HIGHER EDUCATION

Improved Tax 

Information Could 

Help Families Pay for 

College

Report to the Committee on Finance, 

U.S. Senate

May 2012

GAO-12-560

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-560, a report to the 

Committee on Finance, U.S. Senate 

May 2012 

HIGHER EDUCATION

Improved Tax Information Could Help Families Pay 

for College

Why GAO Did This Study

The federal government provides 

billions of dollars in assistance each 

year to students and families through 

federal student aid programs 

authorized under Title IV of the Higher 

Education Act of 1965 and through tax 

expenditures, such as credits and 

deductions. GAO was asked to 

(1) describe the size and distribution of 

Title IV student aid and tax 

expenditures available to assist 

students and families with higher 

education expenses; (2) assess the 

extent to which tax filers select higher 

education provisions that maximize 

their tax benefit; (3) summarize what is 

known about the effect of student aid

and tax expenditures on student 

outcomes; and (4) describe factors that 

contribute to the effectiveness and 

efficiency of federal student assistance 

programs. GAO analyzed data from 

Education, IRS, and the Board of 

Governors of the Federal Reserve, and 

conducted a literature review for 

original empirical research. GAO also 

developed a framework for evaluating 

federal assistance and validated it with 

recognized experts of higher education 

finance.

What GAO Recommends

GAO recommends (1) that IRS and 

Education work together to develop a 

strategy to improve information 

provided to tax filers who appear 

eligible to claim a tax provision but do 

not and (2) that Education sponsor and 

conduct evaluative research into the 

effects of Title IV programs and tax 

expenditures at improving student 

outcomes. Education and IRS agreed 

with GAO’s recommendations. 

Education noted that while it does not 

have access to tax data, it will work 

with IRS to assist in taxpayer outreach. 

What GAO Found

Multiple Title IV programs and tax expenditures provided substantial aid to

populations across income levels. In 2009, 12.8 million students received Title IV 

aid, and approximately 18-million tax filers claimed a higher education tax benefit 

for current expenses. Recent increases in both programs from 2008 to 2009 may 

be because of enrollment increases and legislative actions, among other factors. 

Title IV grants tend to benefit students and families with incomes below the 

national median (about $52,000 from 2006–2010), while loans and work-study 

serve these students and those with family incomes above the median. Most tax 

benefits from the tuition and fees deduction and the parental exemption for 

dependent students went to households with incomes above $60,000, whereas 

the majority of benefits from the other higher education tax expenditures in 

GAO’s review—such as the American opportunity credit—went to households 

with lower incomes. 

Tax filers do not always select tax expenditures that maximize their potential tax 

benefits, possibly because filers are unaware of their eligibility for the tax credit or 

deduction or are confused about their use. GAO analyzed 2009 IRS data for 

returns with information on education expenses and found about 14 percent of 

filers (1.5 million of almost 11-million eligible returns) failed to claim a credit or 

deduction for which they appear eligible. On average, these filers lost a tax 

benefit of $466. The Internal Revenue Service (IRS) and Department of 

Education (Education) have taken steps to provide information on these 

provisions, but the number of filers failing to claim a higher education tax 

provision suggests more could be done. Developing a coordinated, 

comprehensive strategy to better inform eligible students could improve take-up 

of these tax provisions. 

Despite efforts by Education, research on the effects of federal assistance for 

higher education on student outcomes—such as the likelihood students will 

continue their education—remains limited. Researchers have examined the 

effects of federal assistance on a limited basis, such as only for certain states or 

groups of students, but these studies provide an incomplete view of the effects of 

federal assistance. Continuing gaps in research on the effectiveness of federal 

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

proved difficult to overcome. Recent changes in Title IV aid and tax 

expenditures—such as the introduction of the American opportunity credit in 

2009—may provide opportunities for evaluative research, but Education officials 

told GAO they have not conducted such research. In an environment of 

constrained budgets, evaluative research can help inform policy decisions. 

GAO identified factors that contribute to effective and efficient higher education 

assistance programs to help policymakers allocate limited resources among 

multiple programs. Factors include assessing whether a program achieves its 

goals and contributes to demonstrable results and whether it facilitates use by 

program beneficiaries. GAO developed a framework of questions that can be 

used as a policy tool for considering improvements to current programs or 

designing features of new programs.

