United States Government Accountability Office

GAO Testimony 

Before the Committee on Finance, 

U.S. Senate

POSTSECONDARY 

EDUCATION 

Multiple Tax Preferences 

and Title IV Student Aid 

Programs Create a Complex 

Education Financing 

Environment 

Statement of Michael Brostek 

Director, Tax Issues 

Strategic Issues Team 

George A. Scott 

Acting Director 

Education, Workforce, and Income Security Issues 

For Release on Delivery

Expected at 10:00 a.m. EST 

Tuesday, December 5, 2006

 

GAO-07-262T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

POSTSECONDARY EDUCATION

Multiple Tax Preferences and Title IV 

Student Aid Programs Create a Complex 

Education Financing Environment 

Highlights of GAO-07-262T, testimony 

before the Committee on Finance, U.S. 

Senate 

Federal assistance helps students 

and families pay for postsecondary

education through several policy 

tools—grant and loan programs 

authorized by title IV of the Higher

Education Act of 1965 and more 

recently enacted tax preferences. 

This testimony summarizes and 

updates our 2005 report on (1) how

title IV assistance compares to that

provided through the tax code 

(2) the extent to which tax filers 

effectively use postsecondary tax 

preferences, and (3) what is known 

about the effectiveness of federal

assistance. 

This hearing is an opportunity to 

consider whether any changes

should be made in the 

government’s overall strategy for 

providing such assistance or to the 

individual programs and tax 

provisions that provide the 

assistance. This statement is based 

on previously published GAO work 

and reviews of relevant literature. 

What GAO Recommends

GAO does not make new 

recommendations in this 

testimony. In 2002, GAO 

recommended, among other things, 

that the Department of Education 

sponsor research into key aspects

of effectiveness of title IV 

programs. In April 2006, Education 

announced it would make 

multiyear grants available starting

in 2007 to conduct research on 

topics addressed in this statement. 

Title IV student aid and tax preferences provide assistance to a wide range of

students and families in different ways. While both help students meet 

current expenses, tax preferences also assist students and families with 

saving for and repaying postsecondary costs. Both serve students and 

families with a range of incomes, but some forms of title IV aid—grant aid, in 

particular—provide assistance to those whose incomes are lower, on 

average, than is the case with tax preferences. Tax preferences require more

responsibility on the part of students and families than title IV aid because 

taxpayers must identify applicable tax preferences, understand complex 

rules concerning their use, and correctly calculate and claim credits or 

deductions. While the tax preferences are a newer policy tool, the number of 

tax filers using them has grown quickly, surpassing the number of students 

aided under title IV in 2002. 

Recipients of Title IV Assistance and Tax Filers Claiming an Education Tax Credit or Tuition

Deduction, 1997-2004 

Some tax filers do not appear to make optimal education-related tax 

decisions. For example, among the limited number of 2002 tax returns 

available for our analysis, 27 percent of eligible tax filers did not claim either 

the tuition deduction or a tax credit. In so doing, these tax filers failed to 

reduce their tax liability by $169, on average, and 10 percent of these filers 

could have reduced their tax liability by over $500. One explanation for these 

taxpayers’ choices may be the complexity of postsecondary tax provisions, 

which experts have commonly identified as difficult for tax filers to use. 

Little is known about the effectiveness of title IV aid or tax preferences in 

promoting, for example, postsecondary attendance or school choice, in part 

because of research data and methodological challenges. As a result, 

policymakers do not have information that would allow them to make the 

most efficient use of limited federal resources to help students and families. 

www.gao.gov/cgi-bin/getrpt?GAO-07-262T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Brostek at (202) 512-9039 or George Scott at 

(202) 512-7215. 
Chairman Grassley, Senator Baucus, and Members of the Committee: 

We are pleased to be here this morning to discuss the federal government’s 

efforts to financially support attendance at postsecondary education 

institutions. American higher education has long been crucial to the 

development of our nation’s cultural, social, and economic capital. At the 

dawn of the 21st Century, changing workforce demographics, a more 

integrated global economy, and numerous technological advances are 

placing new demands on our colleges and universities. For the United 

States to remain competitive in the rising global knowledge economy, its 

citizens will need both the ways and means to endow themselves with the 

tools necessary for the task. However, rising tuition has become a 

disconcertingly fixed feature of our higher education system, and in recent

months concerns about postsecondary access and affordability have 

received notable attention through the findings of the Secretary of 

Education’s Commission on the Future of Higher Education and the 

Comptroller General’s recent forum on the Global Competitiveness of the 

Nation’s Higher Education System. 

This hearing is an opportunity to consider whether any changes should be 

made in the government’s overall strategy and the individual programs and 

tax provisions that provide financial assistance to students and families 

saving or paying for postsecondary education or repaying student loans. 

This opportunity to review the programs and tax provisions is important 

for several reasons. The fact that we face large and growing structural 

deficits in the future—primarily driven by demographics and rising health 

care costs—emphasizes the need to consider how the government 

allocates resources. In addition, GAO has noted that fundamental 

reexamination of government programs, policies, and priorities is 

necessary to assure that they match the needs of the 21st Century. GAO 

has identified the coordination of student aid programs1

 and the 

effectiveness of those programs2

 both as key topics needing congressional 

oversight. 

My statement today will focus on three issues that emerged in our 2005 

report on student grant and loan assistance made available under Title IV

 1

GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005). 

2

 GAO, Suggested Areas for Oversight for the 110th Congress, GAO-07-235R (Washington,

D.C.: Nov. 17, 2006). 

Page 1 GAO-07-262T 
of the Higher Education Act and postsecondary education tax

preferences.3

• Postsecondary student financial assistance provided through programs 

authorized under title IV and the tax code differ in three key ways. First, 

title IV grant and loan programs traditionally provide aid to students and 

families while students are in college, whereas tax preferences help both 

during the college years as well as before and after college by assisting 

with saving for or repaying college costs. Additionally, while student aid 

programs and tax preferences serve students and families across a wide 

range of income groups, some title IV programs—particularly the Pell

grant program—provide much of their financial assistance to students and 

families whose incomes are lower, on average, than students and families 

who receive student loans, tax credits, and deductions, or who make use 

of tax-exempt saving vehicles. Last, students and families have more 

responsibility for appropriately using and thereby obtaining the benefits of

tax preferences than they do with title IV aid. 

• Second, postsecondary tax preferences are difficult for families to 

understand and use correctly. Perhaps due to the complexity of the tax 

provisions, hundreds of thousands of taxpayers fail to claim tax 

preferences to which they are entitled or do not claim the tax preference 

that would be most advantageous to them. 

• Finally, we found that Congress has received little evidence concerning 

the effectiveness of assistance provided under title IV or through tax 

preferences, including whether such assistance increases attendance or 

choice. 

Our statement today is drawn from previous GAO reports and testimonies 

covering postsecondary title IV programs and tax preferences, which were 

done in accordance with generally accepted government auditing 

standards, as well as reviews of relevant literature. 

Financial assistance to help students and families pay for postsecondary 

education has been provided for many years through student grant and 

loan programs authorized under title IV of the Higher Education Act of 

1965, as amended. Examples of these programs include Pell Grants for 

low-income students, PLUS loans to parents and graduate students, and 

Background 

 3

See GAO, Student Aid and Postsecondary Tax Preferences: Limited Research Exists on

Effectiveness of Tools to Assist Students and Families through Title IV Student Aid and

Tax Preferences, GAO-05-684 (Washington, D.C.: July 29, 2005). 

Page 2 GAO-07-262T 
Stafford loans.4

 Much of this aid has been provided on the basis of the 

difference between a student’s cost of attendance and an estimate of the 

ability of the student and the student’s family to pay these costs, called the 

expected family contribution (EFC). The EFC is calculated based on 

information provided by students and parents on the Free Application for

Federal Student Aid (FAFSA). Statutory definitions establish the criteria

that students must meet to be considered independent of their parents for 

the purpose of financial aid, and statutory formulas establish the share of 

income and assets that are expected to be available for the student’s 

education.5

 In fiscal year 2005, the Department of Education made 

approximately $14 billion in grants, and title IV lending programs made 

available another $57 billion in loan assistance. Title IV also authorizes 

programs funded by the federal government and administered by 

participating higher education institutions, including the Supplemental 

Educational Opportunity Grant (SEOG), Perkins loans, and federal workstudy aid, collectively known as campus-based aid. Table 1 provides brief 

descriptions of the title IV programs that we reviewed in our 2005 report 

and includes two programs—Academic Competitiveness Grants and 

National Science and Mathematics Access to Retain Talent Grants—that 

were created since that report was issued.6

 4

Consolidation loans are also authorized under title IV. These loans allow borrowers to

combine multiple student loans, possibly from different lenders and from different loan

programs, into a single new loan with extended repayment periods. Because consolidation

loans do not generally result in an increase in loan principal, they are not addressed in this

testimony. 

5

To be classified as an independent student for the purpose of receiving title IV financial 

aid, students must meet one of the following criteria: (1) be a veteran of the armed 

services, (2) be age 24 years or older by December 31st of the award year, (3) be married, 

(4) be enrolled in a graduate or professional education program, (5) have legal dependents

other than a spouse, or (6) be an orphan or ward of the court. Financial aid administrators

may also classify students as independent through the exercise of their professional 

judgment. 

