,826,508          1
                                    Source: GAO Analysis of Education NPSAS 2007-2008 data.

                                    Note: Numbers may not add due to rounding.
                                    a
                                    Cannot provide estimate because of sample size.




                                    Page 70                                                              GAO-12-560 Higher Education
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                                       Figures 1, 2, 6, 7, and 8




Table 12: Text to Accompany Interactive Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars
Received, by Income Category and Dependency Status, 2007–2008 (Information for Roll-over)

                                                                           Dependent                      Independent
                                                                      Number of        Share of      Number of       Share of
                                                                      Recipients     Recipients      Recipients    Recipients
FSEOG             $0 - $20,000        Estimate                            246,780           43          524,336            76
                                      Lower bound                         231,282           41          497,380            74
                                      Upper bound                         262,278           45          551,292            78
                  $20,001- $40,000    Estimate                            242,838           42          141,319            20
                                      Lower bound                         226,611           40          126,762            19
                                      Upper bound                         259,066           44          155,876            22
                  $40,001-$60,000     Estimate                             83,023           14           24,232             4
                                      Lower bound                          74,208           13           14,826             2
                                      Upper bound                          91,839           16           33,638             5
                                                                                                               a            a
                  $60,001-$80,000     Estimate                              5,621            1
                                                                                                               a            a
                                      Lower bound                           2,656            1
                                                                                                               a            a
                                      Upper bound                           8,585            2
                                                                                 a            a                a            a
                  $80,001-$100,000    Estimate
                                                                                 a            a                a            a
                                      Lower bound
                                                                                 a            a                a            a
                                      Upper bound
                                                                                 a            a                a            a
                  Greater than        Estimate
                  $100,000                                                       a            a                a            a
                                      Lower bound
                                                                                 a            a                a            a
                                      Upper bound
Federal Perkins   $0 - $20,000        Estimate                             77,162           17          160,257            73
Loan
                                      Lower bound                          67,682           15          147,483            69
                                      Upper bound                          86,641           19          173,031            75
                  $20,001- $40,000    Estimate                            120,699           27           40,567            18
                                      Lower bound                         110,196           25           34,398            16
                                      Upper bound                         131,201           29           46,735            21
                  $40,001-$60,000     Estimate                            112,790           25           12,892             6
                                      Lower bound                         100,080           23            9,429             4
                                      Upper bound                         125,500           27           16,356             8
                  $60,001-$80,000     Estimate                             60,826           13            3,488             2
                                      Lower bound                          52,679           12            1,665             1
                                      Upper bound                          68,974           15            5,310             3
                  $80,001-$100,000    Estimate                             35,724            8            3,794             2
                                      Lower bound                          27,727            6            1,742             1
                                      Upper bound                          43,720           10            5,846             3




                                       Page 71                                                    GAO-12-560 Higher Education
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                                    Figures 1, 2, 6, 7, and 8




                                                                                   Dependent                       Independent
                                                                             Number of          Share of      Number of       Share of
                                                                             Recipients       Recipients      Recipients    Recipients
                                                                                                                        a            a
                Greater than       Estimate                                        46,550            10
                $100,000                                                                                                a            a
                                   Lower bound                                     38,822             9
                                                                                                                        a            a
                                   Upper bound                                     54,277            12
Federal Work-   $0 - $20,000       Estimate                                       155,404            13          262,659            68
Study
                                   Lower bound                                    142,022            12          244,673            65
                                   Upper bound                                    168,786            14          280,645            70
                $20,001- $40,000   Estimate                                       268,903            22           74,287            19
                                   Lower bound                                    250,588            21           64,772            17
                                   Upper bound                                    287,218            23           83,802            21
                $40,001-$60,000    Estimate                                       231,671            19           31,134             8
                                   Lower bound                                    215,316            18           24,591             7
                                   Upper bound                                    248,026            20           37,677            10
                $60,001-$80,000    Estimate                                       180,705            15           12,062             3
                                   Lower bound                                    165,556            14            7,563             2
                                   Upper bound                                    195,855            16           16,561             4
                $80,001-$100,000   Estimate                                       141,945            12            6,493             2
                                   Lower bound                                    126,505            10            3,688             1
                                   Upper bound                                    157,384            13            9,298             3
                                                                                                                        a            a
                Greater than       Estimate                                       245,298            20
                $100,000                                                                                                a            a
                                   Lower bound                                    227,301            19
                                                                                                                        a            a
                                   Upper bound                                    263,294            21
                                    Source: GAO Analysis of Education NPSAS 2007-2008 data.

