Higher Education: Multiple Higher Education Tax Incentives Create
Opportunities for Taxpayers to Make Costly Mistakes (01-MAY-08,
GAO-08-717T).
Federal assistance helps students and families pay for
postsecondary education through several policy tools--grant and
loan programs authorized by Title IV of the Higher Education Act
of 1965 and more recently enacted tax preferences. This testimony
summarizes our 2005 report and provides updates on (1) how Title
IV assistance compares to that provided through the tax code (2)
the extent to which tax filers effectively use education tax
preferences, (3) potential benefits and costs of simplifying
federal student aid, and (4) what is known about the
effectiveness of federal assistance. This hearing is an
opportunity to consider whether changes should be made in the
government's overall strategy for providing such assistance or to
the individual programs and tax provisions that provide the
assistance. This statement is based on updates to previously
published GAO work and reviews of relevant literature.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-08-717T
ACCNO: A81940
TITLE: Higher Education: Multiple Higher Education Tax
Incentives Create Opportunities for Taxpayers to Make Costly
Mistakes
DATE: 05/01/2008
SUBJECT: Aid for education
Cost analysis
Cost control
Cost effectiveness analysis
Direct loans
Education or training costs
Education program evaluation
Educational grants
Federal aid programs
Federal grants
Financial analysis
Financial management
Higher education
Income taxes
Program management
Strategic planning
Student financial aid
Student loans
Tax administration
Taxes
Taxpayers
Program goals or objectives
Program implementation
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-08-717T
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony Before the Subcommittee on Select Revenue Measures, Committee
on Ways and Means, House of Representatives:
United States Government Accountability Office:
GAO:
May 2008:
Higher Education:
Multiple Higher Education Tax Incentives Create Opportunities for
Taxpayers to Make Costly Mistakes:
GAO-08-717T:
GAO Highlights:
Highlights of GAO-08-717T, a testimony before the Subcommittee on
Select Revenue Measures, Committee on Ways and Means, House of
Representatives.
Why GAO Did This Study:
Federal assistance helps students and families pay for postsecondary
education through several policy tools�grant and loan programs
authorized by Title IV of the Higher Education Act of 1965 and more
recently enacted tax preferences. This testimony summarizes our 2005
report and provides updates on (1) how Title IV assistance compares to
that provided through the tax code (2) the extent to which tax filers
effectively use education tax preferences, (3) potential benefits and
costs of simplifying federal student aid, and (4) what is known about
the effectiveness of federal assistance.
This hearing is an opportunity to consider whether changes should be
made in the government�s overall strategy for providing such assistance
or to the individual programs and tax provisions that provide the
assistance. This statement is based on updates to previously published
GAO work and reviews of relevant literature.
What GAO Found:
Title IV student aid and tax preferences provide assistance to a wide
range of students and families in different ways. While both help
students meet current expenses, tax preferences also assist students
and families with saving for and repaying postsecondary costs. Both
serve students and families with a range of incomes, but some forms of
Title IV aid�grant aid, in particular�provide assistance to those whose
incomes are lower, on average, than is the case with tax preferences.
Tax preferences require more responsibility on the part of students and
families than Title IV aid because taxpayers must identify applicable
tax preferences, understand complex rules concerning their use, and
correctly calculate and claim credits or deductions. While the tax
preferences are a newer policy tool, the number of tax filers using
them has grown quickly, surpassing the number of students aided under
Title IV in 2002.
Some tax filers do not appear to make optimal education-related tax
decisions. For example, our analysis of a limited number of 2005 tax
returns indicated that 19 percent of eligible tax filers did not claim
either the tuition deduction or a tax credit. In so doing, these tax
filers failed to reduce their tax liability by $219, on average, and 10
percent of these filers could have reduced their tax liability by over
$500. One explanation for these taxpayers� choices may be the
complexity of postsecondary tax provisions, which experts have commonly
identified as difficult for tax filers to use.
Simplifying the grants, loans, and tax preferences may reduce
complexities in higher education financing, including reducing the
number of eligible tax filers that do not claim tax preferences, but
more research would be necessary to understand the full benefits and
costs of any such changes.
Little is known about the effectiveness of Title IV aid or tax
preferences in promoting, for example, postsecondary attendance or
school choice, in part because of research data and methodological
challenges. As a result, policymakers do not have information that
would allow them to make the most efficient use of limited federal
resources to help students and families.
What GAO Recommends:
GAO does not make new recommendations in this testimony. In 2002, GAO
recommended, among other things, that the Department of Education
sponsor research into key aspects of effectiveness of Title IV
programs. Education began funding grants in July 2007 to conduct
research on topics addressed in this statement; however, no project to
date appears to directly evaluate the role and effectiveness of federal
assistance in improving access to postsecondary education.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-717T]. For more
information, contact Michael Brostek at (202) 512-9110 or George Scott
at (202) 512-7215.
[End of section]
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here this morning to discuss the complexity of
multiple tax incentives targeted to postsecondary education. American
higher education has long been crucial to the development of our
nation's cultural, social, and economic capital. At the dawn of the
21st century, changing workforce demographics, a more integrated global
economy, and numerous technological advances are placing new demands on
our colleges and universities. For the United States to remain
competitive in the rising global knowledge economy, its citizens will
need both the ways and means to endow themselves with the tools
necessary for the task. Nevertheless, the affordability of American
higher education remains a topic of considerable attention as evidenced
by the work of the current Congress in both passing the College Cost
Reduction and Access Act[Footnote 1] and its ongoing efforts to
reauthorize the Higher Education Act of 1965.
This hearing is an opportunity to consider whether any changes should
be made in the government's overall strategy and the individual
programs and tax provisions that provide financial assistance to
students and families saving or paying for postsecondary education or
repaying student loans. This opportunity to review the programs and tax
provisions is important for several reasons. The fact that we face
large and growing structural deficits in the future--primarily driven
by demographics and rising health care costs--emphasizes the need to
consider how the government allocates resources. In addition, we have
noted that fundamental reexamination of government programs, policies,
and priorities is necessary to assure that they match the needs of the
21st century. We have identified the coordination of student aid
programs[Footnote 2]and the effectiveness of those programs[Footnote 3]
both as key topics needing congressional oversight.
Our statement today will focus on four issues that emerged in our 2005
report and subsequent 2006 testimony on student grant and loan
assistance made available under Title IV of the Higher Education Act
and postsecondary education tax preferences.[Footnote 4]
* Postsecondary student financial assistance provided through programs
authorized under Title IV and the tax code differ in three key ways.
First, Title IV grant and loan programs traditionally provide aid to
students and families while students are in college, whereas tax
preferences help both during the college years as well as before and
after college by assisting with saving for or repaying college costs.
Additionally, while student aid programs and tax preferences serve
students and families across a wide range of income groups, some Title
IV programs--particularly the Pell Grant program--provide much of their
financial assistance to students and families whose incomes are lower,
on average, than students and families who receive student loans, tax
credits, and deductions, or who make use of tax-exempt saving vehicles.
Last, students and families have more responsibility for appropriately
using and thereby obtaining the benefits of tax preferences than they
do with Title IV aid.
* Second, postsecondary tax preferences are difficult for families to
understand and use correctly. Perhaps due to the complexity of the tax
provisions, hundreds of thousands of taxpayers fail to claim tax
preferences to which they are entitled or do not claim the tax
preference that would be most advantageous to them.
* Third, proposals to simplify the federal financial assistance
programs for postsecondary education may help to address the
complexities in the current system and improve tax filers' use of
education tax preferences. However, more research is needed to
understand the range of potential benefits and costs associated with
any such changes.
* Finally, we found that Congress has received little evidence
concerning the effectiveness of assistance provided under Title IV or
through tax preferences, including whether such assistance increases
attendance or choice.
Our statement today is drawn from reviews of relevant literature and
updates to previous GAO reports and testimonies covering postsecondary
Title IV programs and tax preferences. We conducted our work in April
2008 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.
Background:
Financial assistance to help students and families pay for
postsecondary education has been provided for many years through
student grant and loan programs authorized under Title IV of the Higher
Education Act of 1965, as amended. Examples of these programs include
Pell Grants for low-income students, PLUS loans to parents and graduate
students, and Stafford loans.[Footnote 5] Much of this aid has been
provided on the basis of the difference between a student's cost of
attendance and an estimate of the ability of the student and the
student's family to pay these costs, called the expected family
contribution (EFC). The EFC is calculated based on information provided
by students and parents on the Free Application for Federal Student Aid
(FAFSA). Federal law establishes the criteria that students must meet
to be considered independent of their parents for the purpose of
financial aid and the share of family and student income and assets
that are expected to be available for the student's education.[Footnote
6] In fiscal year 2007, the Department of Education made available
approximately $15 billion in grants and another $65 billion in Title IV
loan assistance. Title IV also authorizes programs funded by the
federal government and administered by participating higher education
institutions, including the Supplemental Educational Opportunity Grant
(SEOG), Perkins loans, and federal work-study aid, collectively known
as campus-based aid. Table 1 provides brief descriptions of the Title
IV programs that we reviewed in our 2005 report and includes two
programs--Academic Competitiveness Grants and National Science and
Mathematics Access to Retain Talent Grants--that were created since
that report was issued.[Footnote 7]
Table 1: Description of Federal Student Aid Programs Authorized under
Title IV of the Higher Education Act:
Title IV student aid program: Pell Grant;
Program description: Grants are made on the basis of the difference
between the EFC and the maximum Pell award or the student's cost of
attendance, whichever is less. Grants are not available for
postgraduate study.
