Tax credit benefits wealthy
By Rachana Dixit, news editor
Posted on October 9, 2006

The National Center for Education Statistics recently released a report showing that the affluent are benefiting more from tuition tax credits than those in the lower average-income brackets.

The report, which for the first time analyzed student financing of undergraduate education from 2003-’04, examined the effects of two programs since their creation in 1997.

The Hope Scholarship, one of the two programs, allows a tax credit of up to $1,500 during a student’s first two years in college. The Lifetime Learning Tax Credit, the other program being analyzed, allows a tax credit of up to $2,000 for lower and middle-income students after the first two years.

During the 2003-’04 school year, there were larger federal tax credit benefits for undergraduates coming from affluent backgrounds. Families who earned $15,000 or less received about $144 million through the credit programs. Families with an income between $30,000 and $49,999 received around $1.3 billion, whereas falling into the $50,000 to $99,999 average gross income bracket generated a total of about $2.2 billion.

Linda Combs, director of the University Business Office, said the eligible monetary amount for these credits decreases when students are receiving other forms of aid, including loans, grants and scholarships. For example, she said tuition at JMU for a full-time, in-state undergraduate is $3,145 per semester. If a student received a grant for $2,000, only $1,145 would be eligible for tax credit.

“It makes sense that the amount would be reduced,” Combs said. “The people that are getting grants and scholarships are getting free money.” For example, students may be eligible for the Federal Pell Grant, a form of gift aid. For the 2006-’07 school year, the maximum award amount is $4,050.

But, Combs added that tax credits can only be applied to tuition, and not to room and board fees.

In addition to the section on federal tax credits, the NCES report showed that overall lower income students receive more governmental aid than the middle and upper class.
In the lowest 25 percent income group from 2003-’04, 74.6 percent of undergraduates who applied for aid received it. The total aid amount per student came to $7,900. But, only 48.6 percent of undergraduates in the highest income group received aid, totaling about $7,000 per student.

Senior Josh Hendrick, who has been attending JMU since last year and claims himself as an independent on his tax forms, said he has been getting some form of governmental aid since attending the university.

“I mainly got loans or grants from the federal government,” Hendrick said, adding that he has received Stafford loans to finance his education. “I think the government does a fairly decent job trying to give out student loans and grants.”

However, Hendrick said Stafford loans alone might not be enough to pay for college since there are a multitude of other costs, such as textbook and transportation costs.
“Stafford loans really aren’t enough to pay for tuition,” he said. “If you don’t have another source, like a loan or a grant, you’re screwed.”

Regarding tax credits, Hendrick thinks it makes sense that people with higher income may receive more of this type of aid.

“[Middle and upper-middle-class families] are probably paying more out of their pockets,” Hendrick said. Plus, he said, a person eligible for aid has to make enough money to be taxed enough.

“You have to at least be taxed,” he said. “Most students aren’t employed full-time, so they’re not going to get a tax write-off.”

Combs said she the tax credit system is a fair way of distributing aid because all people are eligible for the same amount regardless of income.

“It’s across the board,” she said.

Virginia Senator Mark Obenshain (R-26th District) said he is also more likely to support the tax credit approach. Obenshain served on JMU’s Board of Visitors until 2003, when policy makers were concerned that Virginia’s tuition costs had gotten out of hand.

“Many families have no choice and can’t send their kinds to four-year institutions,” Obenshain said. “We may have gone too far.”

Although the Virginia General Assembly raised taxes two years ago for higher education, Obenshain said the only way tuition can stay low is if the state provides more direct
funds.

“When the state increases its direct aid to colleges and universities,” he said, “it gives them the ability to keep tuition down. The biggest thing the legislature can do is increase direct aid.”