View GAO-12-560. For more information, 

contact James R. White at (202) 512-9110 or 

whitej@gao.gov or George A. Scott at (202) 

512-7215 or scottg@gao.gov. 
Page i GAO-12-560 Higher Education 

Letter 1 

Background 4

Multiple Title IV Programs and Tax Expenditures Provided 

Substantial Aid across Income Levels 11

Taxpayers Do Not Always Select Provisions That Maximize 

Potential Tax Benefits 26

Research on Effects of Federal Assistance for Higher Education 

Remains Limited 33

Factors That Contribute to the Effectiveness and Efficiency of 

Federal Higher Education Assistance Programs 40

Conclusions 43

Recommendations for Executive Action 44

Agency Comments and Our Evaluation 44

Appendix I Objectives, Scope, and Methodology 47

Appendix II Descriptions of Title IV Programs and Higher Education-Related Tax 

Expenditures 54

Appendix III Text to Accompany Interactive Figures 1, 2, 6, 7, and 8 61

Appendix IV Comments from the Department of Education 80

Appendix V Comments from the Internal Revenue Service 82

Appendix VI GAO Contacts and Staff Acknowledgments 85

Bibliography 86

Contents
Page ii GAO-12-560 Higher Education 

Related GAO Products 90

Tables

Table 1: Estimated Suboptimal Choices on Federal Tax Returns 

Made by Taxpayers in 2009 28

Table 2: Research We Reviewed on the Effects of Federal 

Assistance Is Limited and Cannot Be Generalized 33

Table 3: GAO Framework for Evaluating Federal Higher Education 

Assistance Programs 41

Table 4: Percentage of Returns Included in GAO’s Analysis of 

Taxpayers’ Maximizing Their Benefits in Tax Year 2009 50

Table 5: Description of Federal Student Aid Programs Authorized 

under Title IV of the Higher Education Act 54

Table 6: Description of Selected Higher Education Tax 

Expenditures (Tax Year 2010) 56

Table 7: Text to Accompany Interactive Figure 1: Illustration of 

Planning and Payment Processes for Higher Education 

Expenses 61

Table 8: Text to Accompany Interactive Figure 2: Size and 

Characteristics of Title IV Aid Programs and Higher 

Education Tax Expenditures 62

Table 9: Text to Accompany Interactive Figure 6: Number and 

Percentage of Title IV Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 

2007–2008 (Information for Base Graphic) 64

Table 10: Text to Accompany Interactive Figure 6: Number and 

Percentage of Title IV Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 

2007–2008 (Information for Roll-over) 66

Table 11: Text to Accompany Interactive Figure 7: Number and 

Percentage of Campus-Based Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 

2007–2008 (Information for Base Graphic) 69

Table 12: Text to Accompany Interactive Figure 7: Number and 

Percentage of Campus-Based Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 

2007–2008 (Information for Roll-over) 71
Page iii GAO-12-560 Higher Education 

Table 13: Text to Accompany Interactive Figure 8: Number and 

Percentage of Tax Filers Claiming Higher Education Tax 

Expenditures and Total Benefits, by Income Category, 

2009 (Information for Base Graphic) 73

Table 14: Text to Accompany Interactive Figure 8: Number and 

Percentage of Tax Filers Claiming Higher Education Tax 

Expenditures and Total Benefits, by Income Category, 

2009 (Information for Roll-over) 76

Figures

Figure 1: Illustration of Planning and Payment Processes for Higher 

Education Expenses 9

Figure 2: Size and Characteristics of Title IV Aid Programs and 

Higher Education Tax Expenditures 12

Figure 3: Number of Recipients of Title IV Programs and Tax 

Expenditures Who Pay for Current Expenses, 2006–2009 14

Figure 4: Amount of Benefits from Selected Title IV Programs and

Tax Expenditures That Pay for Current Expenses, 2006–

2009 15

Figure 5: Tax Benefits Received by Tax Filers Claiming the Tuition 

Deduction, Hope Credit, LLC, and AOC, 2006–2009 18

Figure 6: Number and Percentage of Title IV Aid Recipients and 

Dollars Received, by Income Category and Dependency 

Status, 2007–2008 20

Figure 7: Number and Percentage of Campus-Based Aid Recipients 

and Dollars Received, by Income Category and 

Dependency Status, 2007–2008 22

Figure 8: Number and Percentage of Tax Filers Claiming Higher 

Education Tax Provisions and Total Benefits, by Income 

Category, 2009 24
Page iv GAO-12-560 Higher Education 

Abbreviations

AOC American opportunity credit 

EFC expected family contribution 

EITC Earned Income Tax Credit 

ESA education savings account 