6

 For greater detail on federal spending through title IV postsecondary education assistance 

programs reviewed in our 2005 report, see app. I.

Page 3 GAO-07-262T 
Table 1: Description of Federal Student Aid Programs Authorized under Title IV of the Higher Education Act 

Title IV student aid program Program description 

Pell Grant Grants are awarded on the basis of the difference between the EFC and the maximum 

Pell award or the student’s cost of attendance, whichever is less. Grants are not available 

for postgraduate study. 

Supplemental Educational Opportunity 

Grant 

Schools administer grant funds, which are awarded to undergraduates with exceptional 

financial need; priority is given to Pell Grant recipients. Institutions must match a portion 

(at least 25 percent) of the federal funds allocated. 

Academic Competitiveness Grant Available to first- and second-year students who have completed a rigorous course of 

study in high school. To be eligible, students must also be eligible to receive a Pell Grant. 

Second-year students must also maintain at least a 3.0 grade-point average. 

National Science and Mathematics Access 

to Retain Talent (SMART) Grant 

Available to third- and fourth-year students pursuing a major in mathematics, science, or

a foreign language deemed critical to national security. To be eligible, students must also 

be eligible to receive a Pell Grant and maintain at least a 3.0 grade-point average in their 

major. 

Federal Work-Study Schools administer funds, which are used to provide part-time jobs for undergraduate 

and graduate students with financial need. Participating schools or nonprofit employers 

generally contribute at least 25 percent of student’s earnings (50 percent in the case of 

for-profit employers). 

Federal Perkins Loan Schools administer funds, comprised of federal capital contributions and school matching

funds (at least 1/3 of federal contributions), to make low-interest (5 percent) loans for 

both undergraduate and graduate students with exceptional financial need. Borrower 

repayments are owed to the school. 

Subsidized Federal Family Education Loan 

(FFEL) or Direct Stafford Loan 

Loans made on the basis of financial need to undergraduate and graduate students who 

are enrolled at least half-time. The federal government pays the interest costs on 

subsidized loans while the student is in school, for the first 6 months after the student 

leaves school, and during a period of deferment. 

Unsubsidized FFEL or Direct Stafford Loan Loans made to undergraduate and graduate students who are enrolled at least half-time. 

Unlike subsidized loans, the federal government does not pay the interest costs on 

unsubsidized loans while the student is in school, for the first 6 months after the student 

leaves school, and during a period of deferment. Otherwise, the terms and conditions of 

unsubsidized loans are the same as those for subsidized loans. 

FFEL or Direct PLUS Loan Loans made to parents on behalf of dependent undergraduate students enrolled at least 

half-time. The Higher Education Reconciliation Act of 2005 makes both graduate and 

professional students eligible for these loans as well. Borrowers are subject to a credit 

check for adverse credit history and may be denied a loan. 

Source: GAO analysis of applicable laws and regulations. 

Page 4 GAO-07-262T 
Postsecondary assistance also has been provided through a range of tax

preferences,7

 including postsecondary tax credits, tax deductions, and taxexempt savings programs. For example, the Taxpayer Relief Act of 1997 

allows eligible tax filers to reduce their tax liability by receiving, for tax 

year 2006, up to a $1,650 Hope tax credit or up to a $2,000 Lifetime 

Learning tax credit for tuition and course-related fees paid for a single 

student. The fiscal year 2005 federal revenue loss estimate of the 

postsecondary tax preferences that we reviewed was $9.15 billion dollars. 

Tax preferences discussed as part of our 2005 report include the 

following:8

• Lifetime Learning Credit—income-based tax credit claimed by tax filers on

behalf of students enrolled in one or more postsecondary education 

courses. 

• Hope Credit—income-based tax credit claimed by tax filers on behalf of 

students enrolled at least half-time in an eligible program of study and who 

are in their first 2 years of postsecondary education. 

• Student Loan Interest Deduction—income-based tax deduction claimed by 

tax filers on behalf of students who took out qualified student loans while 

enrolled at least half-time. 

• Tuition and Fees Deduction—income-based tax deduction claimed by tax 

filers on behalf of students who are enrolled in one or more postsecondary 

education courses and have either a high school diploma or a General 

Educational Development (GED) credential.9

• Section 529 Qualified Tuition Programs—College Savings Programs and 

Prepaid Tuition Programs—non-income-based programs that provide 

favorable tax treatment to investments and distributions used to pay the 

expenses of future or current postsecondary students. 

• Coverdell Education Savings Accounts—income-based savings program 

providing favorable tax treatment to investments and distributions used to 

pay the expenses of future or current elementary, secondary, or

postsecondary students. 

As figure 1 demonstrates, the use of tax preferences has increased since 

1997, both in absolute terms and relative to the use of title IV aid. 

 7

Tax preferences—also known as tax expenditures—are reductions in tax liabilities that 

result from preferential provisions in the tax code, such as exemptions and exclusions

from taxation, deductions, credits, deferrals, and preferential tax rates. 

8

 For expanded descriptions of postsecondary education-related tax preferences, see app. I.

9

 The Tuition and Fees Deduction expired on December 31, 2005. Legislation has been

introduced to reinstate the deduction. 

Page 5 GAO-07-262T 
Figure 1: Recipients of Title IV Assistance and Tax Filers Claiming an Education

Tax Credit or Tuition Deduction, 1997-2004

Note: See app. IV for confidence intervals associated with these estimates. 

Postsecondary student financial assistance provided through programs 

authorized under title IV of the Higher Education Act and the tax code 

differ in timing of assistance, the populations that receive assistance, and

the responsibility of students and families to obtain and use the assistance. 

Tax Preferences 

Differ from Title IV 

Assistance in Timing, 

Distribution, and 

Students’ and 

Families’ 

Responsibility for 

Obtaining Benefits 

Page 6 GAO-07-262T 
Title IV programs and education-related tax preferences differ significantly 

in when eligibility is established and in the timing of the assistance they 

provide. Title IV programs generally provide benefits to students while 

they are in school. Education-related tax preferences, on the other hand, 

(1) encourage saving for college through tax-exempt saving, (2) assist 

enrolled students and their families in meeting the current costs of 

postsecondary education through credits and tuition deductions, and 

(3) assist students and families repaying the costs of past postsecondary 

education through a tax deduction for student loan interest paid.10

While title IV programs and tax preferences assist many students and 

families, program and tax rules affect eligibility for such assistance. These 

rules also affect the distribution of title IV aid and the assistance provided

through tax preferences. As a result, the beneficiaries of title IV programs 

and tax preferences differ. 

Title IV programs generally have rules for calculating grant and loan 

assistance that give different consideration to family income, assets, and 

college costs in the award of financial aid.11 For example, Pell Grant 

awards are calculated by subtracting the student’s EFC from the maximum 

Pell Grant award ($4,050 in academic year 2006-2007), or the student’s cost 

of attendance, whichever is less. Because the EFC is closely linked to 

family income and circumstances (such as the size of the family and the

number of dependents in school), and modest EFCs are required for Pell 

eligibility, Pell awards are made primarily to families with modest 

incomes. In contrast, the maximum unsubsidized Stafford loan amount is 

calculated without direct consideration of financial need: students may 

borrow up to their cost of attendance, minus the estimated financial 

assistance they will receive.12 As table 2 shows, 92 percent of Pell financial 

support in 2003-2004 was provided to dependent students whose family 

incomes were $40,000 or below, and the 38 percent of Pell recipients in the 

Title IV and Tax Programs 

Differ in Benefit Timing 

Beneficiaries of Title IV 

Programs and Tax 

Preferences Differ 

 10 Additional details on the differences in timing are available in app. II. 

11 Campus-based aid programs authorized under title IV differ from these programs in 

funding and eligibility: institutions provide matching funding for federal spending, and 

participating institutions distribute aid using institution-specific criteria consistent with 

federal program requirements. Because they have institution-specific criteria, the

relationship between program rules and the distribution of benefits is more complex and

was excluded from the analysis of our 2005 report. 

12Additionally, loan amounts for both subsidized and unsubsidized loans are subject to

statutory limits on annual and cumulative borrowing. 

Page 7 GAO-07-262T 
lowest income category ($20,000 or below) received a higher share (48 

percent) of Pell financial support. 

Table 2: Percentage of Aid Recipients and Dollars of Aid by Income Category for Dependent Students Served by Selected

Title IV Programs, 2003-2004

Program 

Dependent 

students $0-20,000

$20,001-

40,000

$40,001-

60,000

$60,001-

80,000 

$80,001-

100,000

More than

$100,000

Pell Grant Recipients 38 47 14 2 0 0

Dollars 48 44 8 1 0 0

Stafford Subsidized Recipients 16 28 23 17 9 7

Loan Dollars 16 28 24 17 9 6

Stafford Unsubsidized Recipients 7 14 14 19 18 28

Loan Dollars 7 12 12 18 19 32

Source: GAO analysis of 2003-2004 NPSAS data.

Note: See app. IV for confidence intervals associated with these estimates. Numbers in rows may not 

add to 100 percent because of rounding. 