Title IV student aid program: Supplemental Educational Opportunity
Grant (SEOG);
Program description: Schools administer grant funds, which are awarded
to undergraduates with exceptional financial need;
priority is given to Pell Grant recipients. Institutions must match a
portion (at least 25 percent) of the federal funds allocated.
Title IV student aid program: Academic Competitiveness Grant;
Program description: Available to first-and second-year students who
have completed a rigorous course of study in high school. To be
eligible, students must also be eligible to receive a Pell Grant.
Second-year students must also maintain at least a 3.0 grade-point
average.
Title IV student aid program: National Science and Mathematics Access
to Retain Talent (SMART) Grant;
Program description: Available to third-and fourth-year students
pursuing a major in mathematics, science, or a foreign language deemed
critical to national security. To be eligible, students must also be
eligible to receive a Pell Grant and maintain at least a 3.0 grade-
point average.
Title IV student aid program: Federal Work-Study;
Program description: Schools administer funds, which are used to
provide part-time jobs for undergraduate and graduate students with
financial need. Participating schools or nonprofit employers generally
contribute at least 25 percent of student's earnings (50 percent in the
case of for-profit employers).
Title IV student aid program: Federal Perkins Loan;
Program description: Schools administer funds, comprised of federal
capital contributions and school matching funds (at least one-third of
federal contributions), to make low-interest (5 percent) loans for both
undergraduate and graduate students with exceptional financial need.
Borrower repayments are owed to the school.
Title IV student aid program: Subsidized Federal Family Education Loan
(FFEL) or Direct Stafford Loan;
Program description: Loans made on the basis of financial need to
undergraduate and graduate students who are enrolled at least half-
time. The federal government pays the interest costs on subsidized
loans while the student is in school, for the first 6 months after the
student leaves school, and during a period of deferment.
Title IV student aid program: Unsubsidized FFEL or Direct Stafford
Loan;
Program description: Loans made to undergraduate and graduate students
who are enrolled at least half-time. Unlike subsidized loans, the
federal government does not pay the interest costs on unsubsidized
loans while the student is in school, for the first 6 months after the
student leaves school, and during a period of deferment. Otherwise, the
terms and conditions of unsubsidized loans are the same as those for
subsidized loans.
Title IV student aid program: FFEL or Direct PLUS Loan;
Program description: Loans made to parents on behalf of dependent
undergraduate students enrolled at least half-time, or to graduate and
professional students. Borrowers are subject to a credit check for
adverse credit history and may be denied a loan.
Source: GAO analysis of applicable federal laws and regulations.
[End of table]
Postsecondary assistance also has been provided through a range of tax
preferences,[Footnote 8]including postsecondary tax credits, tax
deductions, and tax-exempt savings programs. For example, the Taxpayer
Relief Act of 1997 allows eligible tax filers to reduce their tax
liability by receiving, for tax year 2007, up to a $1,650 Hope tax
credit or up to a $2,000 Lifetime Learning tax credit for tuition and
qualified related expenses paid for a single student.[Footnote 9]
According to the Office of Management and Budget, the fiscal year 2007
federal revenue loss estimate of the postsecondary tax preferences that
we reviewed was $8.7 billion. Tax preferences discussed as part of our
2005 report and December 2006 testimony include the following:[Footnote
10]
* Lifetime Learning Credit--income-based tax credit claimed by tax
filers on behalf of students enrolled in one or more postsecondary
education courses.
* Hope Credit--income-based tax credit claimed by tax filers on behalf
of students enrolled at least half-time in an eligible program of study
and who are in their first 2 years of postsecondary education.
* Student Loan Interest Deduction--income-based tax deduction claimed
by tax filers on behalf of students who took out qualified student
loans while enrolled at least half-time.
* Tuition and Fees Deduction--income-based tax deduction claimed by tax
filers on behalf of students who are enrolled in one or more
postsecondary education courses and have either a high school diploma
or a General Educational Development (GED) credential.[Footnote 11]
* Section 529 Qualified Tuition Programs--College Savings Programs and
Prepaid Tuition Programs--non-income-based programs that provide
favorable tax treatment to investments and distributions used to pay
the expenses of future or current postsecondary students.
* Coverdell Education Savings Accounts--income-based savings program
providing favorable tax treatment to investments and distributions used
to pay the expenses of future or current elementary, secondary, or
postsecondary students.
As figure 1 demonstrates, the use of tax preferences has increased
since 1997, both in absolute terms and relative to the use of Title IV
aid.
Figure 1: Recipients of Title IV Assistance and Tax Filers Claiming an
Education Tax Credit or Tuition Deduction, 1997--2005:
[See PDF for image]
[End of figure]
Tax Preferences Differ from Title IV Assistance in Timing,
Distribution, and Students' and Families' Responsibility for Obtaining
Benefits:
Postsecondary student financial assistance provided through programs
authorized under Title IV of the Higher Education Act and the tax code
differ in timing of assistance, the populations that receive
assistance, and the responsibility of students and families to obtain
and use the assistance.
Title IV and Tax Programs Differ in Benefit Timing:
Title IV programs and education-related tax preferences differ
significantly in when eligibility is established and in the timing of
the assistance they provide. Title IV programs generally provide
benefits to students while they are in school. Education-related tax
preferences, on the other hand, (1) encourage saving for college
through tax-exempt saving, (2) assist enrolled students and their
families in meeting the current costs of postsecondary education
through credits and tuition deductions, and (3) assist students and
families repaying the costs of past postsecondary education through a
tax deduction for student loan interest paid.[Footnote 12]
Beneficiaries of Title IV Programs and Tax Preferences Differ:
While Title IV programs and tax preferences assist many students and
families, program and tax rules affect eligibility for such assistance.
These rules also affect the distribution of Title IV aid and the
assistance provided through tax preferences. As a result, the
beneficiaries of Title IV programs and tax preferences differ.
Title IV programs generally have rules for calculating grant and loan
assistance that give consideration to family and student income,
assets, and college costs in the awarding of financial aid.[Footnote
13]For example, Pell Grant awards are calculated by subtracting the
student's EFC from the maximum Pell Grant award ($4,310 in academic
year 2007--2008) or the student's cost of attendance, whichever is
less. Because the EFC is closely linked to family income and
circumstances (such as the size of the family and the number of
dependents in school), and modest EFCs are required for Pell Grant
eligibility, Pell awards are made primarily to families with modest
incomes. In contrast, the maximum unsubsidized Stafford loan amount is
calculated without direct consideration of financial need: students may
borrow up to their cost of attendance, minus the estimated financial
assistance they will receive.[Footnote 14] As table 2 shows, 92 percent
of Pell financial support in 2003--2004 was provided to dependent
students whose family incomes were $40,000 or below, and the 38 percent
of Pell recipients in the lowest income category ($20,000 or below)
received a higher share (48 percent) of Pell financial support.
Table 2: Percentage of Aid Recipients and Dollars of Aid by Income
Category for Dependent Students Served by Selected Title IV Programs,
Academic Year 2003--2004:
Program: Pell Grant;
Dependent students: Recipients;
$0-20,000: 38;
$20,001-40,000: 47;
$40,001- 60,000: 14;
$60,001-80,000: 2;
$80,001-100,000: 0;
More than $100,000: 0.
Program: Pell Grant;
Dependent students: Dollars;
$0-20,000: 48;
$20,001-40,000: 44;
$40,001- 60,000: 8;
$60,001-80,000: 1;
$80,001-100,000: 0;
More than $100,000: 0.
Program: Stafford Subsidized Loan;
Dependent students: Recipients;
$0-20,000: 16;
$20,001-40,000: 28;
$40,001- 60,000: 23;
$60,001-80,000: 17;
$80,001-100,000: 9;
More than $100,000: 7.
Program: Stafford Subsidized Loan;
Dependent students: Dollars;
$0-20,000: 16;
$20,001-40,000: 28;
$40,001- 60,000: 24;
$60,001-80,000: 17;
$80,001-100,000: 9;
More than $100,000: 6.
Program: Stafford Unsubsidized Loan;
Dependent students: Recipients;
$0-20,000: 7;
$20,001-40,000: 14;
$40,001- 60,000: 14;
$60,001-80,000: 19;
$80,001-100,000: 18;
More than $100,000: 28.
Program: Stafford Unsubsidized Loan;
Dependent students: Dollars;
$0-20,000: 7;
$20,001-40,000: 12;
$40,001- 60,000: 12;
$60,001-80,000: 18;
$80,001-100,000: 19;
More than $100,000: 32.
Source: GAO analysis of 2003-2004 NPSAS data.
Notes: See app. IV for confidence intervals associated with these
estimates.
[End of table]
Numbers in rows may not add to 100 percent due to rounding.
Because independent students generally have lower incomes and
accumulated savings than dependent students and their families,
patterns of program participation and dollar distribution differ.