                                    Note: Numbers may not add due to rounding.
                                    a
                                    Cannot provide estimate because of sample size.




                                    Page 72                                                                GAO-12-560 Higher Education
                                         Appendix III: Text to Accompany Interactive
                                         Figures 1, 2, 6, 7, and 8




Table 13: Text to Accompany Interactive Figure 8: Number and Percentage of Tax Filers Claiming Higher Education Tax
Expenditures and Total Benefits, by Income Category, 2009 (Information for Base Graphic)

Program                                                                                Total Benefits     Share of Benefits
Tuition and fees deduction        $0 to 20,000                Estimate                    23,237,000                      4
                                                              Lower bound                 17,298,000                      3
                                                              Upper bound                 29,177,000                      5
                                  $20,001 to 40,000           Estimate                    60,962,000                     10
                                                              Lower bound                 50,985,000                      8
                                                              Upper bound                 70,940,000                     11
                                  $40,001 to 60,000           Estimate                   125,127,000                     20
                                                              Lower bound                107,739,000                     17
                                                              Upper bound                142,516,000                     22
                                  $60,001 to 80,000           Estimate                    78,621,000                     13
                                                              Lower bound                 66,696,000                     11
                                                              Upper bound                 90,547,000                     14
                                  $80,001 to 100,000          Estimate                    55,363,000                      9
                                                              Lower bound                 43,828,000                      7
                                                              Upper bound                 66,898,000                     11
                                  Over 100,000                Estimate                   285,550,000                     45
                                                              Lower bound                258,612,000                     42
                                                              Upper bound                312,489,000                     48
Student loan interest deduction   $0 to 20,000                Estimate                    56,757,000                      4
                                                              Lower bound                 50,479,000                      4
                                                              Upper bound                 63,035,000                      5
                                  $20,001 to 40,000           Estimate                   271,208,000                     20
                                                              Lower bound                256,154,000                     19
                                                              Upper bound                286,263,000                     21
                                  $40,001 to 60,000           Estimate                   341,352,000                     26
                                                              Lower bound                320,833,000                     24
                                                              Upper bound                361,870,000                     27
                                  $60,001 to 80,000           Estimate                   204,966,000                     15
                                                              Lower bound                191,187,000                     14
                                                              Upper bound                218,745,000                     16
                                  $80,001 to 100,000          Estimate                   177,270,000                     13
                                                              Lower bound                162,802,000                     12
                                                              Upper bound                191,737,000                     14
                                  Over 100,000                Estimate                   282,212,000                     21
                                                              Lower bound                262,376,000                     20




                                         Page 73                                                 GAO-12-560 Higher Education
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                                       Figures 1, 2, 6, 7, and 8