Because independent students generally have lower incomes and 

accumulated savings than dependent students and their families, patterns 

of program participation and dollar distribution differ. Participation of 

independent students in Pell, subsidized Stafford, and unsubsidized 

Stafford loan programs is heavily concentrated among those with incomes 

of $40,000 or less: from 74 percent (unsubsidized Stafford) to 95 percent

(Pell) of program participants have incomes below this level. As shown in 

table 3, the distribution of award dollars follows a nearly identical pattern. 

Table 3: Percentage of Aid Recipients and Dollars of Aid by Income Category for Independent Students Served by Selected

Title IV Programs, 2003-2004

Program 

Independent

students $0-20,000

$20,001-

40,000

$40,001-

60,000

$60,001-

80,000 

$80,001-

100,000

More than

$100,000

Pell Grant Recipients 67 28 5 0 0 0

Dollars 73 25 3 0 0 0

Stafford Subsidized Loan Recipients 51 29 12 5 2 1

Dollars 52 28 12 5 2 2

Stafford Unsubsidized

Loan 

Recipients 46 28 14 6 3 3

Dollars 46 24 13 7 3 5

Source: GAO analysis of 2003-2004 NPSAS data.

Notes: See app. IV for confidence intervals associated with these estimates. 

Numbers in rows may not add to 100 percent because of rounding. 

Page 8 GAO-07-262T 
Many education-related tax preferences have both de facto lower limits 

created by the need to have a positive tax liability to obtain their benefit 

and income ceilings on who may use them. For example, the Hope and 

Lifetime Learning tax credits require that tax filers have a positive tax 

liability to use them and income-related phase-out provisions in 2005 that 

began at $45,000 and $90,000 for single and joint filers, respectively. 

Furthermore, tax-exempt savings are more advantageous to families with

higher incomes and tax liabilities because, among other reasons, these 

families hold greater assets to invest in these tax preferences and have a 

higher marginal tax rate, and thus benefit the most from the use of these 

tax preferences. Table 4 shows the income categories of tax filers claiming 

the three tax preferences available to current students and/or their 

families along with the reduced tax liabilities from those preferences in 

2004. 

Table 4: Percentage of Tax Filers Claiming Hope and Lifetime Learning Credits and Tuition Deduction and Tax Preference 

Dollars by Income Category, Tax Year 2004

Type of aid $0-20,000 $20,001-40,000 $40,001-60,000 $60,001-80,000

$80,001-

100,000

More than

$100,000

Hope Credit Tax filers 18 34 19 16 12 2

Dollars 16 33 20 16 12 2

Lifetime Learning Tax filers 17 32 20 19 10 2

Credit Dollars 15 30 20 20 13 2

Tuition Deduction Tax filers 24 13 15 10 13 25

Dollars 11 7 18 12 15 37

Source: GAO analysis of 2004 SOI data. 

Notes: See app. IV for confidence intervals associated with these estimates. 

Numbers in rows may not add to 100 percent because of rounding. 

Students and Families 

Have More Responsibility 

for Obtaining Benefits of 

Tax Preferences in 

Comparison to Title IV Aid 

The federal government and postsecondary institutions have significant 

responsibilities in assisting students and families in obtaining assistance 

provided under title IV programs but only minor roles with respect to tax

filers’ use of education-related tax preferences. To obtain federal student 

aid, applicants must first complete the FAFSA, a form which required 

students to complete up to 100 fields in 2006-2007. Submitting a completed 

FAFSA to the Department of Education largely concludes students’ and 

families’ responsibility in obtaining aid. The Department of Education is 

responsible for calculating students’ and families’ EFC on the basis of the 

FAFSA, and students’ educational institutions are responsible for 

determining aid eligibility and the amounts and packaging of awards. 

Page 9 GAO-07-262T 
In contrast, higher education tax preferences require students and families 

to take more responsibility. Although postsecondary institutions provide 

students and IRS with information about higher education attendance, 

they have no other responsibilities for higher education tax credits, 

deductions, or tax-preferred savings. The federal government’s primary 

role with respect to higher education tax preferences is the promulgation 

of rules; the provision of guidance to tax filers; and the processing of tax 

returns, including some checks on the accuracy of items reported on those 

tax returns. The responsibility for selecting among and properly using tax 

preferences rests with tax filers. Unlike title IV programs, users must 

understand the rules, identify applicable tax preferences, understand how 

these tax preferences interact with one another and with federal student 

aid, keep records sufficient to support their tax filing, and correctly claim 

the credit or deduction on their return. 

According to our analysis of IRS data on the use of Hope and Lifetime tax

credits and the tuition deduction in our 2005 report, some tax filers appear

to make less-than-optimal choices among them.13 The apparent suboptimal 

use of postsecondary tax preferences may arise, in part, from the 

complexity of these provisions. 

Some Tax Filers May 

Not Effectively Use 

Postsecondary Tax 

Preferences, Possibly 

Due to Complexity 

Some Tax Filers Appear to 

Make Suboptimal Choices 

Making poor choices among tax preferences for postsecondary education

may be costly to tax filers. For example, families may strand assets in a 

tax-exempt savings vehicle and incur tax penalties on their distribution if 

their child chooses not to go to college. They may also fail to minimize 

their federal income tax liability by claiming a tax credit or deduction that 

yields less of a reduction in taxes than a different tax preference or by 

failing to claim any of their available tax preferences. For example, if a 

married couple filing jointly with one dependent in his/her first 2 years of 

college had an adjusted gross income of $50,000, qualified expenses of 

$10,000 in 2006, and tax liability greater than $2,000, their tax liability 

would be reduced by $2,000 if they claimed the Lifetime Learning credit 

but only $1,650 if they claimed the Hope credit. 

 13 Due to time constraints, we were unable to update these analyses for this testimony. 

Page 10 GAO-07-262T 
In our 2005 report, we found that some people who appear to be eligible 

for tax credits and/or the tuition deduction did not claim them. The files of 

about 77 percent of the tax year 2002 tax returns that we were able to

review were apparently eligible to claim one or more of the three tax 

preferences. However, about 27 percent of those returns, representing 

about 374,000 tax filers, failed to use the any of them. The amount by 

which these tax filers failed to reduce their tax averaged $169; 10 percent 

of this group could have reduced their tax liabilities by over $500.14

Suboptimal choices were not limited to tax filers who prepared their own 

tax returns. A possible indicator of the difficulty people face in

understanding education-related tax preferences is how often the 

suboptimal choices we identified were found on tax returns prepared by 

paid tax preparers. We estimate that about 50 percent of the returns we 

found that appear to have failed to optimally reduce the tax filer’s tax 

liability were prepared by paid tax preparers. Generalized to the 

population of tax returns we were able to review, returns prepared by paid

tax preparers represent about 223,000 of the approximately 447,000 

suboptimal choices we found. Our April 2006 study of paid tax preparers 

corroborated the problem of confusion over which of the tax preferences

to claim.15 Of the 9 undercover investigation visits we made to paid 

preparers with a taxpayer with a dependent college student, 3 preparers 

did not claim the credit most advantageous to the taxpayer and thereby 

cost these taxpayers hundreds of dollars in refunds. In our investigative 

scenario, the expenses and the year in school made the Hope education 

credit far more advantageous to the taxpayer than either the tuition and 

fees deduction or the Lifetime Learning credit. 

The Suboptimal Use of 

Postsecondary Tax 

Preferences May Result 

from Their Complexity 

The apparently suboptimal use of postsecondary tax preferences may 

arise, in part, because of the complexity of using these provisions. Tax 

policy analysts have frequently identified postsecondary tax preferences 

as a set of tax provisions that demand a particularly large investment of 

knowledge and skill on the part of students and families or expert 

assistance purchased by those with the means to do so. They suggest that 

this complexity arises from multiple postsecondary tax preferences with 

similar purposes, from key definitions that vary across these provisions, 

 14 Confidence intervals for all estimates in this section are included in appendix IV. 

15GAO, Paid Tax Return Preparers: In a Limited Study, Chain Preparers Made Serious

Errors, GAO-06-563T (Washington, D.C.: Apr. 4, 2006). 

Page 11 GAO-07-262T 
and from rules that coordinate the use of multiple tax provisions. Twelve 

tax preferences are outlined in the IRS publication, Tax Benefits for 

Education, for use in preparing 2005 returns (the most recent publication 

available). The publication includes 4 different tax preferences for 

educational saving. Three of these preferences—Coverdell Education 

Savings Accounts, Qualified Tuition Programs, and U.S. education savings 

bonds—differ across more than a dozen dimensions, including the tax

penalty that occurs when account balances are not used for qualified 

higher education expenses, who may be an eligible beneficiary, annual 

contribution limits, and other features. 

In addition to learning about, comparing, and selecting tax preferences, 

filers who wish to make optimal use of multiple tax preferences must 

understand how the use of one tax preference affects the use of others. 

