Upside Down: Higher-Education Tax Spending

Overview & Synopsis

Access to higher education is critical for ending the cycle of poverty and expanding economic opportunity. Children who are educated to reach their potential are best able to become self-sufficient contributors to the national economy. These moral and economic grounds justify government investment in higher education. Although the federal government now spends more than $60 billion every year on nonloan higher-education support, college enrollment and graduation rates of America's low-income students remain disastrously low. Financial support strategies of higher education need to be reevaluated. As this paper illustrates, one of the largest sources of support for higher education is federal tax spending, which has regularly matched or exceeded federal spending on Pell Grants. Unlike Pell Grants, this tax spending disproportionately goes to households that need the least help--that is, to parents who could already finance the education of children who were already college bound. This is no way to expand opportunity. This paper serves as a guide for turning this upside-down spending right side up, and provides an overview of the size and shape of higher-education tax spending, the distribution of these benefits, the tax support for college savings, and federal policy recommendations that can expand educational opportunity for all Americans.