Program                                                                              Total Benefits     Share of Benefits
                                                            Upper bound                302,047,000                     22
Parental exemption for students $0 to 20,000                Estimate                    49,874,000                      1
ages 19–23
                                                            Lower bound                 41,344,000                      1
                                                            Upper bound                 58,404,000                      1
                                $20,001 to 40,000           Estimate                   615,251,000                     12
                                                            Lower bound                580,580,000                     11
                                                            Upper bound                649,922,000                     12
                                $40,001 to 60,000           Estimate                   669,819,000                     13
                                                            Lower bound                629,216,000                     12
                                                            Upper bound                710,422,000                     13
                                $60,001 to 80,000           Estimate                   675,441,000                     13
                                                            Lower bound                631,910,000                     12
                                                            Upper bound                718,972,000                     13
                                $80,001 to 100,000          Estimate                   662,782,000                     12
                                                            Lower bound                615,339,000                     12
                                                            Upper bound                710,224,000                     13
                                Over 100,000                Estimate                 2,664,082,000                     50
                                                            Lower bound              2,574,733,000                     49
                                                            Upper bound              2,753,432,000                     51
American opportunity credit     $0 to 20,000                Estimate                 2,410,738,000                     15
                                                            Lower bound              2,307,901,000                     14
                                                            Upper bound              2,513,574,000                     16
                                $20,001 to 40,000           Estimate                 3,415,061,000                     21
                                                            Lower bound              3,252,942,000                     20
                                                            Upper bound              3,577,180,000                     22
                                $40,001 to 60,000           Estimate                 2,592,059,000                     16
                                                            Lower bound              2,434,984,000                     15
                                                            Upper bound              2,749,134,000                     17
                                $60,001 to 80,000           Estimate                 2,228,655,000                     14
                                                            Lower bound              2,077,074,000                     13
                                                            Upper bound              2,380,236,000                     15
                                $80,001 to 100,000          Estimate                 1,795,974,000                     11
                                                            Lower bound              1,653,340,000                     10
                                                            Upper bound              1,938,607,000                     12
                                Over 100,000                Estimate                 3,526,694,000                     22
                                                            Lower bound              3,333,288,000                     21
                                                            Upper bound              3,720,101,000                     23




                                       Page 74                                                 GAO-12-560 Higher Education
                                      Appendix III: Text to Accompany Interactive
                                      Figures 1, 2, 6, 7, and 8




Program                                                                             Total Benefits     Share of Benefits
Lifetime learning credit       $0 to 20,000                        Estimate           177,536,000                      7
                                                                   Lower bound        157,273,000                      7
                                                                   Upper bound        197,800,000                      8
                               $20,001 to 40,000                   Estimate           717,486,000                     30
                                                                   Lower bound        657,953,000                     28
                                                                   Upper bound        777,019,000                     32
                               $40,001 to 60,000                   Estimate           573,645,000                     24
                                                                   Lower bound        516,394,000                     22
                                                                   Upper bound        630,896,000                     26
                               $60,001 to 80,000                   Estimate           453,702,000                     19
                                                                   Lower bound        397,276,000                     17
                                                                   Upper bound        510,129,000                     21
                               $80,001 to 100,000                  Estimate           375,959,000                     16
                                                                   Lower bound        324,105,000                     14
                                                                   Upper bound        427,813,000                     18
                               Over 100,000                        Estimate           113,646,000                      5
                                                                   Lower bound         88,031,000                      4
                                                                   Upper bound        139,261,000                      6
Earned Income Tax Credit for   $0 to 20,000                        Estimate         2,012,304,000                     61
students ages 19–23                                                Lower bound      1,864,847,000                     59
                                                                   Upper bound      2,159,760,000                     64
                               $20,001 to 40,000                   Estimate         1,271,618,000                     39
                                                                   Lower bound      1,174,598,000                     36
                                                                   Upper bound      1,368,639,000                     41
                                                                                                 a
                               $40,001 to 60,000                   Estimate                                            0
                                                                                                 a
                                                                   Lower bound                                         0
                                                                                                 a
                                                                   Upper bound                                         0
                               $60,001 to 80,000                   Estimate                     0                      0
                                                                   Lower bound                  0                      0
                                                                   Upper bound                  0                      0
                               $80,001 to 100,000                  Estimate                     0                      0
                                                                   Lower bound                  0                      0
                                                                   Upper bound                  0                      0
                               Over 100,000                        Estimate                     0                      0
                                                                   Lower bound                  0                      0
                                                                   Upper bound                  0                      0
                                      Source: GAO analysis of IRS SOI data.




