No Wealthy Parent Left Behind: An Analysis of Tax Subsidies for Higher Education

As most students attending colleges and universities (and their parents) understand, the cost of higher education is quite high. In 2006, tuition and fees at four-year colleges increased by approximately six percent with an inflation rate in the range of three percent. Over the last three decades, the cost of attendance at colleges and universities increased at rates well in excess of the economy-wide rate of inflation. Moreover, in recent years, colleges and universities have allocated more of their financial aid budgets towards “merit” scholarships with a smaller percentage of grants awarded on the basis of financial need. As a result, these costs make it difficult, if not impossible, for lower-income students to attend four-year institutions, even when they are academically qualified to do so. This paper discusses the principal tax provisions that provide subsidies for higher education and analyzes the allocation of benefits that arise from these provisions. It also evaluates these provisions from a tax policy perspective. Finally, it states conclusions and policy recommendations.