FAFSA Free Application for Federal Student Aid 

FSEOG Federal Supplemental Educational Opportunity Grant 

GAO Government Accountability Office 

GPRAMA Government Performance and Results Act Modernization

 Act of 2010 

IES Institute of Education Sciences 

IRC Internal Revenue Code 

IRS Internal Revenue Service 

LLC lifetime learning credit 

NBER National Bureau of Economic Research 

NPSAS National Postsecondary Student Aid Study 

PLUS Parent Loans for Undergraduate Students 

QTP qualified tuition program 

SCF Survey of Consumer Finances 

SOI Statistics of Income

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Page 1 GAO-12-560 Higher Education 

United States Government Accountability Office 

Washington, DC 20548

May 18, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

The federal government provides billions of dollars in assistance each 

year to help millions of students and families meet the costs of higher 

education. This assistance is provided through federal student aid 

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

as amended, (Title IV) and through tax expenditures—reductions in 

federal tax liabilities that result from provisions in the tax code such as tax 

credits, deductions, exemptions, and tax-preferred savings programs.

Providing federal financial assistance in these varied ways presents 

students and their families with multiple tools to help them pay higher 

education expenses. However, as we have previously reported, it may be 

difficult for families to understand higher education tax expenditures and 

use them correctly.1

Many meaningful results that the federal government seeks to achieve—

including those for higher education—require the coordinated efforts of 

more than one agency. The GPRA Modernization Act of 2010 

(GPRAMA)

Moreover, policymakers have raised questions about 

the effect of federal assistance on student outcomes such as graduation 

rates, and whether there is an appropriate return on the federal 

investment. In addition, the existence of multiple programs with similar 

goals and beneficiaries could potentially be an indicator of overlap or 

duplication of federal efforts.

2

 

1

GAO, Higher Education: Multiple Higher Education Tax Incentives Create Opportunities

for Taxpayers to Make Costly Mistakes, 

amended the Government Performance Results Act of 1993 

to establish a new framework for providing a more crosscutting and 

integrated approach to focusing on results and improving government 

GAO-08-717T (Washington, D.C.: May 1, 2008) 

and 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).

2

Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011).

 
 

Page 2 GAO-12-560 Higher Education 

performance. Moving forward, GPRAMA implementation can help inform 

tough choices in setting priorities as government policymakers address 

the rapidly building fiscal pressures facing our national government.

In response to your request, this report addresses the following 

objectives: (1) describe the size and distribution of federal grants, loans, 

and tax expenditures available to assist students and families with higher 

education expenses; (2) assess the extent to which tax filers select higher 

education provisions that maximize their tax benefit; (3) summarize what 

is known about the effect of grants, loans, and tax expenditures on 

student attendance, choice, persistence,3

To describe Title IV aid and higher education tax expenditures, we 

analyzed the most recently available data and reviewed relevant federal 

laws, regulations, and guidance from the U.S. Department of Education 

(Education), Internal Revenue Service (IRS), and the Board of Governors

of the Federal Reserve System (Federal Reserve). We selected Title IV 

programs that served more than 500,000 participants in school year 

2007–2008. We selected tax expenditures that (1) are designed to assist 

students and their families save for, pay current expenses, or repay 

expenses for higher education; (2) have eligibility requirements that are 

not based on criteria other than income or higher education expenses; (3) 

were available in tax years 2006–2009; and (4) had more than 50,000 tax 

filers claim the benefit in 2009.

and completion; and (4) 

describe factors that contribute to the effectiveness and efficiency of 

federal higher education student assistance programs.

4

 

3

Persistence is the likelihood that students will continue their education.