                                      Page 75                                                 GAO-12-560 Higher Education
                                        Appendix III: Text to Accompany Interactive
                                        Figures 1, 2, 6, 7, and 8




                                        Note: Numbers may not add due to rounding. Our estimates for the percentage of filers claiming the
                                        tuition and fees deduction and the student loan interest deduction only include those filers who
                                        reduced their tax liability by claiming these deductions
                                        a
                                         Cannot provide estimate because of sample size.




Table 14: Text to Accompany Interactive Figure 8: Number and Percentage of Tax Filers Claiming Higher Education Tax
Expenditures and Total Benefits, by Income Category, 2009 (Information for Roll-over)

Program                                                                                     Number of Filers       Share of Recipients
Tuition and fees deduction      $0 to 20,000                   Estimate                                 94,000                           6
                                                               Lower bound                              75,000                           5
                                                               Upper bound                            113,000                            7
                                $20,001 to 40,000              Estimate                               233,000                           14
                                                               Lower bound                            203,000                           12
                                                               Upper bound                            264,000                           16
                                $40,001 to 60,000              Estimate                               321,000                           19
                                                               Lower bound                            286,000                           17
                                                               Upper bound                            356,000                           21
                                $60,001 to 80,000              Estimate                               250,000                           15
                                                               Lower bound                            219,000                           13
                                                               Upper bound                            281,000                           17
                                $80,001 to 100,000             Estimate                               139,000                            8
                                                               Lower bound                            115,000                            7
                                                               Upper bound                            162,000                           10
                                Over 100,000                   Estimate                               628,000                           38
                                                               Lower bound                            580,000                           35
                                                               Upper bound                            676,000                           40
Student loan interest deduction $0 to 20,000                   Estimate                               692,000                            8
                                                               Lower bound                            641,000                            7
                                                               Upper bound                            744,000                            8
                                $20,001 to 40,000              Estimate                             2,335,000                           26
                                                               Lower bound                          2,241,000                           25
                                                               Upper bound                          2,429,000                           27
                                $40,001 to 60,000              Estimate                             2,059,000                           23
                                                               Lower bound                          1,971,000                           22
                                                               Upper bound                          2,147,000                           24
                                $60,001 to 80,000              Estimate                             1,524,000                           17
                                                               Lower bound                          1,449,000                           16
                                                               Upper bound                          1,600,000                           18




                                        Page 76                                                            GAO-12-560 Higher Education
                                       Appendix III: Text to Accompany Interactive
                                       Figures 1, 2, 6, 7, and 8




Program                                                                              Number of Filers   Share of Recipients
                                $80,001 to 100,000          Estimate                        1,042,000                    12
                                                            Lower bound                      979,000                     11
                                                            Upper bound                     1,105,000                    12
                                Over 100,000                Estimate                        1,355,000                    15
                                                            Lower bound                     1,286,000                    14
                                                            Upper bound                     1,425,000                    16
Parental exemption for students $0 to 20,000                Estimate                         135,000                      2
ages 19–23                                                  Lower bound                      112,000                      2
                                                            Upper bound                      158,000                      2
                                $20,001 to 40,000           Estimate                        1,337,000                    19
                                                            Lower bound                     1,266,000                    18
                                                            Upper bound                     1,409,000                    20
                                $40,001 to 60,000           Estimate                        1,144,000                    16
                                                            Lower bound                     1,078,000                    16
                                                            Upper bound                     1,210,000                    17
                                $60,001 to 80,000           Estimate                        1,026,000                    15
                                                            Lower bound                      964,000                     14
                                                            Upper bound                     1,088,000                    16
                                $80,001 to 100,000          Estimate                         870,000                     12
                                                            Lower bound                      812,000                     12
                                                            Upper bound                      927,000                     13
                                Over 100,000                Estimate                        2,468,000                    35
                                                            Lower bound                     2,389,000                    34
                                                            Upper bound                     2,547,000                    36
American opportunity credit     $0 to 20,000                Estimate                        2,540,000                    28
                                                            Lower bound                     2,442,000                    27
                                                            Upper bound                     2,637,000                    29
                                $20,001 to 40,000           Estimate                        2,102,000                    23
                                                            Lower bound                     2,013,000                    22
                                                            Upper bound                     2,192,000                    24
                                $40,001 to 60,000           Estimate                        1,262,000                    14
                                                            Lower bound                     1,193,000                    13
                                                            Upper bound                     1,332,000                    15
                                $60,001 to 80,000           Estimate                         978,000                     11
                                                            Lower bound                      917,000                     10
                                                            Upper bound                     1,038,000                    11
                                $80,001 to 100,000          Estimate                         764,000                      8