Participation of independent students in Pell, subsidized Stafford, and
unsubsidized Stafford loan programs is heavily concentrated among those
with incomes of $40,000 or less: from 74 percent (unsubsidized
Stafford) to 95 percent (Pell) of program participants have incomes
below this level. As shown in table 3, the distribution of award
dollars follows a nearly identical pattern.
Table 3: Percentage of Aid Recipients and Dollars of Aid by Income
Category for Independent Students Served by Selected Title IV Programs,
Academic Year 2003--2004:
[See PDF for image]
Source: GAO analysis of 2003-2004 NPSAS data.
Notes: See app. IV for confidence intervals associated with these
estimates.
Numbers in rows may not add to 100 percent due to rounding.
[End of table]
Many education-related tax preferences have both de facto lower limits
created by the need to have a positive tax liability to obtain their
benefit and income ceilings on who may use them. For example, the Hope
and Lifetime Learning tax credits require that tax filers have a
positive tax liability to use them, and income-related phase-out
provisions in 2007 began at $47,000 and $94,000 for single and joint
filers, respectively. Furthermore, tax-exempt savings are more
advantageous to families with higher incomes and tax liabilities
because, among other reasons, these families hold greater assets to
invest in these tax preferences and have a higher marginal tax rate,
and thus benefit the most from the use of these tax preferences. Table
4 shows the income categories of tax filers claiming the three tax
preferences available to current students or their families, along with
the reduced tax liabilities from those preferences in 2005.
Table 4: Percentage of Tax Filers Claiming Hope and Lifetime Learning
Credits and Tuition Deduction and Tax Preference Dollars by Income
Category, Tax Year 2005:
Source: GAO analysis of 2005 Statistics of Income (SOI) data.
Notes: See app. IV for confidence intervals associated with these
estimates.
[End of table]
Numbers in rows may not add to 100 percent due to rounding.
Students and Families Have More Responsibility for Obtaining Benefits
of Tax Preferences in Comparison to Title IV Aid:
The federal government and postsecondary institutions have significant
responsibilities in assisting students and families in obtaining
assistance provided under Title IV programs but only minor roles with
respect to tax filers' use of education-related tax preferences. To
obtain federal student aid, applicants must first complete the FAFSA, a
form that requires students to complete up to 99 fields for the 2007--
2008 academic year. Submitting a completed FAFSA to the Department of
Education largely concludes students' and families' responsibility in
obtaining aid. The Department of Education is responsible for
calculating students' and families' EFC on the basis of the FAFSA, and
students' educational institutions are responsible for determining aid
eligibility and the amounts and packaging of awards.
In contrast, higher education tax preferences require students and
families to take more responsibility. Although postsecondary
institutions provide students and the Internal Revenue Service (IRS)
with information about higher education attendance, they have no other
responsibilities for higher education tax credits, deductions, or tax-
preferred savings. The federal government's primary role with respect
to higher education tax preferences is the promulgation of rules; the
provision of guidance to tax filers; and the processing of tax returns,
including some checks on the accuracy of items reported on those tax
returns. The responsibility for selecting among and properly using tax
preferences rests with tax filers. Unlike Title IV programs, users must
understand the rules, identify applicable tax preferences, understand
how these tax preferences interact with one another and with federal
student aid, keep records sufficient to support their tax filing, and
correctly claim the credit or deduction on their return.
Some Tax Filers May Not Effectively Use Postsecondary Tax Preferences,
Possibly Due to Complexity:
According to our analysis of 2005 IRS data on the use of Hope and
Lifetime Learning Credits and the tuition deduction, some tax filers
appear to make less-than-optimal choices among them. The apparent
suboptimal use of postsecondary tax preferences may arise, in part,
from the complexity of these provisions.
Some Tax Filers Appear to Make Suboptimal Choices:
Making poor choices among tax preferences for postsecondary education
may be costly to tax filers. For example, families may strand assets in
a tax-exempt savings vehicle and incur tax penalties on their
distribution if their child chooses not to go to college. They may also
fail to minimize their federal income tax liability by claiming a tax
credit or deduction that yields less of a reduction in taxes than a
different tax preference or by failing to claim any of their available
tax preferences. For example, if a married couple filing jointly with
one dependent in his/her first 2 years of college had an adjusted gross
income of $50,000, qualified expenses of $10,000 in 2007, and tax
liability greater than $2,000, their tax liability would be reduced by
$2,000 if they claimed the Lifetime Learning Credit but only $1,650 if
they claimed the Hope Credit.
In our analysis of 2005 IRS data for returns with information on
education expenses incurred, we found that some people who appear to be
eligible for tax credits or the tuition deduction did not claim them.
We estimate that 2.1 million filers could have claimed a tax credit or
tuition deduction and thereby reduced their taxes. However, about 19
percent of those filers, representing about 412,000 returns, failed to
claim any of them. The amount by which these tax filers failed to
reduce their tax averaged $219; 10 percent of this group could have
reduced their tax liability by over $500.[Footnote 15]
In total, including both those who failed to claim a tax credit or
tuition deduction and those who chose a credit or a deduction that did
not maximize their benefit, we found that in 2005, 28 percent, or
nearly 601,000 tax filers did not maximize their potential tax benefit.
Regarding those making a poor choice among the provisions, for example,
27 percent of tax filers that claimed the tuition deduction could have
further reduced their tax liability by an average of $220 by instead
claiming the Lifetime Learning Credit; 10 percent of this group could
have reduced their tax liabilities by over $630. Tax filers that
claimed the Hope Credit when the Lifetime Learning Credit was a more
optimal choice failed to reduce their tax liabilities by an average of
$356.
Suboptimal choices were not limited to tax filers who prepared their
own tax returns. A possible indicator of the difficulty people face in
understanding education-related tax preferences is how often the
suboptimal choices we identified were found on tax returns prepared by
paid tax preparers. We estimate that 50 percent of the returns we found
that appear to have failed to optimally reduce the tax filer's tax
liability were prepared by paid tax preparers. Generalized to the
population of tax returns we were able to review, returns prepared by
paid tax preparers represent about 301,000 of the approximately 601,000
suboptimal choices we found. Our April 2006 study of paid tax preparers
corroborates the problem of confusion over which of the tax preferences
to claim.[Footnote 16] Of the nine undercover investigation visits we
made to paid preparers with a taxpayer with a dependent college
student, three preparers did not claim the credit most advantageous to
the taxpayer and thereby cost these taxpayers hundreds of dollars in
refunds. In our investigative scenario, the expenses and the year in
school made the Hope education credit far more advantageous to the
taxpayer than either the tuition and fees deduction or the Lifetime
Learning credit.
The Suboptimal Use of Postsecondary Tax Preferences May Result from
Their Complexity:
The apparently suboptimal use of postsecondary tax preferences may
arise, in part, because of the complexity of using these provisions.
Tax policy analysts have frequently identified postsecondary tax
preferences as a set of tax provisions that demand a particularly large
investment of knowledge and skill on the part of students and families
or expert assistance purchased by those with the means to do so. They
suggest that this complexity arises from multiple postsecondary tax
preferences with similar purposes, from key definitions that vary
across these provisions, and from rules that coordinate the use of
multiple tax provisions. Twelve tax preferences are outlined in IRS
Publication 970, Tax Benefits for Education: For Use in Preparing 2007
Returns. The publication includes four different tax preferences for
educational saving. Three of these preferences--Coverdell Education
Savings Accounts, Qualified Tuition Programs, and U.S. education
savings bonds--differ across more than a dozen dimensions, including
the tax penalty that occurs when account balances are not used for
qualified higher education expenses, who may be an eligible
beneficiary, annual contribution limits, and other features.
In addition to learning about, comparing, and selecting tax
preferences, filers who wish to make optimal use of multiple tax
preferences must understand how the use of one tax preference affects
the use of others. The use of multiple education-related tax
preferences 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, 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.[Footnote 17]
Benefits to Simplifying Federal Student Aid Have Associated
Implementation Challenges and Costs:
Many researchers and policy analysts support simplifying the existing
federal grant, loans and tax preferences in the belief that doing so
would have a net benefit on encouraging access. Indeed, suggestions put
forth in recent years to combine the federal grants and tax credits,
for example, may help address some of the challenges we identified in
recent years regarding tax filers' suboptimal use of postsecondary tax
preferences or the confusion created by the interactions between direct
student aid programs, such as the Pell Grant, and existing tax
preferences. In this case, reducing the number of choices students and
their families have to make would likely reduce tax filers' confusion
and mistakes.
To date, we have not undertaken any studies of how current Title IV
student aid programs or tax preferences could be simplified and, as a
result, have not developed any such models or proposals. However, while
different aspects of simplification may provide students and their
families with various benefits, Congress would likely want to weigh
those benefits against a number of potentially related costs.
Simplifying the federal application for student aid--A better
understanding is needed about whether or to what extent simplifying the
application for federal aid would: (1) alter the administration of
other federal, state and institutional student aid programs, (2) be
capable of accommodating future federal policies designed to target
aid, and (3) affect current programs that are specifically tied to Pell
Grant eligibility.[Footnote 18] The current FAFSA is used to determine
students' eligibility for various federal aid programs, including Pell
Grants, Academic Competitiveness Grants, SMART Grants, Stafford and
PLUS loans, Supplemental Educational Opportunity Grants (SEOG), Perkins
Loans, and Federal Work-Study. In addition, many states and schools
rely on the FAFSA when awarding state and institutional student
aid.[Footnote 19] To the extent that other programs require FAFSA-like
information from applicants to award financial aid, additional research
is needed to determine whether simplifying the FAFSA may actually
increase the number of applications students and families would be
required to submit.