Our analysis of data from Education’s 

2007–2008 National Postsecondary Student Aid Study (NPSAS), IRS’s 

2006–2009 Statistics of Income (SOI) individual tax return file, and the 

Federal Reserve’s 2007 Survey of Consumer Finances (SCF) are subject 

to sampling errors because these data sets are based on samples. 

Unless otherwise noted, all percentage estimates based on the SOI and 

NPSAS have 95 percent confidence intervals that are within 10 

percentage points of the estimate itself, and all numerical estimates other 

than percentages have 95 percent confidence intervals that are within 10 

percent of the estimate itself. The 95 percent confidence intervals for all 

4

See app. I for details on our research scope. In total, we examined seven Title IV 

programs and eight tax expenditures. Program descriptions for each are provided in app. 

II.
 

Page 3 GAO-12-560 Higher Education 

SCF estimates are provided along with the estimates in table notes or 

footnotes. To assess the reliability of the data we analyzed, we reviewed 

agency documentation and interviewed agency officials familiar with the 

data. We determined that these data were sufficiently reliable for our 

purposes.

To assess the extent to which tax filers selected higher education tax 

provisions that maximized their tax benefit, we combined information from 

the SOI individual tax file with information from Form 1098-T Tuition 

Statement, which provides information on students’ enrollment status at 

an educational institution. We then calculated which tax provision would 

maximize filers’ tax benefits based on program eligibility criteria for tax 

year 2009.5 Our analysis only covers a portion of all returns claiming an 

education credit or tuition deduction. Our analysis is limited to tax filers 

who appeared eligible for the lifetime learning credit (LLC) or tuition and 

fees deduction (tuition deduction) in 2009, had a 1098-T with information 

on the student’s education expenses, and had a tax liability after claiming 

other tax benefits. After eliminating returns where eligibility was not clear, 

we included only 29 percent of returns in our analysis of filers with a 

1098-T but selecting neither the LLC nor the tuition deduction in 2009. 

Appendix I provides details on the percentage of returns included in our 

analysis. Our findings could also be influenced if institutions reported 

inaccurate expense information on the 1098-T. Also, our analysis did not 

consider whether a taxpayer who appeared to make a suboptimal choice 

by not claiming an LLC or tuition deduction did so to avoid being subject 

to alternative minimum tax liability.6

To summarize what is known about the effect of grants, loans, and tax 

expenditures on student attendance, choice, persistence, and completion, 

we conducted a literature review for original research published since our 

To estimate the effect state tax laws 

may have on the optimal choices of taxpayers filing their federal income 

taxes, we utilized the National Bureau of Economic Research’s (NBER) 

TAXSIM Model, a model that calculates estimated tax liabilities under 

U.S. federal and state income tax laws.

 

5

See app. I for a full discussion of our methodology and its limitations.

6

All taxpayers subject to regular tax are also subject to the alternative minimum tax, 

regardless of the income tax bracket or whether they claim certain exclusions, deductions, 

or credits. Taxpayers may be limited in the credits they can claim based on their 

alternative minimum tax calculations. 
 

Page 4 GAO-12-560 Higher Education 

previous report in 2005.7

We identified factors that contribute to the effectiveness and efficiency of 

federal higher education assistance programs by reviewing criteria from 

prior and ongoing GAO studies. We supplemented this review and 

validated our framework by conducting semi-structured interviews with 

five academic experts in higher education and economic policy. We 

selected experts based on the relevance of their published work on higher 

education assistance, their recognition in the professional community, 

their demonstrated expertise in Title IV programs or tax expenditures, and 

others’ recommendations. See appendix I for more information about our 

scope and methodology.

We searched literature that provides original 

empirical data analyses according to professional standards of 

econometric analysis for their methodological rigor and contains 

acceptably identified statistical estimates.