                                       Page 77                                                   GAO-12-560 Higher Education
                                      Appendix III: Text to Accompany Interactive
                                      Figures 1, 2, 6, 7, and 8




Program                                                                             Number of Filers   Share of Recipients
                                                           Lower bound                      710,000                      8
                                                           Upper bound                      818,000                      9
                               Over 100,000                Estimate                        1,451,000                    16
                                                           Lower bound                     1,381,000                    15
                                                           Upper bound                     1,521,000                    17
Lifetime learning credit       $0 to 20,000                Estimate                         480,000                     14
                                                           Lower bound                      437,000                     13
                                                           Upper bound                      523,000                     15
                               $20,001 to 40,000           Estimate                        1,066,000                    32
                                                           Lower bound                     1,001,000                    30
                                                           Upper bound                     1,130,000                    33
                               $40,001 to 60,000           Estimate                         727,000                     22
                                                           Lower bound                      674,000                     20
                                                           Upper bound                      780,000                     23
                               $60,001 to 80,000           Estimate                         518,000                     15
                                                           Lower bound                      473,000                     14
                                                           Upper bound                      563,000                     17
                               $80,001 to 100,000          Estimate                         437,000                     13
                                                           Lower bound                      396,000                     12
                                                           Upper bound                      478,000                     14
                               Over 100,000                Estimate                         150,000                      4
                                                           Lower bound                      126,000                      4
                                                           Upper bound                      173,000                      5
Earned Income Tax Credit for   $0 to 20,000                Estimate                         878,000                     49
students ages 19–23
                                                           Lower bound                      820,000                     47
                                                           Upper bound                      936,000                     52
                               $20,001 to 40,000           Estimate                         875,000                     49
                                                           Lower bound                      817,000                     47
                                                           Upper bound                      933,000                     51
                               $40,001 to 60,000           Estimate                          27,000                      2
                                                           Lower bound                       17,000                      1
                                                           Upper bound                       38,000                      2
                                                                                                   a                     a
                               $60,001 to 80,000           Estimate
                                                                                                   a                     a
                                                           Lower bound
                                                                                                   a                     a
                                                           Upper bound
                                                                                                   a                     a
                               $80,001 to 100,000          Estimate
                                                                                                   a                     a
                                                           Lower bound




                                      Page 78                                                   GAO-12-560 Higher Education
                 Appendix III: Text to Accompany Interactive
                 Figures 1, 2, 6, 7, and 8




Program                                                              Number of Filers       Share of Recipients
                                                                                        a                             a
                                              Upper bound
                                                                                        a                             a
          Over 100,000                        Estimate
                                                                                        a                             a
                                              Lower bound
                                                                                        a                             a
                                              Upper bound
                 Source: GAO analysis of IRS SOI data.

                 Note: Numbers may not add due to rounding. Our estimates for the percentage of filers claiming the
                 tuition and fees deduction and the student loan interest deduction only include those filers who
                 reduced their tax liability by claiming these deductions.
                 a
                 Cannot provide estimate because of sample size.




