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Center News

January 5, 1999


A new policy report, Federal Tuition Tax Credits and State Higher Education Policy, was released today by The National Center for Public Policy and Higher Education. The report addresses the implications for states of two recently enacted federal tuition tax credits designed to help students and their families meet college expenses: the HOPE Scholarship and Lifetime Learning tax credits.

The 1997 Taxpayer Relief Act (1997 Act) will add 40 billion dollars to higher education funding--its costs will equal that of all other existing federal financial aid programs combined. The policy guide describes the students who benefit from the 1997 Act in each state. It encourages states to assess where the gaps in college participation still exist. It also examines how current state policies will interact with the new federal tuition tax policies. Specifically:

  • Some states, like Montana, Mississippi, and South Dakota, have a high proportion of college students whose incomes are too low to benefit at all from the tax credits.
  • States with large student financial aid programs, like New York, Pennsylvania, Illinois and Georgia, will find that their financial aid dollars reduce some students' eligibility for the federal tax credits.
  • States that rely on the low tuition to provide college opportunity, like Texas, North Carolina, and California, will find that some students will not receive the full benefit of the new tax credit.

For the states and for students, according to the report, the federal tax credit legislation offers both opportunities and dangers. The major opportunity is that the federal action can prompt states to enhance their own efforts to increase college opportunity beyond high school for all residents. The major danger is that the neediest current and prospective students who do not benefit at all from these tax credits, will be harmed if states raise tuition or reduce state financial aid to capture federal revenue.

The report identifies a series of alternatives for states to respond to the new federal policy, including making no policy changes or focusing state resources on low income students who do not benefit from the federal tax credits. The report urges states to avoid using the tax credits as a rationale for raising tuition or reducing state support of higher education.

The National Center for Public Policy and Higher Education was established in 1998 to promote the public interest regarding opportunity, affordability and quality in American higher education. As an independent, nonprofit, nonpartisan organization, the National Center provides action-oriented analyses of state and federal policies affecting education beyond high school. The National Center receives financial support from a consortium of national philanthropic organizations, and is not affiliated with any institution of higher education or with any government agency.


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© 1998 The National Center for Public Policy and Higher Education

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