How Governments Support Higher Education Through The Tax Code Federal and state income tax provisions aim to reduce costs for students and families

Pew Trusts:

To maximize the impact of higher education investments and achieve desired policy goals, policymakers should have knowledge of the full range of assistance provided to institutions and students. This means having an understanding of the billions of dollars made available through spending programs and the tax code. However, too frequently these two types of support are not considered in tandem, and most states lack the cost estimates they would need to determine how tax provisions for higher education compare in size to other postsecondary investments.

The federal government and the states each invested more than $70 billion in higher education-related spending programs, excluding loans, in academic year 2014, the latest year for which data are available. But that gure, as substantial as it is, does not paint a full picture of federal and state investments in higher education. It excludes the billions of dollars that the federal government and the 41 states plus the District of Columbia that levy personal income taxes provide to students and their families through tax expenditures—such as credits for tuition and college savings incentives—to help o set postsecondary costs.

These tax provisions—special deductions, credits, exclusions, and exemptions—allow people to reduce their income tax liability and result in lower federal and state government revenue. They are called tax expenditures because they are similar to direct spending both in their budgetary impacts and in the way they can bene t recipients. The tax code contains many such provisions that support speci c policy priorities, of which higher education is just one.