The use of multiple education-related tax preferences is coordinated 

through rules that prohibit the application of the same qualified higher 

education expenses for the same student to more than one educationrelated tax preference, sometimes referred to as “anti-double-dipping 

rules.” These rules are important because they prevent tax filers from 

underreporting their tax liability. Nonetheless, anti-double-dipping rules 

are potentially difficult for tax filers to understand and apply, and 

misunderstanding them may have consequences for a filer’s tax liability.16

Little is known about the effectiveness of federal grant and loan programs 

and education-related tax preferences in promoting attendance, choice,

and the likelihood that students either earn a degree or continue their 

education (referred to as persistence). Many federal aid programs and tax 

preferences have not been studied, and for those that have been studied, 

important aspects of their effectiveness remain unexamined. In our 2005 

report, we found no research on any aspect of effectiveness for several 

major title IV federal postsecondary programs and tax preferences. For 

example, no research had examined the effects of federal postsecondary 

education tax credits on students’ persistence in their studies or on the 

type of postsecondary institution they choose to attend. Gaps in the 

research-based evidence of federal postsecondary program effectiveness 

may be due, in part, to data and methodological challenges that have 

proven difficult to overcome. The relative newness of most of the tax 

Research on 

Effectiveness of 

Federal 

Postsecondary 

Assistance Is 

Incomplete 

 16For an example of this phenomenon, please see app. III. 

Page 12 GAO-07-262T 
preferences also presents challenges because relevant data are just now 

becoming available. 

In 2002, we recommended that Education sponsor research into key 

aspects of effectiveness of title IV programs, that Education and the 

Department of the Treasury collaborate on such research into the relative

effectiveness of title IV programs and tax preferences, and that the 

Secretaries of Education and Treasury collaborate in studying the 

combined effects of tax preferences and title IV aid.17 In April 2006, 

Education’s Institute for Education Sciences (IES) issued a Request for 

Applications to conduct research on, among other things, “evaluating the 

efficacy of programs, practices, or policies that are intended to improve 

access to, persistence in, or completion of postsecondary education.” 

Multiyear projects funded under this subtopic are expected to begin in 

July 2007. 

As we noted in our 2002 report, research into the effectiveness of different 

forms of postsecondary education assistance is important.18 Without such 

information federal policymakers cannot make fact-based decisions about 

how to build on successful programs and make necessary changes to 

improve less effective programs. The budget deficit and other major fiscal 

challenges facing the nation necessitate rethinking the base of existing 

federal spending and tax programs, policies, and activities by reviewing 

their results and testing their continued relevance and relative priority for 

a changing society.19

In light of the long-term fiscal challenge this nation faces and the need to 

make hard decisions about how the federal government allocates 

resources, this hearing provides an opportunity to continue a discussion 

about how the federal government can best help students and their 

families pay for postsecondary education. Some questions that Congress 

should consider during this dialog include: 

Concluding 

Observations 

 17GAO, Student Aid and Tax Benefits: Better Research and Guidance Will Facilitate 

Comparison of Effectiveness and Student Use, GAO-02-751 (Washington, D.C.: Sept. 13,

2002). 

18 GAO-02-751. 

19 GAO-05-325SP. 

Page 13 GAO-07-262T 
• Should the federal government consolidate postsecondary education tax

provisions to make them easier for the public to use and understand? 

• Given its limited resources, should the government further target title IV 

programs and tax provisions based on need or other factors? 

• How can Congress best evaluate the effectiveness and efficiency of 

postsecondary education aid provided through the tax code? 

• Can tax preferences and title IV programs be better coordinated to 

maximize their effectiveness? 

Mr. Chairman and Members of the Committee, this concludes our 

statement. We welcome any questions you have at this time. 

For further information regarding this testimony, please contact Michael 

Brostek at (202) 512-9039 or brostekm@gao.gov or George Scott at (202) 

512-7215 or scottg@gao.gov. Individuals making contributions to this 

testimony include David Lewis, Assistant Director; Jeff Appel, Assistant 

Director; Shirley Jones, Sheila McCoy, John Mingus, Jeff Procak, Carlo 

Salerno, Andrew Stephens, and Michael Volpe. 

Staff Contacts and 

Acknowledgments 

Page 14 GAO-07-262T 
Page 15 GAO-07-262T 

Appendix I: Postsecondary Aid Programs 

The federal government helps students and families save, pay for, and 

repay the costs of postsecondary education through grant and loan 

programs authorized under title IV of the Higher Education Act of 1965, 

and through tax preferences—reductions in federal tax liabilities that 

result from preferential provisions in the tax code, such as exemptions 

and exclusions from taxation, deductions, credits, deferrals, and 

preferential tax rates. 

Assistance provided under title IV programs include Pell Grants for lowincome students, the newly established Academic Competitiveness and 

National Science and Mathematics Access to Retain Talent Grants, PLUS 

loans, which parents as well as graduate and professional students may 

apply for, and Stafford loans.1

 While each of the three grant types reduces 

the price paid by the student, student loans help to finance the remaining 

costs and are to be repaid according to varying terms. Stafford loans may 

be either subsidized or unsubsidized. The federal government pays the 

interest cost on subsidized loans while the student is in school, and during 

a 6-month period known as the grace period, after the student leaves 

school. For unsubsidized loans, students are responsible for all interest 

costs.2

 Stafford and PLUS loans are provided to students through both the 

FFEL program and the William D. Ford Direct Loan Program (FDLP). The 

federal government’s role in financing and administering these two loan 

programs differs significantly. Under the FFEL program, private lenders, 

such as banks, provide loan capital and make loans, and the federal 

government guarantees FFEL lenders a minimum yield on the loans they

make and repayment if borrowers default. Under FDLP, federal funds are 

used as loan capital and loans are provided through participating schools. 

Federal Grant and Loan 

Assistance to 

Postsecondary Students 

 1

Consolidation loans are also authorized under title IV. These loans allow borrowers to

combine multiple student loans, possibly from different lenders and from different loan

programs, into a single new loan with extended repayment periods. Because consolidation

loans do not generally result in an increase in loan principal, consolidation loans are not 

addressed in this review. However, the federal government can incur significant costs in 

providing borrowers with these loans. See GAO, Student Loan Programs: As Federal Costs 

of Loan Consolidation Rise, Other Options Should Be Examined, GAO-04-101

(Washington, D.C.: Oct. 31, 2003) and Student Loan Programs: Lower Interest Rates and

Higher Loan Volume Have Increased Federal Consolidation Loan Costs, GAO-04-568T

(Washington, D.C.: Mar. 17, 2004). 

2

While called “unsubsidized,” the federal government can still incur costs on such loans,

including the costs associated with borrowers who default on their loans and, under the 

Federal Family Education Loan Program, the costs of making payments to lenders to

ensure them a minimum federally guaranteed yield. 
The Department of Education and its private-sector contractors jointly 

administer the program. Title IV also authorizes programs funded by the 

federal government and administered by participating higher education 

institutions, including the Supplemental Educational Opportunity Grant 

(SEOG), Perkins loans, and federal work-study aid, collectively known as 

campus-based aid. 

To receive title IV aid, students (along with parents, in the case of 

dependent students) must complete a Free Application for Federal 

Student Aid form. Information from the FAFSA, particularly income and 

asset information, is used to determine the amount of money—called the 

expected family contribution—that the student and/or family is expected 

to contribute to the student’s education. Statutory definitions establish the 

criteria that students must meet to be considered independent of their 

parents for the purpose of financial aid, and statutory formulas establish 

the share of income and assets that are expected to be available for the 

student’s education. Once the EFC is established, it is compared with the 

cost of attendance at the institution chosen by the student. The cost of 

attendance comprises tuition and fees; room and board; books and 

supplies; transportation; miscellaneous personal expenses; and, for some 

students, additional expenses.3

 If the EFC is greater than the cost of 

attendance, the student is not considered to have financial need, according 

to the federal aid methodology. If the cost of attendance is greater than the

EFC, then the student is considered to have financial need. Title IV 

assistance that is made on the basis of the calculated need of aid 

applicants is called need-based aid. Key characteristics of title IV programs 

are summarized in table 5 below. 

 3

These may include child care expenses for parents of young dependent children or

supportive services for disabled students. 

Page 16 GAO-07-262T 
Table 5: Description of Federal Student Aid Programs Authorized under Title IV of the Higher Education Act 

Title IV student aid 

program Program details 

Annual award

amounts Number and characteristics of beneficiaries 

Pell Grant Grants are awarded on the 

basis of the difference between

the EFC and the maximum Pell 

award or the student’s cost of 

attendance, whichever is less. 

Grants are not available for 

postgraduate study. 

$400 to $4,050 for 

school year 2006-2007. 

Dependent students: About 2.1 million grants were 

awarded in school year 2003-2004, totaling $5.3 

billion. The average grant award was $2,573; the 

median income of recipients was $24,576. 

Independent students: About 3 million grants were 

awarded in school year 2003-2004, totaling $7.4 

billion. The average grant award was $2,436; the 

median income of recipients was $12,925. 

Supplemental 

Educational 

Opportunity Grant 

Schools administer grant 

funds, which are awarded to 

undergraduates with 

exceptional financial need; 

priority is given to Pell Grant 

recipients. Institutions must 

match a portion (at least 25 

percent) of the federal funds 

allocated. 

$100 to $4,000. Dependent students: About 554,000 grants were 

awarded in school year 2003-2004, totaling $494.2 

million. The average grant award was $892; the 

median income of recipients was $22,827. 