                 Page 79                                                            GAO-12-560 Higher Education
Appendix IV: Comments from the
             Appendix IV: Comments from the Department
             of Education



Department of Education




             Page 80                                     GAO-12-560 Higher Education
Appendix IV: Comments from the Department
of Education




Page 81                                     GAO-12-560 Higher Education
Appendix V: Comments from the Internal
              Appendix V: Comments from the Internal
              Revenue Service



Revenue Service




              Page 82                                  GAO-12-560 Higher Education
Appendix V: Comments from the Internal
Revenue Service




Page 83                                  GAO-12-560 Higher Education
Appendix V: Comments from the Internal
Revenue Service




Page 84                                  GAO-12-560 Higher Education
Appendix VI: GAO Contacts and Staff
                  Appendix VI: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  James R. White, Director, Tax Issues, Strategic Issues Team, (202) 512-
GAO Contacts      9110 or whitej@gao.gov.

                  George A. Scott, Director, Education, Workforce, and Income Security
                  Issues, (202) 512-7215 or scottg@gao.gov.


                  In addition to the contacts named above, Michael Brostek (Director),
Staff             David Lewis and Tranchau (Kris) Nguyen (Assistant Directors), Patrick
Acknowledgments   Dudley, Shannon Finnegan, John Mingus, Amy Moran Lowe, Tom
                  Moscovitch, Erika Navarro, and Mark Ramage made key contributions to
                  this report. Also contributing to this report were JoAnna Berry, Jessica
                  Botsford, Amy Bowser, Andrew Ching, Susannah Compton, Michele
                  Fejfar, Donna Miller, Edward Nannenhorn, Mimi Nguyen, and Melanie
                  Papasian.




                  Page 85                                          GAO-12-560 Higher Education
Bibliography
                        Bibliography




                        To identify available academic research on the effects of Title IV aid
                        programs and higher education tax expenditures within our research
                        scope, we reviewed studies published since 2005 that examined whether
                        the programs or tax expenditures affect college choice, attendance,
                        persistence, and completion. Of the over 300 studies we identified, we
                        included in our review only 12 studies that met the following criteria: (1)
                        provide original empirical data analyses according to professional
                        standards of econometric analysis for methodological rigor, (2) contain
                        acceptably identified statistical estimates, or (3) are cited in studies by
                        other researchers. We used the results of the studies that we judged to
                        contain acceptably identified statistical estimates to form the basis of the
                        findings about the availability of information concerning the relative
                        effectiveness of major federal financial assistance programs. See
                        appendix I for a detailed description of our methodology.


Studies Meeting GAO’s   Akers, Beth. Excess Sensitivity of Labor Supply and Educational
Search Criteria         Attainment: Evidence from Variation in Student Loan Debt. New York
                        City, NY: Columbia University Job Market Paper, 2011. Accessed March
                        20, 2012. http://www.columbia.edu/~eja2105/research.html.

                        Cellini, Stephanie R. “Financial Aid and For-Profit Colleges: Does Aid
                        Encourage Entry?” Journal of Policy Analysis and Management, vol. 29,
                        no. 3 (2010): 526-552.

                        Curs, Bradley R., Larry D. Singell, and Glen R.Waddell. “Money for
                        Nothing? The Impact of Changes in the Pell Grant Program on
                        Institutional Revenues and the Placement of Needy Students.” Education
                        Finance and Policy, vol. 2, no. 3 (2007): 228-261.

                        Dowd, Alicia and Tarek Coury. “The Effect of Loans on the Persistence
                        and Attainment of Community College Students.” Research in Higher
                        Education vol. 47, no. 1 (2006): 33-62.