Simplifying eligibility verification requirements--Both grants and tax
credits are awarded based, in part, on students' and their families'
incomes, which means students and families are required to document
their income to receive the benefit. Under the current system, some
students and families are eligible to apply for Title IV student aid
even though they are not required to file a tax return; in such cases,
eligibility is computed based upon information reported on the FAFSA.
Any plan to consolidate some or all of the current federal grants and
tax preferences would need to consider how to minimize burden on
students and families while also controlling federal administrative
costs, for example, by minimizing the use of multiple verification
procedures that use multiple forms of documentation and that are
administered by multiple agencies.
Simplifying program administration while maintaining federal cost
controls --Federal grant and loan programs are administered by the
Department of Education while federal tax preferences are administered
by IRS. Under a system where existing grant aid and tax credits are
consolidated, it is unclear without additional research, whether cost
efficiency is better achieved through having the Department of
Education or IRS assume federal budgeting and accounting
responsibilities. In addition, the grant programs generally are subject
to an annual appropriation which enables Congress to control overall
federal expenditures by taking into account other federal priorities.
In contrast, most tax preferences are like entitlement programs and
their revenue losses can only be controlled by changing the statutory
qualifications for the tax preference.
Simplifying aid distribution--Policymakers will need to consider costs
associated with the federal government recovering funds if students
fail to maintain eligibility requirements over the course of an
academic year. Families currently claim tax preferences after
qualifying higher education expenses have been incurred but receive
federal grant benefits to pay current expenses. Program simplifications
that consolidate grants and tax preferences into a benefit paid before
expenses are incurred likely will require the implementation of new
cost recovery mechanisms or other means to allocate payments based on
costs actually incurred.
Simplifying eligible expenses--Room and board expenses are considered
in the administration of the federal student aid programs authorized
under Title IV of the Higher Education Act but not in all tax
preferences, particular the Hope and Lifetime Learning Credits. Careful
analysis will be needed of how such expenses could be accounted for in
a simplified scheme if it is changed to being structured as a tax
preference rather than a grant. Room and board expenses vary based on
where a school is located or whether a student lives on or off campus,
and they can be a significant component of a student's cost of
attendance, particularly at community colleges. While certain
strategies might be employed to lessen tax filers' recordkeeping
requirements and result in fewer tax filer compliance issues, further
research is needed on how such an allowance would be optimally set.
Establishing too high an allowance, for example, could result in some
students receiving a benefit in excess of the costs they incur for room
and board, especially for those students who choose to live with their
parents. Alternatively, if tax assistance is provided in advance of
incurring costs, but the assistance is to be limited to costs actually
incurred, a cost recovery or other administrative mechanism would be
needed as discussed above.
Research on Effectiveness of Federal Postsecondary Assistance Is
Incomplete:
Little is known about the effectiveness of federal grant and loan
programs and education-related tax preferences in promoting attendance,
choice, and the likelihood that students either earn a degree or
continue their education (referred to as persistence). Many federal aid
programs and tax preferences have not been studied, and for those that
have been studied, important aspects of their effectiveness remain
unexamined. In our 2005 report, we found no research on any aspect of
effectiveness for several major Title IV federal postsecondary programs
and tax preferences. For example, no research had examined the effects
of federal postsecondary education tax credits on students' persistence
in their studies or on the type of postsecondary institution they
choose to attend, and there is limited research on the effectiveness of
the Pell Grant program on students' persistence.[Footnote 20] One
recently published study suggests that complexity in the federal grant
and loan application processes may undermine its efficacy in promoting
postsecondary attendance.[Footnote 21] The relative newness of most of
the tax preferences also presents challenges because relevant data are
just now becoming available. These factors may contribute to a lack of
information concerning the effectiveness of the aid programs and tax
preferences.
In 2002, we recommended that the Department of Education sponsor
research into key aspects of effectiveness of Title IV programs, that
the Department of Education and the Department of the Treasury
collaborate on such research into the relative effectiveness of Title
IV programs and tax preferences, and that the Secretaries of Education
and the Treasury collaborate in studying the combined effects of tax
preferences and Title IV aid.[Footnote 22] In April 2006, the
Department of Education's Institute for Education Sciences (IES) issued
a Request for Applications to conduct research on, among other things,
"evaluating the efficacy of programs, practices, or policies that are
intended to improve access to, persistence in, or completion of
postsecondary education." Multiyear projects funded under this subtopic
began in July 2007. However, none of the grants awarded to date appear
to directly evaluate the role and effectiveness of Title IV programs
and tax preferences in improving access to, persistence in, or
completion of postsecondary education.
As we noted in our 2002 report, more research into the effectiveness of
different forms of postsecondary education assistance is
important.[Footnote 23] Without such information federal policymakers
cannot make fact-based decisions about how to build on successful
programs and make necessary changes to improve less-effective programs.
The budget deficit and other major fiscal challenges facing the nation
necessitate rethinking the base of existing federal spending and tax
programs, policies, and activities by reviewing their results and
testing their continued relevance and relative priority for a changing
society.[Footnote 24]
Concluding Observations:
In light of the long-term fiscal challenge this nation faces and the
need to make hard decisions about how the federal government allocates
resources, this hearing provides an opportunity to continue a
discussion about how the federal government can best help students and
their families pay for postsecondary education. Some questions that
Congress should consider during this dialog include the following:
* Should the federal government consolidate postsecondary education tax
provisions to make them easier for the public to use and understand?
* Given its limited resources, should the government further target
Title IV programs and tax provisions based on need or other factors?
* How can Congress best evaluate the effectiveness and efficiency of
postsecondary education aid provided through the tax code?
* Can tax preferences and Title IV programs be better coordinated to
maximize their effectiveness?
Mr. Chairman and Members of the Subcommittee, this concludes our
statement. We welcome any questions you have at this time.
Staff Contacts and Acknowledgments:
For further information regarding this testimony, please contact
Michael Brostek at (202) 512-9110 or [email protected] or George Scott
at (202) 512-7215 or [email protected]. Individuals making contributions
to this testimony include David Lewis, Assistant Director; Sarah
Farkas, Sheila R. McCoy, John Mingus, Danielle Novak, Daniel Novillo,
Carlo Salerno, Andrew J. Stephens, and Jessica Thomsen.
[End of section]
Appendix I: Postsecondary Aid Programs:
The federal government helps students and families save, pay for, and
repay the costs of postsecondary education through grant and loan
programs authorized under Title IV of the Higher Education Act of 1965,
as amended, and through tax preferences--reductions in federal tax
liabilities that result from preferential provisions in the tax code,
such as exemptions and exclusions from taxation, deductions, credits,
deferrals, and preferential tax rates.
Federal Grant and Loan Assistance to Postsecondary Students:
Assistance provided under Title IV programs include Pell Grants for low-
income students, the Academic Competitiveness and National Science and
Mathematics Access to Retain Talent Grants, PLUS loans, which parents
as well as graduate and professional students may apply for, and
Stafford loans.[Footnote 25] While each of the three grants reduces the
price paid by the student, student loans help to finance the remaining
costs and are to be repaid according to varying terms. Stafford loans
may be either subsidized or unsubsidized. The federal government pays
the interest cost on subsidized loans while the student is in school,
and during a 6-month period known as the grace period, after the
student leaves school. For unsubsidized loans, students are responsible
for all interest costs.[Footnote 26] Stafford and PLUS loans are
provided to students through both the Federal Family Education Loan
program (FFEL) and the William D. Ford Direct Loan Program (FDLP). The
federal government's role in financing and administering these two loan
programs differs significantly. Under the FFEL program, private
lenders, such as banks, provide loan capital and make loans, and the
federal government guarantees FFEL lenders a minimum yield on the loans
they make and repayment if borrowers default. Under FDLP, the federal
government makes loans to students using federal funds.
The Department of Education and its private-sector contractors jointly
administer the program. Title IV also authorizes programs funded by the
federal government and administered by participating higher education
institutions, including the Supplemental Educational Opportunity Grant
(SEOG), Perkins loans, and federal work-study aid, collectively known
as campus-based aid.
To receive Title IV aid, students (along with parents, in the case of
dependent students) must complete a Free Application for Federal
Student Aid form. Information from the FAFSA, particularly income and
asset information, is used to determine the amount of money--called the
expected family contribution--that the student and/or family is
expected to contribute to the student's education. Federal law
establishes the criteria that students must meet to be considered
independent of their parents for the purpose of financial aid and the
share of family and student income and assets that are expected to be
available for the student's education. Once the EFC is established, it
is compared with the cost of attendance at the institution chosen by
the student. The cost of attendance comprises tuition and fees; room
and board; books and supplies; transportation; certain miscellaneous
personal expenses; and, for some students, additional
expenses.[Footnote 27] If the EFC is greater than the cost of
attendance, the student is not considered to have financial need,
according to the federal aid methodology. If the cost of attendance is
greater than the EFC, then the student is considered to have financial
need. Title IV assistance that is made on the basis of the calculated
need of aid applicants is called need-based aid. Key characteristics of
Title IV programs are summarized in table 5 below.
Table 5: Description of Federal Student Aid Programs Authorized under
Title IV of the Higher Education Act:
Title IV student aid program: Pell Grant;
Program details: Grants are awarded on the basis of difference between
the EFC and the maximum Pell award or the student's cost of attendance,
whichever is less. Grants are not available for postgraduate study;
Annual award amounts: $400 to $4,310 for school year 2007--2008;
Number and characteristics of beneficiaries: Dependent students: About
2.1 million grants were awarded in school year 2003--2004, totaling
$5.3 billion. The average grant award was $2,573; the median income of
recipients was $24,576; Independent students: About 3 million grants
were awarded in school year 2003--2004, totaling $7.4 billion. The
average grant award was $2,436; the median income of recipients was
$12,925.
Title IV student aid program: Supplemental Educational Opportunity
Grant;
Program details: Schools administer grant funds, which are awarded to
undergraduates with exceptional financial need; priority is given to
Pell Grant recipients. Institutions must match a portion (at least 25
percent) of the federal funds allocated;
Annual award amounts: $100 to $4,000;
Number and characteristics of beneficiaries: Dependent students: About
554,000 grants were awarded in school year 2003--2004, totaling $494.2
million. The average grant award was $892; the median income of
recipients was $22,827; Independent students: About 715,000 grants were
awarded in school year 2003--2004, totaling $391.9 million. The average
grant award was $548; the median income of recipients was $11,040.
Title IV student aid program: Academic Competitiveness Grant;
Program details: Applicable to first-and second-year students who have
completed a rigorous course of study in high school. To be eligible,
students must also be eligible to receive a Pell Grant. Second-year
students must also maintain at least a 3.0 grade-point average;
Annual award amounts: $750 for first-year students and $1,300 for
second-year students;
Number and characteristics of beneficiaries: Students: About 310,000
first-year grants and 110,000 second-year grants were expected to be
awarded in school year 2006--2007, totaling an estimated $340.0
million. The average grant award is estimated to be $657 and $1,245
respectively.
Title IV student aid program: National Science and Mathematics Access
to Retain Talent (SMART) Grant;
Program details: Applicable to third- and fourth-year students pursuing
a major in mathematics, science, or a foreign language deemed critical
to national security. To be eligible, students must also be eligible to
receive a Pell Grant and maintain at least a 3.0 grade-point average;
Annual award amounts: $4,000;
Number and characteristics of beneficiaries: Students: About 40,000
third-year grants and 40,000 fourth-year grants were expected to be
awarded in school year 2006--2007, totaling an estimated $310.0
million. The average grant award is estimated to be $3,718 and $3,875
respectively.
Title IV student aid program: Federal Work-Study;
Program details: Schools administer funds, which are used to provide
part-time jobs for undergraduate and graduate students with financial
need. Participating schools or nonprofit employers generally contribute
at least 25 percent of student's earnings (50percent in the case of for-
profit employers);
Annual award amounts: Up to $300 more than the student's determined
financial need; if employment continues past this point, federal funds
may not be used to subsidize the employment;
Number and characteristics of beneficiaries: Dependent students: About
1.1 million awards were awarded in school year 2003--2004, totaling
$2.0 billion. The average award was $1,901; the median income of
recipients was $46,441; Independent students: About 438,000 awards were
awarded in school year 2003--2004, totaling $1.0 billion. The average
award was $2,303; the median income of recipients was $10,561.
Title IV student aid program: Federal Perkins Loan;
Program details: Schools administer funds, comprised of federal capital
contributions and school matching funds (at least 1/3 of federal
contributions), to make low-interest (5 percent) loans for both
undergraduate and graduate students with exceptional financial need.
Borrower repayments are owed to the school;
Annual award amounts: $4,000 maximum for undergraduate students and
$6,000 for graduate students; no minimum award amount. (Aggregate
limits: $8,000 for undergraduates who have not completed 2 academic
years; $20,000 for undergraduates who have completed 2 years; and,
$40,000 for graduate students, including loans borrowed as an
undergraduate.);
Number and characteristics of beneficiaries: Dependent students: About
495,000 loans were made in school year 2003-
-2004, totaling $956.0 million. The average loan amount was $1,932; the
median income of recipients was $39,175; Independent students: About
329,000 loans were made in school year 2003--2004, totaling $905.3
million. The average loan amount was $2,752; the median income of
recipients was $10,277.
Title IV student aid program: Subsidized FFEL or Direct Stafford Loan;
Program details: Loans made on the basis of financial need to
undergraduate and graduate students who are enrolled at least half-
time. The federal government pays the interest costs on subsidized
loans while the student is in school, for the first 6 months after the
student leaves school, and during a period of deferment;
Annual award amounts: $3,500 to $8,500 depending upon year of schooling
and dependency status. Aggregate limits are $23,000 for undergraduates
and $65,500 for graduate students;
Number and characteristics of beneficiaries: Dependent students: About
2.6 million loans were made in school year 2003--2004, totaling $8.1
billion. The average loan amount was $3,188; the median income of
recipients was $44,678; Independent students: About 3.8 million loans
were made in school year 2003--2004, totaling $16.3 billion. The
average loan amount was $4,340; the median income of recipients was
$19,430.
Title IV student aid program: Unsubsidized FFEL or Direct Stafford
Loan;
Program details: Loans made to undergraduate and graduate students who
are enrolled at least half-time. Unlike subsidized loans, the federal
government does not pay the interest costs on unsubsidized loans while
the student is in school, for the first 6 months after the student
leaves school, and during a period of deferment. Otherwise, the terms
and conditions of unsubsidized loans are the same as those for
subsidized loans;
Annual award amounts: $3,500 to $20,500 depending on year of schooling
(including any subsidized loan amounts received for the same period).
Aggregate limits are $23,000 for dependent undergraduates, $46,000 for
independent undergraduates, and $138,500 for graduate students;
Number and characteristics of beneficiaries: Dependent students: About
1.6 million loans were made in school year 2003--2004, totaling $5.3
billion. The average loan amount was $3,293; the median income of
recipients was $75,835; Independent students: About 3.3 million loans
were made in school year 2003--2004, totaling $18.5 billion. The
average loan amount was $5,671; the median income of recipients was
$22,108.
Title IV student aid program: FFEL or Direct PLUS Loan;
Program details: Loans made to parents on behalf of dependent
undergraduate students enrolled at least half-time, or to graduate and
professional students. Borrowers are subject to a credit check for
adverse credit history and may be denied a loan;
Annual award amounts: Maximum loan amounts are limited to cost of
attendance less other estimated financial assistance for the period of
enrollment;
Number and characteristics of beneficiaries: About 634,000 loans were
made in school year 2003--2004, totaling $5.7 billion. The average loan
amount was $9,019; the median income of recipients was $71,397.
Source: GAO analysis of applicable federal laws and regulations and
academic year 2003-2004 NPSAS data.
[End of table]
Tax Preferences:
Prior to the 1990s, virtually all major federal initiatives to assist
students with the costs of postsecondary education were provided
through grant and loan programs authorized under Title IV of the Higher
Education Act. Since the 1990s, however, new federal initiatives to
assist families and students in paying for postsecondary education have
largely been implemented through the federal tax code. The federal tax
code now contains a range of tax preferences that may be used to assist
students and families in saving for, paying, or repaying the costs of
postsecondary education. These tax preferences include credits and
deductions, both of which allow tax filers to use qualified higher
education expenses to reduce their federal income tax liability. The
tax credits reduce the tax filers' income tax liability on a dollar-
for-dollar basis but are not refundable. Tax deductions permit
qualified higher education expenses to be subtracted from income that
would otherwise be taxable. To benefit from a higher education tax
credit or tuition deduction, a tax filer must use tax form 1040 or
1040A, have an adjusted gross income below the provisions' statutorily
specified income limits, and have a positive tax liability after other
deductions and credits are calculated, among other requirements.
Tax preferences also include tax-exempt savings vehicles. Section 529
of the tax code makes tax free the investment income from qualified
tuition programs. There are two types of qualified tuition programs:
savings programs established by states and prepaid tuition programs
established either by states or by one or more eligible educational
institutions. Another tax-exempt savings vehicle is the Coverdell
Education Savings Account. Tax penalties apply to both 529 programs and
Coverdell savings accounts if the funds are not used for allowable
education expenses. Key features of these and other education-related
tax preferences are described below, in table 6.
Table 6: Selected Postsecondary Education Tax Preferences:
[See PDF for image]
Sources: IRS and College Savings Plan Network; GAO analysis of 2005 IRS
Statistics of Income data.
[A] Modified adjusted gross income amounts are provided.
[B] Under section 25A(h) of title 26, United States Code, the income
phase-out amounts are indexed to inflation according to a formula
specified in law for this purpose, which may or may not result in a
yearly increase.
[C] Under section 221(f) of title 26, United States Code, the income
phase-out amounts are indexed to inflation according to a formula
specified in law for this purpose, which may or may not result in a
yearly increase.
[D] or students who attended otherwise eligible educational
institutions located within the Gulf Opportunity Zone in tax years 2005
and 2006, the maximum Hope tax credit and maximum Lifetime Learning tax
credit were doubled. This increase does not apply to tax years after
2006. Gulf Opportunity Zone Act, Pub. L. No. 109-135, � 102, 119 Stat.
2577, 2594 (Jan. 7, 2005).
[E] Although the tuition deduction has expired, legislation has been
introduced that would reinstate the deduction.
[End of table]
Our review of tax preferences did not include exclusions from income,
which permit certain types of education-related income to be excluded
from the calculation of adjusted gross income on which taxes are based.
For example, qualified scholarships covering tuition and fees and
qualified tuition reductions from eligible educational institutions are
not included in gross income for income tax purposes. Similarly,
student loans forgiven when a graduate goes into certain professions
for a certain period of time are also not subject to federal income
taxes. We did not include special provisions in the tax code that also
extend existing tax preferences when tax filers support a postsecondary
education student. For example, tax filers may claim postsecondary
education students as dependents after age 18, even if the student has
his or her own income over the limit that would otherwise apply. Also,
gift taxes do not apply to funds used for certain postsecondary
educational expenses, even for amounts in excess of the usual $12,000
limit on non-taxable gifts. In addition, funds withdrawn early from an
Individual Retirement Account are not subject to the usual 10 percent
penalty when used for either a tax filer's or his or her dependent's
postsecondary educational expenses.
[End of section]
Appendix II: Comparison of Assistance by Timing of Benefits for
Selected Programs and Tax Preferences:
Table 7: Comparison of Assistance by Timing of Benefit for Selected
Programs and Tax Preferences:
Type of assistance: Grant programs;
Save for future expenses: [Empty];
Pay current expenses: Pell Grants;
Supplemental Educational;
Opportunity Grants;
Academic Competitiveness;
Grants;
SMART Grants;
Repay expenses: [Empty].
Type of assistance: Loan programs;
Save for future expenses: [Empty];
Pay current expenses: Subsidized and Unsubsidized;
Stafford Loans;
Federal Perkins Loans;
Federal PLUS Loans;
Repay expenses: [Empty].
Type of assistance: Tax preferences;
Save for future expenses: Coverdell Educational;
Savings Accounts;
Section 529 Qualified;
Tuition Programs;
Pay current expenses: Hope Credit;
Lifetime Learning Credit;
Tuition Deduction;
Repay expenses: Student Loan Interest;
Deduction.
Type of assistance: Work-Study program;
Save for future expenses: [Empty];
Pay current expenses: Federal Work-Study;
Repay expenses: [Empty].
Source: GAO.
[End of table]
[End of section]
Appendix III: Effects of Tax Rules on Tax Preference Use:
For an example of how the use of college savings programs and the
tuition deduction is affected by "anti-double-dipping" rules, consider
the following: To calculate whether a distribution from a college
savings program is taxable, tax filers must determine if the total
distributions for the tax year are more or less than the total
qualified educational expenses reduced by any tax-free educational
assistance, i.e., their adjusted qualified education expenses (AQEE).
After subtracting tax-free assistance from qualified educational
expenses to arrive at the AQEE, tax filers multiply total distributed
earnings by the fraction (AQEE / total amount distributed during the
year). If parents of a dependent student paid $6,500 in qualified
education expenses from a $3,000 tax-free scholarship and a $3,600
distribution from a tuition savings program, they would have $3,500 in
AQEE. If $1,200 of the distribution consisted of earnings, then $1,200
x ($3,500 AQEE / $3,600 distribution) would result in $1,167 of the
earnings being tax free, while $33 would be taxable. However, if the
same tax filer had also claimed a tuition deduction, anti-double-
dipping rules would require the tax filer to subtract the expenses
taken into account in figuring the tuition deduction from AQEE. If
$2,000 in expenses had been used toward the tuition deduction, then the
taxable distribution from the section 529 savings program would rise to
$700.[Footnote 28] For families such as these, anti-double-dipping
rules increase the computational complexity they face and may result in
unanticipated tax liabilities associated with the use of section 529
savings programs.
[End of section]
Appendix IV: Point Estimates and Confidence Intervals:
We used two data sets for this testimony: Education's 2003-2004
National Postsecondary Student Aid Study and the Internal Revenue
Service's 2005 Statistics of Income. Estimates from both data sets are
subject to sampling errors and the estimates we report are surrounded
by a 95 percent confidence interval. The following tables provide the
lower and upper bounds of the 95 percent confidence interval for all
estimate figures in the tables in this testimony. For figures and text
drawn from these data, we provide both point estimates and confidence
intervals.
Table 8: Federal Student Aid Programs Authorized under Title IV of the
Higher Education Act, Academic Year 2003-2004: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2003-2004 National Postsecondary Student Aid
Study (NPSAS) data.
[End of table]
Table 9: Selected Postsecondary Education Tax Preferences, Tax Year
2005:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 10: Selected Postsecondary Education Tax Preferences, Tax Year
2005: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 11: Number of Tax Filers Claiming an Education Tax Credit or
Tuition Deduction, Tax Years 1998-2005:
[See PDF for image]
Source: GAO analysis of Statistics of Income data.
[End of table]
Table 12: Number of Tax Filers Claiming an Education Tax Credit or
Tuition Deduction, Tax Years 1998-2005: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 13: Percentage of Aid Recipients and Dollars of Aid by Income
Category for Dependent Students Served by Selected Title IV Programs,
Academic Year 2003-2004: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2003-2004 NPSAS data.
[End of table]
Table 14: Percentage of Aid Recipients and Dollars of Aid by Income
Category for Independent Students Served by Selected Title IV Programs,
Academic Year 2003-2004: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2003-2004 NPSAS data.
Table 15: Percentage of Tax Filers Claiming Hope and Lifetime Learning
Credits and Tuition Deduction and Tax Preference Dollars by Income
Category, Tax Year 2005: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 16: Number and Percentage of Form 1098-Ts with and without
Postsecondary Education Expense Information, Tax Year 2005:
1098-Ts with expense information;
Number of returns: 4,292,132;
Percent of returns: 24.
1098-Ts without expense information;
Number of returns: 13,399,837;
Percent of returns: 76.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 17: Number and Percentage of Form 1098-Ts with and without
Postsecondary Education Expense Information, Tax Year 2005: Confidence
Intervals:
1098-Ts with expense information;
Number of returns: Lower bound: 4,173,915;
Number of returns: Upper bound: 4,410,349;
Percent of returns: Lower bound: 24;
Percent of returns: Upper bound: 25.
1098-Ts without expense information;
Number of returns: Lower bound: 13,200,126;
Number of returns: Upper bound: 13,599,548;
Percent of returns: Lower bound: 75;
Percent of returns: Upper bound: 76[A].
Source: GAO analysis of 2005 Statistics of Income data.
[A] Lower and upper bounds were estimated independently and therefore
may not add up to 100 percent.
[End of table]
Table 18: Number and Percentage of Taxpayers Apparently Eligible to
Claim an Education Tax Credit or Tuition Deduction in Tax Year 2005:
Total;
Number of returns: 4,292,132;
Percent of returns: 100.
Apparently eligible;
Number of returns: 2,770,570;
Percent of returns: 65.
All other;
Number of returns: 1,521,562;
Percent of returns: 35.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 19: Number and Percentage of Taxpayers Apparently Eligible to
Claim an Education Tax Credit or Tuition Deduction in Tax Year 2005:
Confidence Intervals:
Total;
Number of returns: Lower bound: 4,290,711;
Number of returns: Upper bound: 4,292,132;
Percent of returns: Lower bound: 100;
Percent of returns: Upper bound: 100.
Apparently eligible;
Number of returns: Lower bound: 2,673,200;
Number of returns: Upper bound: 2,867,940;
Percent of returns: Lower bound: 63;
Percent of returns: Upper bound: 66.
All other;
Number of returns: Lower bound: 1,453,105;
Number of returns: Upper bound: 1,590,019;
Percent of returns: Lower bound: 34;
Percent of returns: Upper bound: 37[A].
Source: GAO analysis of 2005 Statistics of Income data.
[A] Lower and upper bounds were estimated independently and therefore
may not add up to 100 percent.
[End of table]
Table 20: Number and Percentage of Taxpayers Apparently Eligible to
Claim an Education Tax Credit or Tuition Deduction That Failed to Do So
in Tax Year 2005:
Failed to claim;
Number of returns: 412,058;
Percent of returns: 19.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 21: Number and Percentage of Taxpayers Apparently Eligible to
Claim an Education Tax Credit or Tuition Deduction That Failed to Do So
in Tax Year 2005: Confidence Intervals:
Failed to claim;
Number of returns: Lower bound: 374,089;
Number of returns: Upper bound: 450,027;
Percent of returns: Lower bound: 18;
Percent of returns: Upper bound: 21.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 22: Amounts by Which Taxpayers Apparently Eligible for an
Education Tax Credit or Tuition Deduction Failed to Reduce Their Tax
Liability in Tax Year 2005:
Median;
Inaction led to increased tax liability: 79.16.
Mean;
Inaction led to increased tax liability: 219.12.
10[TH] percentile;
Inaction led to increased tax liability: 7.64.
25[TH] percentile;
Inaction led to increased tax liability: 24.07.
75[TH] percentile;
Inaction led to increased tax liability: 268.99.
90[TH] percentile;
Inaction led to increased tax liability: 577.38.
Maximum value;
Inaction led to increased tax liability: 2,000.00.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 23: Amounts by Which Taxpayers Apparently Eligible for an
Education Tax Credit or Tuition Deduction Failed to Reduce Their Tax
Liability in Tax Year 2005: Confidence Intervals:
Median: Lower bound;
Inaction led to increased tax liability: 66.5.
Median: Upper bound;
Inaction led to increased tax liability: 99.58.
Mean: Lower bound;
Inaction led to increased tax liability: 189.46.
Mean: Upper bound;
Inaction led to increased tax liability: 248.97.
10th percentile: Lower bound;
Inaction led to increased tax liability: 5.8.
10th percentile: Upper bound;
Inaction led to increased tax liability: 11.71.
25th percentile: Lower bound;
Inaction led to increased tax liability: 19.69.
25th percentile: Upper bound;
Inaction led to increased tax liability: 31.9.
75th percentile: Lower bound;
Inaction led to increased tax liability: 217.46.
75th percentile: Upper bound;
Inaction led to increased tax liability: 324.17.
90th percentile: Lower bound;
Inaction led to increased tax liability: 492.24.
90th percentile: Upper bound;
Inaction led to increased tax liability: 721.48.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 24: Number and Percentage of Apparently Eligible Taxpayers That
Claimed the Tuition Deduction but Would Have Been Better off Claiming
the Lifetime Learning Credit in Tax Year 2005:
Would have been better off claiming Lifetime Learning Credit;
Number of returns: 131,912;
Percent of returns: 27.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 25: Number and Percentage of Apparently Eligible Taxpayers That
Claimed the Tuition Deduction but Would Have Been Better off Claiming
the Lifetime Learning Credit in Tax Year 2005: Confidence Intervals:
Would have been better off claiming Lifetime Learning Credit;
Number of returns: Lower bound: 110,152;
Number of returns: Upper bound: 153,672;
Percent of returns: Lower bound: 23;
Percent of returns: Upper bound: 30.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 26: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Tuition Deduction Could Have Reduced Their Tax Liability by
Claiming the Lifetime Learning Credit in Tax Year 2005:
Median;
Lifetime Learning Credit produced larger reduction: 73.04.
Mean;
Lifetime Learning Credit produced larger reduction: 220.24.
10[TH] percentile;
Lifetime Learning Credit produced larger reduction: a.
25[TH] percentile;
Lifetime Learning Credit produced larger reduction: 25.16.
75[TH] percentile;
Lifetime Learning Credit produced larger reduction: 233.91.
90[TH] percentile;
Lifetime Learning Credit produced larger reduction: 631.37.
Maximum value;
Lifetime Learning Credit produced larger reduction: 1,697.00.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 27: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Tuition Deduction Could Have Reduced Their Tax Liability by
Claiming the Lifetime Learning Credit in Tax Year 2005: Confidence
Intervals:
Median: Lower bound;
Lifetime Learning Credit produced larger reduction: 53.82.
Median: Upper bound;
Lifetime Learning Credit produced larger reduction: 110.64.
Mean: Lower bound;
Lifetime Learning Credit produced larger reduction: 161.41.
Mean: Upper bound;
Lifetime Learning Credit produced larger reduction: 279.06.
10th percentile: Lower bound;
Lifetime Learning Credit produced larger reduction: a.
10th percentile: Upper bound;
Lifetime Learning Credit produced larger reduction: a.
25th percentile: Lower bound;
Lifetime Learning Credit produced larger reduction: 18.92.
25th percentile: Upper bound;
Lifetime Learning Credit produced larger reduction: 42.66.
75th percentile: Lower bound;
Lifetime Learning Credit produced larger reduction: 157.16.
75th percentile: Upper bound;
Lifetime Learning Credit produced larger reduction: 312.42.
90th percentile: Lower bound;
Lifetime Learning Credit produced larger reduction: 345.18.
90th percentile: Upper bound;
Lifetime Learning Credit produced larger reduction: 1,025.46.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 28: Number and Percentage of Apparently Eligible Taxpayers That
Claimed the Lifetime Learning Credit but Would Have Been Better off
Claiming the Tuition Deduction in Tax Year 2005:
Would have been better off claiming the Tuition Deduction;
Number of returns: 37,580;
Percent of returns: 7.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 29: Number and Percentage of Apparently Eligible Taxpayers That
Claimed the Lifetime Learning Credit but Would Have Been Better off
Claiming the Tuition Deduction in Tax Year 2005: Confidence Intervals:
Would have been better off claiming the Tuition Deduction;
Number of returns: Lower bound: 26,897;
Number of returns: Upper bound: 50,845;
Percent of returns: Lower bound: 5;
Percent of returns: Upper bound: 9.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 30: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Lifetime Learning Credit Could Have Reduced Their Tax Liability by
Claiming the Tuition Deduction in Tax Year 2005:
Median;
Tuition deduction produced larger reduction: 145.17.
Mean;
Tuition deduction produced larger reduction: 204.61.
10[TH] percentile;
Tuition deduction produced larger reduction: a.
25[TH] percentile;
Tuition deduction produced larger reduction: a.
75[TH] percentile;
Tuition deduction produced larger reduction: 274.32.
90[TH] percentile;
Tuition deduction produced larger reduction: 397.45.
Maximum value;
Tuition deduction produced larger reduction: 934.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 31: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Lifetime Learning Credit Could Have Reduced Their Tax Liability by
Claiming the Tuition Deduction in Tax Year 2005: Confidence Intervals:
Median: Lower bound;
Tuition deduction produced larger reduction: 83.73.
Median: Upper bound;
Tuition deduction produced larger reduction: 194.37.
Mean: Lower bound;
Tuition deduction produced larger reduction: 141.96.
Mean: Upper bound;
Tuition deduction produced larger reduction: 267.26.
10th percentile: Lower bound;
Tuition deduction produced larger reduction: a.
10th percentile: Upper bound;
Tuition deduction produced larger reduction: a.
25th percentile: Lower bound;
Tuition deduction produced larger reduction: a.
25th percentile: Upper bound;
Tuition deduction produced larger reduction: a.
75th percentile: Lower bound;
Tuition deduction produced larger reduction: 177.32.
75th percentile: Upper bound;
Tuition deduction produced larger reduction: 374.41.
90th percentile: Lower bound;
Tuition deduction produced larger reduction: a.
90th percentile: Upper bound;
Tuition deduction produced larger reduction: a.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 32: Number and Percentage of Apparently Eligible Taxpayers That
Claimed a Hope Credit but Would Have Been Better off Claiming a
Lifetime Learning Credit in Tax Year 2005:
Total;
Number of returns: 368,605;
Percent of returns: 100.
Would have been better off claiming Lifetime Learning Credit;
Number of returns: 20,727;
Percent of returns: 6.
All other;
Number of returns: 347,878;
Percent of returns: 94.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 33: Number and Percentage of Apparently Eligible Taxpayers That
Claimed a Hope Credit but Would Have Been Better off Claiming a
Lifetime Learning Credit in Tax Year 2005: Confidence Intervals:
Total;
Number of returns: Lower bound: 332,477;
Number of returns: Upper bound: 404,733;
Percent of returns: Lower bound: 99;
Percent of returns: Upper bound: 100.
Would have been better off claiming Lifetime Learning Credit;
Number of returns: Lower bound: 12,950;
Number of returns: Upper bound: 31,217;
Percent of returns: Lower bound: 4;
Percent of returns: Upper bound: 8.
All other;
Number of returns: Lower bound: 337,388;
Number of returns: Upper bound: 355,655;
Percent of returns: Lower bound: 92;
Percent of returns: Upper bound: 96[A].
Source: GAO analysis of 2005 Statistics of Income data.
[A] Lower and upper bounds were estimated independently and therefore
may not add up to 100 percent.
[End of table]
Table 34: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Hope Credit Could Have Reduced Their Tax Liability by Claiming the
Lifetime Learning Credit in Tax Year 2005:
Median;
Lifetime credit produced larger reduction ($): 296.15.
Mean;
Lifetime credit produced larger reduction ($): 356.37.
10[TH] percentile;
Lifetime credit produced larger reduction ($): 86.43.
25[TH] percentile;
Lifetime credit produced larger reduction ($): a.
75[TH] percentile;
Lifetime credit produced larger reduction ($): 494.62.
90[TH] percentile;
Lifetime credit produced larger reduction ($): a.
Maximum value;
Lifetime credit produced larger reduction ($): 863.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 35: Amounts by Which Apparently Eligible Taxpayers That Claimed
the Hope Credit Could Have Reduced Their Tax Liability by Claiming the
Lifetime Learning Credit in Tax Year 2005: Confidence Intervals:
Median: Lower bound;
Lifetime credit produced larger reduction ($): 166.16.
Median: Upper bound;
Lifetime credit produced larger reduction ($): 491.75.
Mean: Lower bound;
Lifetime credit produced larger reduction ($): 257.82.
Mean: Upper bound;
Lifetime credit produced larger reduction ($): 454.93.
10th percentile: Lower bound;
Lifetime credit produced larger reduction ($): 64.32.
10th percentile: Upper bound;
Lifetime credit produced larger reduction ($): 156.97.
25th percentile: Lower bound;
Lifetime credit produced larger reduction ($): a.
25th percentile: Upper bound;
Lifetime credit produced larger reduction ($): a.
75th percentile: Lower bound;
Lifetime credit produced larger reduction ($): 303.59.
75th percentile: Upper bound;
Lifetime credit produced larger reduction ($): 654.08.
90th percentile: Lower bound;
Lifetime credit produced larger reduction ($): a.
90th percentile: Upper bound;
Lifetime credit produced larger reduction ($): a.
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 36: Number and Percentage of Returns where Apparently Eligible
Taxpayers Made Suboptimal Choice, Tax Year 2005:
Total;
Number of returns: 2,141,870;
Percent of returns: 100.
Taxpayers making suboptimal choice;
Number of returns: 601,267;
Percent of returns: 28.
All other;
Number of returns: 1,540,603;
Percent of returns: 72.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 37: Number and Percentage of Returns where Apparently Eligible
Taxpayers Made Suboptimal Choice, Tax Year 2005: Confidence Intervals:
Total;
Number of returns: Lower bound: 2,056,824;
Number of returns: Upper bound: 2,229,485;
Percent of returns: Lower bound: 100;
Percent of returns: Upper bound: 100.
Taxpayers making suboptimal choice;
Number of returns: Lower bound: 555,166;
Number of returns: Upper bound: 647,638;
Percent of returns: Lower bound: 26;
Percent of returns: Upper bound: 30.
All other;
Number of returns: Lower bound: 1,467,713;
Number of returns: Upper bound: 1,613,493;
Percent of returns: Lower bound: 70;
Percent of returns: Upper bound: 74.
[End of table]
Source: GAO analysis of 2005 Statistics of Income data.
Table 38: Amounts by which Apparently Eligible Taxpayers that Made
Suboptimal Choice Could Have Further Reduced Their Tax Liability in Tax
Year 2005:
Median;
Amount ($): 85.74.
Mean;
Amount ($): 222.04.
10[TH] percentile;
Amount ($): 8.32.
25[TH] percentile;
Amount ($): 25.88.
75[TH] percentile;
Amount ($): 284.13.
90[TH] percentile;
Amount ($): 576.86.
Maximum value;
Amount ($): 2,000.00.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 39: Amounts by which Apparently Eligible Taxpayers that Made
Suboptimal Choice Could Have Further Reduced Their Tax Liability in Tax
Year 2005: Confidence Intervals:
Median: Lower bound;
Amount ($): 75.5.
Median: Upper bound;
Amount ($): 105.94.
Mean: Lower bound;
Amount ($): 197.46.
Mean: Upper bound;
Amount ($): 246.62.
10th percentile: Lower bound;
Amount ($): 6.41.
10th percentile: Upper bound;
Amount ($): 11.79.
25th percentile: Lower bound;
Amount ($): 22.28.
25th percentile: Upper bound;
Amount ($): 34.6.
75th percentile: Lower bound;
Amount ($): 236.65.
75th percentile: Upper bound;
Amount ($): 317.04.
90th percentile: Lower bound;
Amount ($): 499.46.
90th percentile: Upper bound;
Amount ($): 697.14.
Source: GAO analysis of 2005 Statistics of Income data.
[End of table]
Table 40: Number and Percentage of Suboptimal Choices Made by Paid Tax
Preparers, Tax Year 2005:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
Table 41: Number and Percentage of Suboptimal Choices Made by Paid Tax
Preparers, Tax Year 2005: Confidence Intervals:
[See PDF for image]
Source: GAO analysis of 2005 Statistics of Income data.
[A] Estimate cannot be calculated due to small sample size.
[End of table]
[End of section]
Footnotes:
[1] Pub. L. No. 110-84, 121 Stat. 784 (Sept. 27, 2007).
[2] GAO, 21ST Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[3] GAO, Suggested Areas for Oversight for the 110th Congress,
GAO-07-235R (Washington, D.C.: Nov. 17, 2006).
[4] See GAO, 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), and GAO, Postsecondary Education:
Multiple Tax Preferences and Title IV Student Aid Programs Create a
Complex Education Financing Environment, GAO-07-262T (Washington, D.C.:
Dec. 5, 2006).
[5] Consolidation loans are also authorized under Title IV. These loans
allow borrowers to combine multiple student loans, possibly from
different lenders and from different loan programs, into a single new
loan with extended repayment periods. Because consolidation loans do
not generally result in an increase in loan principal, they are not
addressed in this testimony.
[6] To be classified as an independent student for the purpose of
receiving Title IV financial aid, students must meet one of the
following criteria: (1) be a veteran of the armed services, (2) be age
24 years or older by December 31st of the award year, (3) be married,
(4) be enrolled in a graduate or professional education program, (5)
have legal dependents other than a spouse, or (6) be an orphan or ward
of the court. Financial aid administrators may also classify students
as independent through the exercise of their professional judgment for
other unusual circumstances.
[7] For greater detail on federal spending through Title IV
postsecondary education assistance programs reviewed in our 2005 report
and December 2006 testimony, see app. I.
[8] Tax preferences--also known as tax expenditures--are reductions in
tax liabilities that result from preferential provisions in the tax
code, such as exemptions and exclusions from taxation, deductions,
credits, deferrals, and preferential tax rates.
[9] Pub. L. No. 105-34, � 201, 111 Stat. 788, 799 (Aug. 5, 1997).
[10] For expanded descriptions of postsecondary education-related tax
preferences, see app. I.
[11] The Tuition and Fees Deduction expired on December 31, 2007.
Legislation has been introduced to reinstate the deduction.
[12] Additional details on the differences in timing are available in
app. II.
[13] Campus-based aid programs authorized under Title IV differ from
these programs in funding and eligibility: institutions provide
matching funding for federal spending, and participating institutions
distribute aid using institution-specific criteria consistent with
federal program requirements. Because they have institution-specific
criteria, the relationship between program rules and the distribution
of benefits is more complex and was excluded from the analysis of our
2005 report.
[14] Additionally, loan amounts for both subsidized and unsubsidized
Stafford loans are subject to statutory limits on annual and cumulative
borrowing.
[15] Confidence intervals for all estimates in this section are
included in app. IV.
[16] GAO, Paid Tax Return Preparers: In a Limited Study, Chain
Preparers Made Serious Errors, GAO-06-563T (Washington, D.C.: Apr. 4,
2006).
[17] For an example of this phenomenon, please see app. III.
[18] Examples include the recently established Academic Competitiveness
and National Science and Mathematics Access to Retain Talent (SMART)
Grants.
[19] The first page of the FAFSA lists states' filing deadlines of the
form for the purpose of state aid programs, which, for the 2007-2008
award year range from March 1, 2007, to June 30, 2008.
[20] Eric Bettinger. "How Financial Aid Affects Persistence," in
College Choices: The Economics of Where to Go, When to Go, and How To
Pay for It, edited by Caroline Hoxby, (Chicago: University of Chicago
Press, 2004) 207-238. This study cites numerous data availability and
reliability challenges confronting research examining Pell Grant
effects on student collegiate outcomes.
[21] Susan M. Dynarski, and Judith E. Scott-Clayton. "The Cost of
Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and
Behavioral Economics." National Tax Journal, June 2006.
[22] GAO, Student Aid and Tax Benefits: Better Research and Guidance
Will Facilitate Comparison of Effectiveness and Student Use, GAO-02-751
(Washington, D.C.: Sept. 13, 2002).
[23] GAO-02-751.
[24] GAO-05-325SP.
[25] Consolidation loans are also authorized under Title IV. These
loans allow borrowers to combine multiple student loans, possibly from
different lenders and from different loan programs, into a single new
loan with extended repayment periods. Because consolidation loans do
not generally result in an increase in loan principal, consolidation
loans are not addressed in this review. However, the federal government
can incur significant costs in providing borrowers with these loans.
See GAO, Student Loan Programs: As Federal Costs of Loan Consolidation
Rise, Other Options Should Be Examined, GAO-04-101 (Washington, D.C.:
Oct. 31, 2003) and Student Loan Programs: Lower Interest Rates and
Higher Loan Volume Have Increased Federal Consolidation Loan Costs, GAO-
04-568T (Washington, D.C.: Mar. 17, 2004).
[26] While called "unsubsidized," the federal government can still
incur costs on such loans, including the costs associated with
borrowers who default on their loans and, under the Federal Family
Education Loan Program, the costs of making payments to lenders to
ensure them a minimum federally guaranteed yield.
[27] For example, these may include child care expenses for parents of
young dependent children or supportive services for disabled students.
[28] 1 The new nontaxable distribution figure is calculated $1,200 x
($1,500/$3,600) = $500. The taxable portion then becomes
$1,200 - $500 = $700.
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office:
441 G Street NW, Room LM:
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: [email protected]:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, [email protected]:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, [email protected]:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
*** End of document. ***