Independent students: About 715,000 grants were 

awarded in school year 2003-2004, totaling $391.9 

million. The average grant award was $548; the 

median income of recipients was $11,040. 

Academic 

Competitiveness 

Grant 

Available to first- and secondyear students who have 

completed a rigorous course of 

study in high school. To be 

eligible, students must also be

eligible to receive a Pell Grant. 

Second-year students must 

also maintain at least a 3.0 

grade-point average. 

$750 for first-year 

students and $1,300 for 

second year students. 

Students: About 310,000 first-year grants and 

110,000 second-year grants are expected to be 

awarded in school year 2006-2007, totaling an 

estimated $340.0 million. The average grant award 

is estimated to be $657 and $1,245 respectively. 

National Science 

and Mathematics 

Access to Retain 

Talent (SMART) 

Grant 

Available to third- and fourthyear students pursuing a major 

in mathematics, science, or a 

foreign language deemed 

critical to national security. To

be eligible, students must also 

be eligible to receive a Pell 

Grant and maintain at least a 

3.0 grade-point average in their 

major. 

$4,000. Students: About 40,000 third-year grants and 40,000 

fourth-year grants are expected to be awarded in 

school year 2006-2007, totaling an estimated $310.0 

million. The average grant award is estimated to be 

$3,718 and $3,875 respectively. 

Page 17 GAO-07-262T 
Title IV student aid 

program Program details 

Annual award

amounts Number and characteristics of beneficiaries 

Federal Work-Study Schools administer funds, 

which are used to provide parttime jobs for undergraduate 

and graduate students with 

financial need. Participating 

schools or nonprofit employers 

generally contribute at least 25

percent of student’s earnings 

(50 percent in the case of forprofit employers). 

Up to $300 more than 

the student’s 

determined financial 

need; if employment 

continues past this 

point, federal funds may 

not be used to 

subsidize the 

employment. 

Dependent students: About 1.1 million awards were 

awarded in school year 2003-2004, totaling $2 

billion. The average award was $1,901; the median 

income of recipients was $46,441. 

Independent students: About 438,000 awards were 

awarded in school year 2003-2004, totaling $1 

billion. The average award was $2,303; the median 

income of recipients was $10,561. 

Federal Perkins

Loan 

Schools administer funds, 

comprised of federal capital 

contributions and school 

matching funds (at least 1/3 of 

federal contributions), to make

low-interest (5 percent) loans 

for both undergraduate and 

graduate students with 

exceptional financial need. 

Borrower repayments are 

owed to the school. 

$4,000 maximum for 

undergraduate students 

and $6,000 for graduate 

students; no minimum 

award amount. 

(Aggregate limits: 

$8,000 for 

undergraduates who 

have not completed 2 

academic years; 

$20,000 for 

undergraduates who 

have completed 2 

years; and, $40,000 for 

graduate students, 

including loans

borrowed as an

undergraduate.) 

Dependent students: About 495,000 loans were 

made in school year 2003-2004, totaling $956

million. The average loan amount was $1,932; the 

median income of recipients was $39,175. 

Independent students: About 329,000 loans were 

made in school year 2003-2004, totaling $905.3 

million. The average loan amount was $2,752; the 

median income of recipients was $10,277. 

Subsidized FFEL or 

Direct Stafford Loana

 

Loans made on the basis of 

financial need to

undergraduate and graduate 

students who are enrolled at 

least half-time. The federal

government pays the interest 

costs on subsidized loans 

while the student is in school, 

for the first 6 months after the 

student leaves school, and 

during a period of deferment. 

$2,625 to $8,500 

depending upon year of 

schooling. Aggregate 

limits are $23,000 for 

undergraduates and 

$65,500 for graduate 

students. 

Dependent students: About 2.6 million loans were 

made in school year 2003-2004, totaling $8.1 billion. 

The average loan amount was $3,188; the median 

income of recipients was $44,678. 

Independent students: About 3.8 million loans were 

made in school year 2003-2004, totaling $16.3 

billion. The average loan amount was $4,340; the 

median income of recipients was $19,430. 

Page 18 GAO-07-262T 
Title IV student aid 

program Program details 

Annual award

amounts Number and characteristics of beneficiaries 

Unsubsidized FFEL 

or Direct Stafford 

Loana

Loans made to undergraduate

and graduate students who are 

enrolled at least half-time. 

Unlike subsidized loans, the 

federal government does not 

pay the interest costs on 

unsubsidized loans while the 

student is in school, for the first 

6 months after the student 

leaves school, and during a 

period of deferment. 

Otherwise, the terms and 

conditions of unsubsidized 

loans are the same as those 

for subsidized loans. 

$2,625 to $18,500 

depending on year of 

schooling (including any 

subsidized loan 

amounts received for 

the same period). 

Aggregate limits are 

$23,000 for dependent 

undergraduates, 

$46,000 for 

independent 

undergraduates, and 

$138,500 for graduate 

students. 

Dependent students: About 1.6 million loans were 

made in school year 2003-2004, totaling $5.3 billion. 

The average loan amount was $3,293; the median 

income of recipients was $75,835. 

Independent students: About 3.3 million loans were 

made in school year 2003-2004, totaling $18.5 

billion. The average loan amount was $5,671; the 

median income of recipients was $22,108. 

FFEL or Direct 

PLUS Loan 

Loans made to parents on 

behalf of dependent 

undergraduate students 

enrolled at least half-time. The 

Higher Education 

Reconciliation Act of 2005 

makes both graduate and 

professional students eligible 

for these loans as well. 

Borrowers are subject to a 

credit check for adverse credit

history and may be denied a 

loan. 

Maximum loan amounts 

are limited to cost of 

attendance less other 

federal, state, private, 

and institutional aid 

received for the period 

of enrollment. 

About 634,000 loans were made in school year 

2003-2004, totaling $5.7 billion. The average loan 

amount was $9,019; the median income of recipients 

was $71,397. 

Source: GAO analysis of applicable laws and regulations and school year 2003-2004 NPSAS data. 

a

New slightly higher limits for these loans will take effect on July 1, 2007. 

Tax Preferences Prior to the 1990s, virtually all major federal initiatives to assist students 

with the costs of postsecondary education were provided through grant 

and loan programs authorized under title IV of the Higher Education Act. 

Since the 1990s, however, federal initiatives to assist families and students 

in paying for postsecondary education have largely been implemented 

through the federal tax code. The federal tax code now contains a range of

tax preferences that may be used to assist students and families in saving 

for, paying, or repaying the costs of postsecondary education. These tax 

preferences include credits and deductions, both of which allow tax filers 

to use qualified higher education expenses to reduce their federal income 

tax liability. The tax credits reduce the tax filers’ income tax liability on a 

dollar-for-dollar basis but are not refundable. Tax deductions permit 

qualified higher education expenses to be subtracted from income that 

would otherwise be taxable. To benefit from a higher education tax credit

or tuition deduction, a tax filer must use tax form 1040 or 1040A, have an 

Page 19 GAO-07-262T 
adjusted gross income below the provisions’ statutorily specified income 

limits, and have a positive tax liability after other deductions and credits 

are calculated, among other requirements. 

Tax preferences also include tax-exempt savings vehicles. Section 529 of

the tax code makes tax free the investment income from qualified tuition 

programs. There are two types of qualified tuition programs: savings 

programs established by states and prepaid tuition programs established 

either by states or by one or more eligible educational institutions. 

Another tax-exempt savings vehicle is the Coverdell Education Savings 

Account. Tax penalties apply to both 529 programs and Coverdell savings 

accounts if the funds are not used for allowable education expenses. Key 

features of these and other education-related tax preferences are 

described below, in table 6. 

Table 6: Selected Postsecondary Education Tax Preferences 

Preference details

Tax preference Eligibility 

Income ranges 

for phasing out 

benefits (2006)a 

Eligible 

expenses Tax benefit (2006) 

Number and 

characteristics of

beneficiaries 

Hope Credit Tax filer on behalf of 

self, spouse, or

dependent who is 

working toward a 

degree or certificate at 

least half-time in the 

first 2 years of 

postsecondary 

enrollment. 

Single filer: 

$45,000-$55,000 

Joint return: 

$90,000-

$110,000.b 

Tuition and fees

at institutions 

eligible to 

participate in title 

IV programs. 

Maximum credit: $1,650 

per student. Credit rate 

is 100 percent on first 

$1,100 of qualified 

higher education 

expenses, 50 percent on 

next $1,100.d 

Nonrefundable: if filer 

has no tax liability due to 

offsetting deductions, 

exemptions, or

competing tax credits, 

filer cannot receive 

credit. 

In tax year 2002, 3.3 

million tax filers 

claimed $3.2 billion in 

Hope credits; the 

average credit claimed

was $991, and the 

median income of filers 

claiming the credit was 

$39,203. 

Page 20 GAO-07-262T 
Preference details

Tax preference Eligibility 

Income ranges 

for phasing out 

benefits (2006)a 

Eligible 

expenses Tax benefit (2006) 

Number and 

characteristics of

beneficiaries 

Lifetime Learning 

Credit 

Tax filer on behalf of 

self, spouse, or

dependent who is 

enrolled in 

undergraduate or 

graduate courses, or 

any course that aids in 

learning new or

improving existing job 

skills, for as many 

years as the student is 

enrolled. 