                        Dunlop, Erin R.. “What do Stafford Loans Actually Buy You? - The Effect
                        of Stafford Loan Access on Community College Students.” Charlottesville,
                        VA: University of Virginia Job Market Paper, 2011. Accessed March 12,
                        2012. people.virginia.edu/~erd2r/Dunlop_job_market_paper_11.9.pdf.

                        Herzog, Serge. “Measuring Determinants of Student Return vs.
                        Dropout/Stopout vs. Transfer: A First-to-Second Year Analysis of New
                        Freshmen.” Research in Higher Education vol. 46, no. 8, (2005): 883-928.



                        Page 86                                             GAO-12-560 Higher Education
                         Bibliography




                         Kitmitto, Sami Tayseer. The Pell Grant Puzzle: An Inquiry into the
                         Program’s Effects on College Enrollment and One Explanatory
                         Hypothesis. PhD diss., University of California Davis, 2006. ProQuest
                         Dissertation Publishing. Accessed December 8, 2011.

                         LaLumia, Sara. “Tax Preferences for Higher Education and Adult College
                         Enrollment.” National Tax Journal, vol. 65, no. 1 (2012): 59-89.

                         Long, Bridget Terry. Do Loans Increase College Access and Choice?
                         Examining the Introduction of Universal Student Loans. Boston, MA: New
                         England Public Policy Center at the Federal Reserve Bank of Boston,
                         2007 (NEPPC Working Paper 07-1).

                         Mendez, Jessie P., Pilar Mendoza, and Zaria Malcolm. “The Impact of
                         Financial Aid on Native American Students.” Journal of Diversity in Higher
                         Education, vol. 4, no. 1 (2011): 12-25.

                         Scott-Clayton, Judith. “The Causal Effect of Federal Work-Study
                         Participation: Quasi-Experimental Evidence from West Virginia.”
                         Educational Evaluation and Policy Analysis, vol. 33, no. 4 (2011): 506-
                         527.

                         Turner, Nicholas. “The Effect of Tax-Based Federal Student Aid on
                         College Enrollment.” National Tax Journal vol. 64, no. 3 (2011): 839-862.


Other Relevant Studies   Although evaluative research linking federal assistance to student college
                         choice, attendance, persistence, and completion is limited, we found
                         examples of studies on the effects of nonfederal student-aid programs,
                         including regional and institutional financial aid programs. Our selection of
                         non-federal studies is not exhaustive. We also found related research,
                         including studies on the responses of institutions of higher education to
                         federal assistance. Examples of these studies are listed below.

                         Avery, Christopher, and Sarah E. Turner. “Playing the College Application
                         Game: Critical Moves and the Link to Socio-Economic Circumstances.”
                         Paper presented at the National Bureau of Economic Research Education
                         Program, California, November 2009.

                         Avery, Christopher, Caroline Hoxby, Clement Jackson, Kaitlin Burek,
                         Glenn Poppe, and Mridula Raman. “Cost Should Be No Barrier: An
                         Evaluation of the First Year of Harvard’s Financial Aid Initiative.” National



                         Page 87                                             GAO-12-560 Higher Education
Bibliography




Bureau of Economic Research Working Paper 12029, Cambridge, MA,
2006.

Bettinger, Eric P., Bridget Terry Long, Philip Oreopoulos, and Lisa
Sanbonmatsu. The Role of Simplification and Information in College
Decisions: Results from the H&R Block FAFSA Experiment. Cambridge,
MA: National Bureau of Economic Research Working Paper 15361, 2009.

Bowen, William G., Matthew M. Chingos, and Michael S. McPherson.
Crossing the Finish Line: Completing College at America’s Public
Universities. Princeton, NJ: Princeton University Press, 2009.

Cellini, Stephanie R., and Claudia Goldin. “Does Federal Student Aid
Raise Tuition? New Evidence on For-Profit Colleges.” National Bureau of
Economic Research Working Paper 17827, Cambridge, MA, 2012.

