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Billions to Non-Needy Students

Last week, Jon Marcus of the Hechinger Report wrote about the billions of dollars in federal and university aid that goes to students who would likely attend college without it.  His article, a version of which appeared on the front page of USA Today under the headline “$5.3B goes to students who government says don’t need it,” centered around the rise in non-need institutional merit aid and the ballooning federal tax breaks which go to families earning up to $180,000 per year.  “It just doesn’t make any sense,” one low-income student told Marcus.  “You don’t give the bloated guy the cheeseburger when the starving man is starving.”

Several new research reports underline the disturbing trends.  In addition to the College Board’s “Trends in Student Aid 2011,” which finds that institutions are providing more than $5-billion in non-need based aid, the National Center for Education Statistics recently reported that non-need institutional merit aid from four-year public and private colleges has surpassed need-based institutional aid, a reversal of the earlier emphasis on need.

On the federal level, the College Board’s Trends report found that roughly $4-billion goes in the form of tax credits and deductions to families with adjusted gross incomes between $100,000 and $180,000 a year.  (The total cost of the tax breaks was $14.7-billion in 2009.)

Ironically, the big subsidies to relatively well-off families first originated under the Democratic administration of Bill Clinton. Clinton’s Treasury Secretary Robert Rubin, a Wall Street financier not known as a wide-eyed radical, advised Clinton at the time that increasing grant aid would provide a better-targeted method of expanding higher-education access.  But tax credits were seen as more politically viable, both because they benefit more powerful constituencies and because tax cuts are symbolically associated with shrinking government.  A 2003 National Bureau of Economic Research Working Paper by Bridget Terry Long vindicated Rubin’s position, finding that the Clinton higher education tax breaks did not broaden access to post-secondary education.

Yet the program has continued to grow.  According to a new National Center for Education Statistics report, “Federal Education Tax Benefits,” in 2007-8 college tax benefits went to 47 percent of American undergraduates, compared with 27 percent receiving Pell grants.  Since then, the Obama administration has expanded tax breaks both up and down the income ladder–raising eligibility levels to $180,000 but also making the tax break refundable, which benefits lower-income families who don’t owe federal taxes.

Critics rightly worry that the growing tax breaks are problematic on two grounds.  Because they are built into the tax code, they don’t have to go through the discipline of surviving the regular annual appropriations process.  And tax breaks for those in the $100,000 to $180,000 range, more than double the median family income, don’t usually tip the balance for students deciding whether to attend college.

The silent and automatic nature of the tax breaks make my Innovations Blog colleagues Sandy Baum and Michael McPherson ask why there isn’t more “scrutiny in this age of attempted austerity” for “government expenditure through the tax code.”  Likewise, Sara Goldrick-Rab of the University of Wisconsin notes that tax credits for better-off families provide “extra money to make sure they can have a vacation that year, or they can buy another TV or a nicer car,” but “it is not for putting food on the table, and it’s not paying the heating bill, and it’s not deciding whether or not the kid goes to college.”

This state of affairs is aggravating for those of us think that the public interest in funding student aid for higher education–the reason we all pay for other people’s kids to go to school–is strongest when that aid makes the difference between attending and not attending.  The frustration is compounded when important access programs for working-class and low-income students are taking deep cuts.

A number of years ago, higher education authorities Arthur Hauptman and Michael Timpane suggested (in a book I edited) that proportionally more funding should be allocated to programs like TRIO and GEAR-UP, which support academic preparation and transition to college.  Yet it is precisely these programs–which together in FY 2011 spent $1.1-billion–that have been subject to intense cuts during the Obama years.  Couldn’t some of the $4-billion in federal tax breaks to relatively wealthy families be shifted to protect these types of programs?

I understand that families making nearly $180,000 wield more political power than those who are eligible for programs like TRIO, but at what point does it become embarrassing to policymakers to keep feeding the bloated guy when the starving man is hungry?

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