Single filer: 

$45,000-$55,000 

Joint return: 

$90,000-

$110,000.b 

Tuition and fees

at institutions 

eligible to 

participate in title 

IV programs. 

Maximum credit: $2,000 

per tax filer. (20 percent 

of qualified higher 

education expenses up 

to $10,000).d 

Nonrefundable: if filer 

has no tax liability due to 

offsetting deductions, 

exemptions, or

competing tax credits, 

filer cannot receive 

credit. 

In tax year 2002, 3.5 

million tax filers 

claimed $1.7 billion in 

Lifetime Learning 

credits; the average 

credit claimed was 

$477, and the median 

income of filers

claiming the credit was 

$39,706. 

Student Loan 

Interest 

Deduction 

Tax filer, on behalf of 

self, spouse, or

dependent, available 

even to those who do

not itemize interest 

paid. Student must 

have been enrolled at 

least half-time in a 

degree program. 

Single filer: 

$50,000-$65,000 

Joint return: 

$105,000-

$135,000.c 

Eligible loans are 

those used to pay 

for tuition, fees, 

room and board, 

and related 

expenses and 

include, for 

example, student 

loans provided 

under title IV. 

Maximum deduction: 

$2,500 

interest paid on eligible 

education loans is 

deductible. 

In tax year 2002, 6.6 

million tax filers 

deducted $892.6 

million of student loan 

interest; the average 

deduction was $134, 

and the median 

income of filers

deducting student loan 

interest was $43,544. 

Section 529 

qualified tuition

programs—

prepaid tuition 

programs and 

state-sponsored

college savings 

programs 

Specifics depend on 

particular program. 

Normally a prepaid 

program is open for 

contributions only on 

behalf of young 

children and accounts 

must be closed within 

some number of years 

after the beneficiary 

reaches college age. 

Generally, savings 

programs do not have 

age restrictions. 

No phase-out. Tuition, fees, 

books, supplies, 

and equipment

required for 

attendance. 

Room and board 

if enrolled halftime or more. 

No tax is due on a 

distribution from an 

account unless the 

amount distributed is 

greater than the 

beneficiary’s adjusted 

qualified education 

expenses. 

Section 529 qualified 

tuition programs—

prepaid tuition 

programs and statesponsored college 

savings programs 

Page 21 GAO-07-262T 
Preference details

Tax preference Eligibility 

Income ranges 

for phasing out 

benefits (2006)a 

Eligible 

expenses Tax benefit (2006) 

Number and 

characteristics of

beneficiaries 

Coverdell 

Education 

Savings Accounts 

Distributions can be 

used for students 

enrolled on full-time, 

half- time, or less than 

half-time basis.

Account must be 

closed within 30 days 

after beneficiary 

reaches age 30. 

For contributions, 

$95,000-$110,000 

for single filers 

and $190,000-

$220,000 for joint 

returns. 

Tuition, fees, 

books, supplies, 

and equipment

required for 

attendance. 

Room and board 

if enrolled halftime or more. 

No tax is due on a 

distribution from an 

account unless the 

amount distributed is 

greater than the 

beneficiary’s adjusted 

qualified education 

expenses. 

Annual contribution limit 

is $2,000 per year per 

student (through age 

17). 

Coverdell Education 

Savings Accounts 

Tuition Deduction 

(expired Dec. 31, 

2005)e 

Same as Lifetime 

Learning credit. 

Single filer: 

$65,000-80,000

Joint Return: 

$130,000-

160,000. 

Tuition and fees

at institutions 

eligible to 

participate in title 

IV programs. 

Maximum deduction: 

$4,000 per return for 

individual filers whose 

modified adjusted gross 

income is less than 

$65,000 ($130,000 for 

joint filers); $2,000 per 

return for individuals 

whose modified

adjusted gross income 

is more than $65,000 

($130,000) but less than 

$80,000 ($160,000). 

Tuition Deduction 

(expired Dec. 31, 

2005)e 

Sources: IRS, Investment Company Institute, and College Savings Plan Network documents; GAO analysis of IRS Statistics of Income 

data for tax year 2002.

a

 Modified adjusted gross income amounts are provided. 

b

 Under the Taxpayer Relief Act of 1997, the income phase-out amounts are indexed to inflation 

according to a formula specified in law for this purpose, which may or may not result in a yearly

increase. 

c

 Under the 26 U.S.C. § 221(f), the income phase-out amounts are indexed to inflation according to a 

formula specified in law for this purpose, which may or may not result in a yearly increase.

d

 For students attending otherwise eligible educational institutions located within the Gulf Opportunity

Zone, the maximum Hope tax credit and maximum Lifetime Learning tax credit are doubled for 

taxable years 2005 and 2006. Gulf Opportunity Zone Act, Pub. L. No. 109-135, § 102, 119 Stat. 2577,

2594 (2005). 

e

 Although the tuition deduction has expired, H.R. 5970, 109th Cong. § 201 (2006), among other bills, 

would renew the deduction for tuition expenses through December 31, 2007. H.R. 5970 passed in the 

House on July 29, 2006, but had not yet passed the Senate. 

Our review of tax preferences did not include exclusions from income, 

which permit certain types of education-related income to be excluded

from the calculation of adjusted gross income on which taxes are based. 

For example, qualified scholarships covering tuition and fees and qualified 

Page 22 GAO-07-262T 
tuition reductions from eligible educational institutions are not included in

gross income for income tax purposes. Similarly, student loans forgiven 

when a graduate goes into certain professions for a certain period of time 

are also not subject to federal income taxes. We also did not include 

special provisions in the tax code that also extend existing tax preferences 

when tax filers support a postsecondary education student. For example, 

tax filers may claim postsecondary education students as dependents after 

age 18, even if the student has his or her own income over the limit that 

would otherwise apply. Also, gift taxes do not apply to funds used for 

certain postsecondary educational expenses, even for amounts in excess 

of the usual $11,000 limit on gifts. In addition, funds withdrawn early from 

an Individual Retirement Account are not subject to the usual 10 percent 

penalty when used for either a tax filer’s or his or her dependent’s 

postsecondary educational expenses.

Page 23 GAO-07-262T 
Page 24 GAO-07-262T 

Appendix II: Comparison of Assistance by 

Timing of Benefit for Selected Programs and 

Tax Preferences 

Table 7: Comparison of Assistance by Timing of Benefit for Selected Programs and

Tax Preferences 

Type of 

assistance Save for future expenses Pay current expenses 

Repay 

expenses 

Grant programs Pell Grants 

Supplemental 

Educational 

Opportunity Grants 

Academic 

Competitiveness Grants 

SMART Grants 

Loan programs Subsidized and 

Unsubsidized 

Stafford Loans

Federal Perkins Loans 

Federal PLUS Loans 

Tax 

preferences 

Coverdell Educational 

Savings Accounts and 

Section 529 Qualified 

Tuition 

Programs 

Hope Credit 

Lifetime Learning Credit 

Tuition Deduction 

Student Loan 

Interest 

Deduction 

Work-Study 

program 

Federal Work Study 

Source: GAO.
Page 25 GAO-07-262T 

Appendix III: Effects of Tax Rules on Tax 

Preference Use 

For an example of how the use of college savings programs and the tuition

deduction is affected by “anti-double-dipping” rules, consider the 

following: To calculate whether a distribution from a college savings 

program is taxable, tax filers must determine if the total distributions for 

the tax year are more or less than the total qualified educational expenses 

reduced by any tax-free educational assistance, i.e., their adjusted 

qualified education expenses (AQEE). After subtracting tax-free assistance 

from qualified educational expenses to arrive at the AQEE, tax filers 

multiply total distributed earnings by the fraction (AQEE / total amount 

distributed during the year). If parents of a dependent student paid $6,500 

in qualified education expenses from a $3,000 tax-free scholarship and a 

$3,600 distribution from a tuition savings program, they would have $3,500 

in AQEE. If $1,200 of the distribution consisted of earnings, then $1,200 x 

($3,500 AQEE / $3,600 distribution) would result in $1,167 of the earnings

being tax free, while $33 would be taxable. However, if the same tax filer 

had also claimed a tuition deduction, anti-double-dipping rules would 

require the tax filer to subtract the expenses taken into account in figuring

the tuition deduction from AQEE. If $2,000 in expenses had been used 

toward the tuition deduction, then the taxable distribution from the 

section 529 savings program would rise to $700.1

 For families such as 

these, anti-double-dipping rules increase the computational complexity 

they face and may result in unanticipated tax liabilities associated with the 

use of section 529 savings programs. 

 1

The new nontaxable distribution figure is calculated $1,200 x ($1,500/$3,600) = $500. The

taxable portion then becomes $1,200 - $500 = $700. 
Page 26 GAO-07-262T 

Appendix IV: Confidence Intervals 

We used two data sets for this testimony: Education’s 2003-2004 National 

Postsecondary Student Aid Study and the Internal Revenue Service’s 2002 

and 2004 Statistics of Income. Estimates from both data sets are subject to

sampling errors and the estimates we report are surrounded by a 95 

percent confidence interval. The following tables provide the lower and 

upper bounds of the 95 percent confidence interval for all estimate figures 

in the tables in this testimony. For figures drawn from these data, we 

provide both point estimates and confidence intervals. 