Goldrick-Rab, Sara, Douglas N. Harris, James Benson, and Robert
Kelchen. “Conditional Cash Transfers and College Persistence: Evidence
from a Randomized Need-Based Grant Program.” Institute for Research
on Poverty Discussion Paper no. 1393-11, Madison, WI, 2011.

Patel, Reshma. and Lashawn Richburg-Hayes. “Performance-Based
Scholarships: Emerging Findings from a National Demonstration.” New
York, NY: MDRC Testimony Submitted to the Advisory Committee on
Student Financial Assistance, 2011.

Roderick, Melissa, Jenny Nagaoka, Vanessa Coca, and Eliza Moeller.
From High School to the Future: Making Hard Work Pay Off. Chicago, IL:
Consortium on Chicago School Research at the University of Chicago
Urban Education Institute, 2009.

Singell, Larry D. Jr. and Joe A. Stone. “For Whom the Pell Tolls: The
Response of University Tuition to Federal Grants-in-Aid.” Economics of
Education Review, vol. 26, (2007): 285–295.

Scott-Clayton, Judith. “On Money and Motivation: A Quasi-Experimental
Analysis of Financial Incentives for College Achievement.” The Journal of
Human Resources, vol. 46, no. 3 (2011): 614-646.

Turner, Lesley J. “The Incidence of Student Financial Aid: Evidence from
the Pell Grant Program.” New York, NY: Columbia University Job Market
Paper, 2012. Accessed March 15, 2012.



Page 88                                          GAO-12-560 Higher Education
Bibliography




Turner, Nicholas. “Who Benefits from Student Aid? The Economic
Incidence of Tax-Based Federal Student Aid.” Economics of Education
Review (forthcoming).




Page 89                                        GAO-12-560 Higher Education
Related GAO Products
             Related GAO Products




             Federal Statistical System: Agencies Can Make Greater Use of Existing
             Data, but Continued Progress Is Needed on Access and Quality Issues.
             GAO-12-54. Washington, D.C.: February 24, 2012.

             Opportunities to Reduce Potential Duplication in Government Programs,
             Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington,
             D.C.: March 1, 2011.

             Postsecondary Education: Many States Collect Graduates’ Employment
             Information, but Clearer Guidance on Student Privacy Requirements Is
             Needed. GAO-10-927. Washington, D.C.: September 27, 2010.

             Federal Student Aid: Highlights of a Study Group on Simplifying the Free
             Application for Federal Student Aid. GAO-10-29. Washington, D.C.:
             October 29, 2009.

             Higher Education: Multiple Higher Education Tax Incentives Create
             Opportunities for Taxpayers to Make Costly Mistakes. GAO-08-717T.
             Washington, D.C.: May 1, 2008.

             Postsecondary Education: Multiple Tax Preferences and Title IV Student
             Aid Programs Create a Complex Education Financing Environment.
             GAO-07-262T. Washington, D.C.: December 5, 2006.

             Government Performance and Accountability: Tax Expenditures
             Represent a Substantial Federal Commitment and Need to Be
             Reexamined. GAO-05-690. Washington, D.C.: September 23, 2005.

             Understanding the Tax Reform Debate: Background, Criteria, &
             Questions. GAO-05-1009SP. Washington, D.C.: September 1, 2005.

             Student Aid and Postsecondary Tax Preferences: Limited Research
             Exists on Effectiveness of Tools to Assist Students and Families through
             Title IV Student Aid and Tax Preferences. GAO-05-684. Washington,
             D.C.: July 29, 2005.

             Means-Tested Programs: Information on Program Access Can Be an
             Important Management Tool. GAO-05-221. Washington, D.C.: March 11,
             2005.

             Student Aid and Tax Benefits: Better Research and Guidance will
             Facilitate Comparison of Effectiveness and Student Use. GAO-02-751.
             Washington, D.C.: September 13, 2002.


(450905)
             Page 90                                          GAO-12-560 Higher Education
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