We conducted this performance audit from June 2011 to May 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Title IV aid and tax expenditures help reduce the cost of attendance for 

students and families. Students and families may be eligible for multiple 

Title IV programs and tax expenditures, depending on each program’s 

rules. We identified seven Title IV programs and eight tax expenditures 

that help students and families save for, pay, and repay the costs of 

higher education; the seven Title IV programs we reviewed account for 

about 89 percent of the total aid available for higher education and 

training through Education in fiscal year 2011.8

 

7

Two departments within 

GAO-05-684. These student outcomes are used in higher education research and have 

been the focus of congressional concern as expressed in requests for our work from 

Congress and a statutorily established study committee report. While researchers have 

studied other metrics to measure student outcomes, such as labor market outcomes, 

these are outside the scope of this review.

8

These totals do not include all Title IV programs or higher education provisions listed in 

the Publication 970 Tax Benefits for Education. For details on which programs and tax 

expenditures we excluded from this review, see app. II.

Background
 

Page 5 GAO-12-560 Higher Education 

the scope of this review have responsibility for federal higher education 

assistance: Education, which administers Title IV programs; and the 

Department of the Treasury (Treasury), which administers higher 

education tax provisions. In fiscal year 2010, Education provided 

approximately $37.5 billion in grants and made more than $104.3 billion in 

loan assistance available through Title IV programs reviewed in this 

report.9 In the same year, revenue losses from higher education tax 

provisions reviewed in this report—the amount of revenue the 

government forgoes—were an estimated $25 billion.10

Students receive Title IV aid while they are in school and use it to pay for 

current education expenses. Tax expenditures, on the other hand, reach 

widely across students’ life spans. For example, tax-preferred savings 

vehicles allow families to save for future expenses; tax credits help 

families pay for current expenses; and the student loan interest deduction 

helps people repay expenses after their education. Major programs are 

summarized below, and detailed descriptions of Title IV programs and tax 

expenditures are in appendix II.

Federal assistance is provided to students and families through multiple 

Title IV grant and loan programs. Grants such as Pell Grants reduce the 

cost of higher education for the student and do not need to be repaid. 

Federal student loans, which include subsidized and unsubsidized Direct 

Stafford loans and Parent Loans for Undergraduate Students (PLUS) 

 

9

This total does not include consolidation loans—which allow borrowers to combine one or 

more of their federal education loans into a new loan—because these loans are outside 

the scope of this report. Throughout this report, we present the face value of Title IV loans 

awarded to students, rather than their economic subsidy value to the student or the credit 

subsidy cost—the estimated long-term cost to the government of a direct loan or loan 

guarantee. Although Title IV loans must be repaid, they can provide a subsidy by offering 

funds to students who could not otherwise find lenders and by offering lower interest rates 

than are available in the non-Title IV private loan market. 

10This is the net sum of estimates from the Fiscal Year 2012 Analytical Perspectives, 

Budget of the U.S. Government for the following tax expenditures: American opportunity 

credit, lifetime learning credit, tuition and fees deduction, student loan interest deduction, 

state prepaid tuition plans (a type of qualified tuition program), Coverdell education 

savings accounts, and the parental exemption for students aged 19 to 23. Sums of tax 

expenditure estimates must be interpreted carefully. While summing the individual tax 

expenditure estimates is useful for gauging the general magnitude of the federal revenue 

involved, it does not take into account possible interactions between the individual tax 

code provisions. 

Title IV Aid
 

Page 6 GAO-12-560 Higher Education 

loans, also help students and their families finance the costs of higher 

education but must be repaid. Title IV also authorizes programs that are 

funded by the government and administered by participating higher 

education institutions, which are collectively known as campus-based 

aid.11

A substantial portion of Title IV aid is awarded based on the amount of a 

student’s financial need, which is generally the difference between a 

student’s cost of attendance and an estimate of the student’s (and his or 

her family’s ability in the case of a dependent student) ability to pay these 

costs—called the expected family contribution (EFC). To apply for Title IV 

aid, students or families submit a Free Application for Federal Student Aid 

(FAFSA), which includes information on the student’s and/or family’s 

income, assets, and federal income tax expenses. After Education 

processes an applicant’s FAFSA, a report summarizing the EFC and the 

student’s federal aid eligibility is sent to the applicant or made available 

online. After admission, colleges send applicants award letters that 

include the types and amounts of federal, state, and institutional aid for 

which the student would be eligible, should the student decide to enroll.