Table 8: Federal Student Aid Programs Authorized under Title IV of the Higher Education Act, Academic Year 2003-2004 

Number of recipients Total award Average award Median income

Type of assistance Lower bound 

Upper 

bound Lower bound Upper bound 

Lower

bound 

Upper 

bound

Lower

bound 

Upper 

bound

Dependent students

Pell Grant 2,026,011 2,115,312 5,201,091,600 5,452,845,564 2,543 2,573 24,165 24,999

Supplemental Educational 

Opportunity Grant 

530,408 577,316 466,079,305 522,325,472 857 892 22,022 23,484

Federal Work- Study 1,023,755 1,089,687 1,927,247,135 2,090,819,033 1,856 1,901 45,000 48,231

Federal Perkins Loan 472,640 517,207 907,800,538 1,004,290,295 1,887 1,932 37,623 40,814

Subsidized FFEL or Direct 

Stafford Loan 

2,505,118 2,604,668 7,962,531,788 8,329,729,995 3,155 3,188 43,834 45,446

Unsubsidized FFEL or Direct 

Stafford Loan 

1,578,160 1,664,757 5,173,481,648 5,505,576,910 3,244 3,293 74,263 77,439

FFEL or Direct PLUS Loan 609,125 659,071 5,458,550,634 5,979,275,038 8,787 9,019 69,547 73,439

Independent students

Pell Grant 2,967,340 3,087,638 7,212,123,299 7,540,282,035 2,409 2,436 12,614 13,262

Supplemental Educational 

Opportunity Grant 

684,528 745,839 368,492,546 415,343,758 526 548 10,425 11,626

Federal Work- Study 676,216 766,317 933,916,755 1,084,530,206 2,192 2,303 9,808 11,525

Federal Perkins Loan 522,918 595,499 839,749,704 970,851,318 2,648 2,752 9,181 11,628

Subsidized FFEL or Direct 

Stafford Loan 

3,658,692 3,869,237 15,604,880,694 17,068,144,196 4,244 4,340 18,754 20,148

Unsubsidized FFEL or Direct 

Stafford Loan 

3,154,948 3,359,231 17,728,962,613 19,212,909,259 5,531 5,671 21,190 23,095

FFEL or Direct PLUS Loan 0 0 0 0 0 0 0 0

Source: GAO analysis of 2003-2004 National Postsecondary Student Aid Study data. 
Table 9: Selected Postsecondary Education Tax Preferences, Tax Year 2002 

Number of returns Total benefits Average benefit Median income

Type of 

assistance Lower bound Upper bound Lower bound Upper bound

Lower

bound 

Upper 

bound 

Lower

bound

Upper 

bound

Hope Credit 3,115,595 3,414,023 3,064,601,005 3,399,426,275 965 1,016 37,506 41,004

Lifetime 

Learning 

Credit 

3,307,354 3,612,179 1,560,825,683 1,740,857,453 462 493 38,060 41,001

Student Loan 

Interest 

Deduction 

6,432,399 6,849,170 848,115,632 937,085,664 129 140 42,378 44,657

Tuition 

Deduction 

3,295,741 3,599,012 1,226,452,349 1,370,953,823 364 391 51,808 56,842

Source: GAO analysis of Statistics of Income data for 2002. 

Table 10: Tax Filers Claiming an Education Tax Credit or Tuition Deduction

 1998 1999 2000 2001 2002 2003 2004

Hope Credit, Lifetime Lower bound 4,482,106 6,233,732 6,606,583 6,997,019 9,319,692 10,370,110 11,360,283

Learning Credit, and 

Tuition Deduction Upper bound 4,827,719 6,639,576 7,024,049 7,428,088 9,809,833 10,882,359 11,892,067

Source: GAO analysis of Statistics of Income data.

Page 27 GAO-07-262T 
Table 11: Percentage of Aid Recipients and Dollars of Aid by Income Category for Dependent Students Served by Selected

Title IV Programs, School Year 2003-2004 

Program 

Dependent 

students

$0- 

20,000

$20,001-

40,000

$40,001-

60,000

$60,001-

80,000 

$80,001-

100,000

More than

$100,000

Recipients Lower bound 36.66 45.41 13.17 1.41 0 0

Upper bound 38.89 47.72 14.76 2.02 0 0

Lower bound 46.29 42.41 7.38 0.65 0 0

Pell Grant 

Dollars 

Upper bound 48.82 44.89 8.5 1.04 0 0

Recipients Lower bound 15.41 26.79 22.45 16.1 8.38 6.23

Upper bound 16.94 28.73 24.3 17.72 9.61 7.33

Lower bound 15.32 27.14 22.83 15.68 7.92 5.87

Stafford 

Subsidized Loan 

Dollars 

Upper bound 17.07 29.35 24.94 17.51 9.3 7.08

Recipients Lower bound 6.51 12.83 13.15 17.69 16.68 27

Upper bound 7.88 14.76 15.21 19.94 18.84 29.5

Stafford 

Unsubsidized 

Loan 

Dollars Lower bound 6.22 11.05 11.31 16.69 17.55 30.3

Upper bound 7.75 12.99 13.41 19.2 20.15 33.37

Source: GAO analysis of 2003-2004 National Postsecondary Student Aid Study data. 

Table 12: Percentage of Aid Recipients and Dollars of Aid by Income Category for Independent Students Served by Selected

Title IV Programs, Academic Year 2003-2004 

 Program $0- 20,000

$20,001-

40,000

$40,001-

60,000

$60,001-

80,000 

$80,001-

100,000

More than

$100,000

Recipients Lower bound 66.28 26.59 4.59 0 0 0

Upper bound 68.35 28.57 5.62 0 0 0

Lower bound 71.68 23.62 2.32 0 0 0

Pell Grant 

Dollars 

Upper bound 73.77 25.65 2.96 0 0 0

Recipients Lower bound 49.67 27.54 10.78 4.04 1.3 0.86

Upper bound 52.62 30.38 13.48 5.36 1.98 2.38

Lower bound 49.93 25.26 10.05 3.87 1.2 0.46

Stafford 

Subsidized Loan 

Dollars 

Upper bound 54.61 29.79 14.73 5.4 2.05 2.65

Recipients Lower bound 44.65 26.59 12.09 5.48 2.31 2.26

Upper bound 47.82 29.75 15.18 6.87 3.18 4.08

Lower bound 44.28 22.51 11.96 6.22 2.86 3.42

Stafford 

Unsubsidized 

Loan 

Dollars 

Upper bound 48.37 26 14.78 8.49 4.12 6.99

Source: GAO analysis of 2003-2004 National Postsecondary Student Aid Study data. 

Page 28 GAO-07-262T 
Table 13 Percentage of Tax Filers Claiming Hope and Lifetime Learning Credits and Tuition Deduction and Tax Preference 

Dollars by Income Category, Tax Year 2004

Type of aid $0-20,000

$20,001-

40,000

$40,001-

60,000 

$60,001-

80,000 

$80,001-

100,000

More 

than 

$100,000

Tax filers Lower bound 16.5 31.4 17 14.3 10.4 1.2

Upper bound 20.1 35.7 20.4 17.6 13.3 2

Lower bound 14.7 30.6 18.1 14.6 10.7 1.4

Hope Credit 

Dollars 

Upper bound 18.2 35.2 22.1 18.2 13.9 2.3

Tax filers Lower bound 15.5 30.3 18.7 17.5 8.3 1.4

Upper bound 18.6 34.1 21.9 20.7 10.7 2.2

Lower bound 13.2 28 17.5 17.4 11.1 1.7

Lifetime Learning 

Credit 

Dollars 

Upper bound 16.9 32.9 21.7 21.7 14.8 3

Tax filers Lower bound 21.9 11.4 13.6 9.3 11.9 23.6

Upper bound 25.1 13.9 16.3 11.7 14.5 26.7

Lower bound 10 5.8 16.2 9.9 13.5 34.5

Tuition Deduction 

Dollars 

Upper bound 12.1 7.6 20.4 13.4 17.2 39.5

Source: GAO analysis of Statistics of Income data for 2004. 

Table 14: Percentage of Form 1098-Ts with Postsecondary Expense Information in

2002: Point Estimates 

 Number of returns Percent of returns

1098Ts with expense information 1,795,180 13

1098Ts without expense information 12,356,444 87

Source: GAO analysis of Statistics of Income data for 2002. 

Page 29 GAO-07-262T 
Table 15: Percentage of Form 1098-Ts with Postsecondary Expense Information in

2002: Confidence Intervals 

Number of 

returns: 

Lower bound

Number of 

returns: 

Upper bound 

Percent of

returns: 

Lower

bound

Percent of

returns: 

Upper 

bound 

1098Ts with expense 

information

1,687,744.88 1,902,614.62 11.97 13.4

1098Ts without expense 

information

12,087,410.46 12,625,476.86 86.6 88.03

Source: GAO analysis of Statistics of Income data for 2002. 

