Invisible Spending on Financial Aid

WASHINGTON -- One federal effort to make college more affordable cost almost $15 billion in 2009. Almost half of its benefits went to families making more than $75,000 per year. Yet as potential budget cuts hover over many financial aid programs, this one is left unmentioned.

The difference: the benefits are distributed through the tax code, not the financial aid office.

When the American Opportunity Tax Credit took effect in 2009, the tax savings claimed by students and families for college expenses more than doubled, climbing from $6.6 billion to $14.7 billion, according to the College Board’s Trends in Student Aid 2011 report last month.

The explosive growth of Pell Grants in the same time period generated discussion, debate and an uneasy consensus that the $37 billion program is unsustainable in its current form . The parallel climb in spending on tax credits has attracted little notice.

As the “super committee” for deficit reduction studies revenue and spending, and the budgets tighten for Education Department financial aid programs, the question is whether the tax credits will continue to escape unscathed.

“It’s sort of like the third part of the budget,” said Jason Delisle, director of the New America Foundation’s Federal Education Budget Project. “You’ve got the tax part, you’ve got the spending part, and then you’ve got the tax spending part.”

The credits have many fans, including middle- and upper-middle-class families who are ineligible for Pell Grants, subsidized loans and other traditional forms of federal financial aid. Compared to other tax expenditures, such as the $484 billion mortgage interest deduction, the tuition credits and deductions are relatively small.

Still, others question whether that $15 billion could be better used, whether for deficit reduction in lieu of Pell cuts or to better target aid to low-income families.

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Invisible Spending on Financial Aid

The credits have many fans, including middle- and upper-middle-class families who are ineligible for Pell Grants, subsidized loans and other traditional forms of federal financial aid. Compared to other tax expenditures, such as the $484 billion



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