Federal assistance is also provided to students and families through 

multiple tax expenditures. For tax year 2010, IRS guidance on higher 

education tax expenditures, Publication 970, Tax Benefits for Education,

describes several tax credits, deductions, and tax-preferred savings 

vehicles that help students and families pay for qualified higher education 

expenses.12

Tax credits such as the American opportunity credit (AOC) and the 

lifetime learning credit (LLC) reduce tax filers’ income tax liability on a 

dollar-for-dollar basis for qualified education expenses. Tax deductions, 

such as the tuition and fees deduction (tuition deduction), permit tax filers 

to subtract qualified education expenses from income that would 

 

11Specifically, these programs are Federal Work-Study, Federal Perkins Loan programs, 

and Federal Supplemental Education Opportunity Grants (FSEOG). Work-study is 

employment in on-campus and certain off-campus jobs that pay students at least the 

current federal minimum wage. The college or off-campus employer pays a portion of the 

student’s wages, while the federal government pays the remainder.

12For details on each tax provision, including the tax benefits and eligibility requirements, 

see app. II.

Tax Expenditures
 

Page 7 GAO-12-560 Higher Education 

otherwise be taxable.13 Therefore, deductions reduce filers’ tax liability 

less than credits for any given amount claimed.14 To benefit from a higher 

education tax credit or the tuition deduction, a tax filer must use tax form 

1040 or 1040A and have an adjusted gross income15

Tax-preferred savings vehicles, including qualified tuition programs (also 

known as 529 plans) and Coverdell education savings accounts (ESA) 

allow tax filers to save for education expenses (using post-tax income), 

and in some cases prepay tuition, without paying tax on the income from 

those investments. Tax penalties apply if the funds are not used for 

qualified education expenses.

below the tax 

provisions’ statutorily specified income limits, among other requirements.

Parents of children attending college can also benefit from tax provisions 

not listed in the Publication 970. For example, filers can claim a parental 

personal exemption for a dependent who is age 19 through 23 and a fulltime student at least 5 months of the year. Exemptions reduce taxable 

income by permitting tax filers to deduct a certain amount from their gross 

income for each dependent they claim. In addition, certain eligible tax 

filers with earned income and a qualifying child who is aged 19 through 

23 and a full time student at least 5 months of the year can claim a larger 

Earned Income Tax Credit (EITC).

To benefit from both Title IV aid and tax expenditures, students and 

families must navigate many uncertainties.

Planning for future college expenses. Saving for a child’s college 

education requires families to make complicated decisions about the best 

strategy to finance a child’s future college education. For example, 

families have to make decisions about whether their child will go to 

 

13The tuition deduction expired December 31, 2011, and as of May 10, 2012, has not 

been extended. Tax legislation can influence this and other tax expenditures by repealing 

or limiting tax expenditures, enacting new ones, or extending the life of expiring tax 

expenditures.

14The amount of tax relief per dollar that a taxpayer receives using a deduction depends 

on the taxpayer’s marginal tax rate. Generally, the higher the taxpayer’s marginal tax rate, 

the greater the tax savings from these tax expenditure types. 

15Adjusted gross income is defined as gross income minus adjustments to income. 

Planning, Predicting, and 

Applying for Assistance
 

Page 8 GAO-12-560 Higher Education 

college, the amount to save, and whether to use a tax-preferred savings 

vehicle (and if so, which one). In addition, parents need to make their best 

guesses about the price of the school the child will attend or whether the 

child will be a dependent at the time he or she becomes a college 

student.

Predicting the amount and time frames of assistance. A key 

challenge students and families face is that they must make college 

application decisions before knowing their eligibility for federal assistance, 

as illustrated in figure 1 below. For Title IV aid, students receive eligibility 

information after they apply for and are accepted to a school, generally in 

the spring of their senior year in high school, but before they need to 

accept an offer of admission and enroll in a school. Students applying to 

colleges and their families also may not know for certain if they are 

eligible for one of the tax provisions or what the amount of the tax benefit 

will be until they prepare and file their tax returns well into the student’s 

first year in college. This makes it difficult for families to predict and plan 

for the true cost of college prior to enrolling.
Before college During college After college

March through April

Birth through senior year of high school

A S O N D J F M A M J J A S O N D J F M A M J J

Each academic year Monthly

August

January through April 15th

Senior year of high school

January through March January

January through April 15th

Fall through Spring

January through March

Interactive graphic Figure 1: Illustration of Planning and Payment Processes for Higher Education Expenses

Page 9 GAO-12-560 Higher Education

Print instructions To print text version of this graphic, go to appendix III.