Table 16: Percentage of Taxpayers Apparently Eligible to Claim an Education Tax 

Credit or Tuition Deduction in 2002: Point Estimates 

 Number of returns Percent of returns

Total 1,795,180 100

Potentially eligible 1,386,659 77

All other 408,521 23

Source: GAO analysis of Statistics of Income data for 2002. 

Table 17: Percentage of Taxpayers Apparently Eligible to Claim an Education Tax 

Credit or Tuition Deduction in 2002: Confidence Intervals 

Number of 

returns: 

Lower bound

Number of 

returns:

 Upper bound

Percent of

returns: Lower

bound

Percent of

returns: Upper

bound 

Total 1,795,176.75 1,795,179.75 100 100

Potentially 

eligible 

1,290,394.34 1,482,923.26 74.83 79.66

All other 360,292.26 456,749.64 20.34 25.17

Source: GAO analysis of Statistics of Income data for 2002. 

Page 30 GAO-07-262T 
Table 18: Percentage of Apparently Eligible Taxpayers to Claim an Education Tax 

Credit or Tuition Deduction That Failed to Do So in 2002: Point Estimates 

 Number of returns Percent of returns

Failed to claim 373,595 27

Source: GAO analysis of Statistics of Income data for 2002. 

Table 19: Percentage of Apparently Eligible Taxpayers to Claim an Education Tax 

Credit or Tuition Deduction That Failed to Do So in 2002: Confidence Intervals 

Number of 

returns: Lower

bound

Number of 

returns: Upper

bound

Percent of

returns: Lower

bound

Percent of

returns: Upper

bound 

Failed to claim 323,504.26 423,686.08 23.85 30.04

Source: GAO analysis of Statistics of Income data for 2002. 

Table 20: Amounts by Which Apparently Eligible Taxpayers Failed to Reduce Their 

Tax Liability in 2002: Point Estimates 

 Inaction led to increased tax liability

Median 52.45

Mean 168.66

10th percentile 4.34

25th percentile 10.94

75th percentile 207.2

90th percentile 532.96

Maximum value 1,116

Source: GAO analysis of Statistics of Income data for 2002. 

Page 31 GAO-07-262T 
Table 21: Amounts by Which Apparently Eligible Taxpayers Failed to Reduce Their 

Tax Liability in 2002: Confidence Intervals 

Inaction led to increased tax liability

Median: Lower bound 34.69

Median: Upper bound 73.57

Mean: Lower bound 136.57

Mean: Upper bound 200.76

10th percentile: Lower bound 3.01

10th percentile: Upper bound 6.57

25th percentile: Lower bound 8.66

25th percentile: Upper bound 16.72

75th percentile: Lower bound 137.73

75th percentile: Upper bound 312.14

90th percentile: Lower bound 429.22

90th percentile: Upper bound 729.58

Source: GAO analysis of Statistics of Income data for 2002. 

Table 22: Percentage of Apparently Eligible Taxpayers That Claimed the Tuition

Deduction but Would Have Been Better off Claiming the Lifetime Learning Credit in

2002: Point Estimates 

 

Number of 

returns

Percent of

returns

Would have been better off claiming Lifetime

Learning Credit

50,908 21

Source: GAO analysis of Statistics of Income data for 2002. 

Table 23: Percentage of Apparently Eligible Taxpayers That Claimed the Tuition

Deduction but Would Have Been Better off Claiming the Lifetime Learning Credit in

2002: Confidence Intervals 

Number of 

returns: 

Lower

bound

Number of 

returns: 

Upper 

bound 

Percent of

returns: 

Lower

bound

Percent of

returns: 

Upper 

bound

Would have been better off 

claiming Lifetime Learning 

Credit 

34,819.89 70,274.77 14.53 29.33

Source: GAO analysis of Statistics of Income data for 2002. 

Page 32 GAO-07-262T 
Table 24: Amounts by Which Apparently Eligible Taxpayers Could Have Reduced 

Their Tax Liability in 2002: Point Estimates 

 Lifetime Learning Credit produced larger reduction

Median 50.67

Mean 83.22

10th percentile 7.35

25th percentile 26.23

75th percentile 119.6

90th percentile 157.91

Maximum value 556

Source: GAO analysis of Statistics of Income data for 2002. 

Table 25: Amounts by Which Apparently Eligible Taxpayers Could Have Reduced 

Their Tax Liability in 2002: Confidence Intervals 

Lifetime Learning Credit produced larger reduction

Median: Lower bound 32.89

Median: Upper bound 84.27

Mean: Lower bound 49.76

Mean: Upper bound 116.68

10th percentile: Lower bound .

10th percentile: Upper bound 27.14

25th percentile: Lower bound 10.7

25th percentile: Upper bound 47.56

75th percentile: Lower bound 62.07

75th percentile: Upper bound 148.53

90th percentile: Lower bound 106.35

90th percentile: Upper bound .

Source: GAO analysis of Statistics of Income data for 2002. 

Page 33 GAO-07-262T 
Table 26: Percentage of Apparently Eligible Taxpayers That Claimed the Lifetime 

Learning Credit but Would Have Been Better off Claiming the Tuition Deduction in

2002: Point Estimates 

 

Number of 

returns

Percent of

returns

Would have been better off claiming the Tuition 

Deduction 

22,469 8

Source: GAO analysis of Statistics of Income data for 2002. 

Table 27: Percentage of Apparently Eligible Taxpayers That Claimed the Lifetime 

Learning Credit but Would Have Been Better off Claiming the Tuition Deduction in

2002: Confidence Intervals 

Number of 

returns: 

Lower

bound

Number of 

returns: 

Upper 

bound 

Percent of

returns: 

Lower

bound

Percent of

returns: 

Upper 

bound

Would have been better off 

claiming the Tuition Deduction

12,228.08 37,165.3 4.48 13.61

Source: GAO analysis of Statistics of Income data for 2002. 

Table 28: Amounts by Which Apparently Eligible Taxpayers Could Have Reduced 

Their Tax Liability in 2002: Point Estimates 

 Tuition deduction produced larger reduction

Median 108.05

Mean 137.68

10th percentile 17.3

25th percentile 36.42

75th percentile 191.55

90th percentile 237.42

Maximum value 456

Source: GAO analysis of Statistics of Income data for 2002. 

Page 34 GAO-07-262T 
Table 29: Amounts by Which Apparently Eligible Taxpayers Could Have Reduced 

Their Tax Liability in 2002: Confidence Intervals 

Deduction produced larger reduction

Median: Lower bound 37.39

Median: Upper bound 190.77

Mean: Lower bound 77.08

Mean: Upper bound 198.28

10th percentile: Lower bound 4.36

10th percentile: Upper bound 41.46

25th percentile: Lower bound 20.16

25th percentile: Upper bound 108.84

75th percentile: Lower bound 107.3

75th percentile: Upper bound 244.85

90th percentile: Lower bound 154.73

90th percentile: Upper bound 350.13

Source: GAO analysis of Statistics of Income data for 2002. 

Table 30: Percentage of Apparently Eligible Taxpayers That Claimed a Hope Credit 

but Would Have Been Better off Claiming a Lifetime Learning Credit in 2002: Point 

Estimates 

 

Number of 

returns

Percent of

returns

Total 271,494 100

Would have been better off claiming Lifetime

Learning Credit

0 0

All other 271,494 100

Source: GAO analysis of Statistics of Income data for 2002. 

Page 35 GAO-07-262T 
Table 31: Percentage of Apparently Eligible Taxpayers That Claimed a Hope Credit 

but Would Have Been Better off Claiming a Lifetime Learning Credit in 2002: 

Confidence Intervals 

Number of 

returns: 

Lower bound

Number of 

returns: 

Upper 

bound 

Percent of

returns: 

Lower

bound

Percent of

returns: 

Upper 

bound

Total 271,491.04 271,494.04 100 100

Would have been better off 

claiming Lifetime Learning 

Credit 

0 0 0 0

All other 271,491.04 271,494.04 100 100

Source: GAO analysis of Statistics of Income data for 2002. 

Table 32: Percentage of Suboptimal Choices Made by Paid Tax Preparers in 2002: 

Point Estimates 

 Taxpayers making suboptimal choice 

Number of returns Percent

Total 446,972 100

No preparer 219,139 49.03

Paid preparer 223,011 49.89

IRS prepared/reviewed 0 0

VITA/self help/outreach/elderly

assistance 

4,822 1.08

Source: GAO analysis of Statistics of Income data for 2002. 

Page 36 GAO-07-262T 
Table 33: Percentage of Suboptimal Choices Made by Paid Tax Preparers in 2002: 

Confidence Intervals 

Taxpayers making suboptimal choice 

Number of 

returns: Lower

bound

Number of 

returns: Upper

bound 

Percent: 

Lower

bound

Percent: 

Lower

bound

Total 392,039 501,905 99.72 100

No preparer 179,777 258,500 42.87 55.19

Paid preparer 184,952 261,070 43.74 56.05

IRS 

prepared/reviewed 

0 0 0 0.28

VITA/self 

help/outreach/elderly 

assistance 

1,131 9,328 0.26 2.91

Source: GAO analysis of Statistics of Income data for 2002. 

Page 37 GAO-07-262T (450556) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER