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How an Obscure College Aid Fix Could Help Millions of Low-Income Students

Kim Dancy and Jason Delisle wrote for The Hill about a college aid fix that could help millions of low income families:

The tax filing season is upon us, which means college students and their parents will be getting big refunds. Since 2009 they’ve been able to qualify for up to a $2,500 tax credit for tuition expenses under President Obama’s American Opportunity Tax Credit. And lawmakers recently made that benefit a permanent part of the tax code. Combined, tuition tax credits will provide over $20 billion to students and families in 2016, but there is a big flaw in this popular and growing form of financial aid. Our research shows that nearly 40 percent of undergraduates cannot benefit, most of whom are from low-income families.

That is mainly because need-based grants cover all of their tuition (usually federal Pell Grants), so they have no eligible expenses with which to claim a tax benefit. Many of these families incur housing and food expenses on par with, or even greater than, tuition, but only tuition expenses qualify for tax benefits. Critically, families can receive the American Opportunity Tax Credit even if they don’t owe federal income tax, but that is often an empty benefit: the low-income families that feature is meant to help are the same ones who receive Pell Grants that already cover their tuition. It’s a classic case of Washington policymakers failing to coordinate an ever expanding list of federal programs.