Students and Families Miss Out on Millions in Tax Breaks, Report Says

June 18, 2012

About 1.5 million tax filers in 2009 did not take advantage of the higher-education tax benefits for which they appeared to be eligible, according to a government report released on Monday.

The report, by the Government Accountability Office, says students and their families missed out on average tax benefit of $466. The missed savings totaled $726-million.

Tax benefits for higher education—which include the American Opportunity Credit, the Lifetime Learning Credit, and deductions for tuition payments and interest paid on student loans—each year total about $30-billion. But about 14 percent of the people who were eligible for the benefits in the 2009 tax year did not use them, the GAO found.

And even among those who did take advantage of some higher-education tax benefit, the report says many did not use them effectively. For example, nearly 40 percent of the students and families who took the tuition deduction could have saved more money by claiming the Lifetime Learning Credit instead. Filers who didn't maximize their tax savings paid an average of $284 more than they had to, for a total of approximately $67.2-million.

The Government Accountability Office says that, since 2005, it has repeatedly found that millions of filers eligible for higher-education tax breaks have failed to claim them. In the report the GAO recommends that the Internal Revenue Service and Department of Education work together to develop a "coordinated, comprehensive strategy" aimed at better informing students about the benefits for which they are eligible.