- The Washington Times - Tuesday, March 11, 2003

A college tuition tax credit enacted six years ago is used by fewer than half the taxpayers it is projected to help, a Harvard University economist's study shows. Only one-third of the public is even aware of the credit.
However, the federal tax credit used by 6.7 million students, at a cost of $4.9 billion a year, helps cash-strapped colleges and universities by encouraging students to take more courses and complete their bachelor's degrees, the study has found.
The Hope Tax Credit pushed by President Clinton and enacted by Congress in 1997 allowed 18- to 24-year-old undergraduates or their parents to reduce their federal taxes as much as $1,500 a year for college tuition expenses. A separate Lifetime Learning Credit for older students allowed a $1,000 credit, which was doubled this year. The credits are reduced for single taxpayers making more than $40,000 a year.
The U.S. Education Department estimated in 1997 that 13.1 million students a year would use the credits at a cost of $9.7 billion. That was double the actual cost, Harvard economist Bridget Terry Long said in a study reported at an American Enterprise Institute forum. The low use of the tax credit saved the Treasury Department $28.8 billion in lost revenue.
Miss Long said taxpayer ignorance is the reason the tax credits are not being used.
"There's something really going on about people slowly learning about the credits," she said.
The tax credits were aimed at helping middle-class families who were not eligible for federal Pell grants and guaranteed student loans offset higher-education costs.
The study found that:
"What was intended to be a transfer to the middle class did benefit families with incomes between $30,000 and $75,000 the most."
Low incomes, meaning low tax liability, and reduced eligibility because of other aid programs prevented many low-income families from qualifying for the credits.
The tuition tax credits did not increase college enrollment among eligible students "in spite of the stated goal to increase access to higher education."
"The credits encouraged students to attend more expensive colleges." Additionally, the credits encouraged students at two-year community colleges, "particularly for students between the ages of 20 and 24," to pursue bachelor's degrees at four-year colleges.
Miss Long said the study considered the "greedy college" theory of William J. Bennett, former education secretary, that the rise in college tuition prices was a result of increases in the availability of government financial aid. She said she studied whether the tax credits gave colleges further incentive to increase tuition.
She said California and other states "did react to the introduction of the tax credits by considering ways to capture the federal resources available through the new tax credits."
The study found that many colleges that were charging less than $1,000 for tuition increased rates after the credits went into effect.
"When controlling for state appropriations, it is estimated that these schools experienced 19 percent faster growth in tuition prices than other schools," Miss Long said. "The credits may also have induced states to reduce their efforts to subsidize student prices."

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