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THE GOVERNMENT GIVES, THE COLLEGES TAKE

September 06, 2007

One dirty secret of the hodgepodge of tax breaks for college is their unintended consequences. They make it easier for our well-endowed colleges (like, say, Grinnell) to deny financial aid while jacking up tuitions.

The TaxProf points out a tremendous Wall Street Journal piece, Applying for Financial Aid: When It Isn't Worth Your Time. From the WSJ piece:

You can get a handle on your aid eligibility by ... playing with the College Board's Expected Family Contribution, or EFC, calculator. The key concept: If your EFC is below a college's total annual cost, you will get help from the college or the federal government in bridging the gap. ... So will you receive needs-based aid? Imagine you don't own your home, have no savings and just one child.

How much income takes you out of the college financial aid sweepstakes?

* $90,000, if your child goes to the average in-state public 
college costing $13,000/year

* $150,000, if your child goes to the average private college
 charging $30,000/year

* $220,000, if your child goes to the most-expensive private 
college charging $48,000/year

And if you do the responsible thing, saving money to help the kid pay for college, you are rewarded with reduced financial aid.

The Tax Foundation talks about the perverse affects of federal subsidies and tax breaks for higher education in a new study, Expand But Simplify? Education Credits Under Emanuel-Camp-Bayh. The Tax Policy Blog summarizes the study:

In the new study, part of the Tax Foundation's Fiscal Fact series, Prante argues that the Emanuel-Camp-Bayh legislation does the most good by consolidating the three current tax provisions students and families can qualify for into one unified credit. The legislation would also bump the yearly tax relief cap up to $3,000 from the present $2,000 level. Prante notes, however, that this increase could be whittled away by colleges that chose to simply increase tuition in response to the increased tax relief offered to families.

Could? Would.

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