Notes: This graphic provides one example of the timing for financial aid, tax, and loan repayment decisions. The process may

differ for nontraditional students. For example, students that attend school less than half time or at times other than the fall through 

spring semesters may make decisions and payments at times other than those depicted in this illustration. Also, individuals other 

than parents—such as legal guardians—may be involved in financial aid and tax decisions. 

FAFSA deadlines vary by state, and the Department of Education Web site often directs students to contact their financial aid 

administrator for deadlines. Each college within a state may also have a different deadline. For 2011-2012, the federal deadline 

is June 30, 2012. 

a Some education institutions may require a FAFSA before families have filed a tax return.

Sources: GAO (information); Digital Vision (photo).

Roll over time 

spans in the chart 

below for more 

details.

Directions:

Eligibility notification periods
 

Page 10 GAO-12-560 Higher Education 

In response to a statutory requirement designed to provide students and 

families a better understanding of the net price of a college,16

Applying for assistance. While Title IV aid and tax expenditures differ in 

who is responsible for obtaining aid, they both provide challenges to 

families in understanding and applying for assistance. With Title IV aid, 

Education and higher education institutions are responsible for 

determining aid eligibility and award amounts. While families do not need 

to learn the eligibility rules for each Title IV program, they have to answer 

numerous questions when applying for aid. Many experts, both within and 

outside of government, have expressed concern about the length and 

complexity of the FAFSA, including the possibility that the application 

process itself may discourage some students from applying.

higher 

education institutions have posted net price calculators on their Web 

sites. The calculators use institutional data to provide estimated net price 

information to current and prospective students and their families based 

on a student’s individual circumstances. However, the net price 

calculation includes consideration of grant aid but does not take into 

account tax benefits a student or family may receive.

17 With tax 

expenditures, the responsibility for selecting among and properly using 

them rests with tax filers, who face many challenges in selecting the best 

choice from among the numerous tax expenditures available for higher 

education.

 

16The Higher Education Opportunity Act required all institutions receiving Title IV funds to 

provide net price calculators on their Web sites. Pub. L. No. 110-315, § 111, 122 Stat. 

3078, 3098 (Aug. 14, 2008), codified at 20 U.S.C. § 1015a. Schools were required to 

publish a net price calculator by October 29, 2011.

17See also GAO, Federal Student Aid: Highlights of a Study Group on Simplifying the Free 

Application for Federal Student Aid, GAO-10-29 (Washington, D.C.: Oct. 29, 2009) and 

Susan Dynarski and Mark Wiederspan, Student Aid Simplification: Looking Back and 

Looking Ahead, NBER Working Paper No. 17834 (Cambridge, MA: National Bureau of 

Economic Research, 2012). In addition, a 2009 study found that families that received 

information about aid and assistance in completing the FAFSA were substantially more 

likely to submit the aid application and enroll in college; Eric Bettinger et. al, The Role of 

Simplification and Information in College Decisions: Results from the H&R Block FAFSA 

Experiment, NBER Working Paper No. 15361 (Cambridge, MA: National Bureau of 

Economic Research, 2009).
 

Page 11 GAO-12-560 Higher Education 

Multiple Title IV programs and tax expenditures are available to help 

eligible students and families pay for higher education. Figure 2 gives an 

overview of the number and type of programs included in this review, 

along with total benefits and recipients for each program, the median 

amount of each award, and the median income of recipients. 

Multiple Title IV 

Programs and Tax 

Expenditures 

Provided Substantial 

Aid across Income 

Levels

Title IV Aid and Tax 

Expenditures Are 

Substantial and Have 

Generally Increased in 

Recent Years
Interactive graphic Figure 2: Size and Characteristics of Title IV Aid Programs and Higher Education Tax Expenditures

Page 12 GAO-12-560 Higher Education

Print instructions To print text version of this graphic, go to appendix III.

Roll over each program beneath the dotted line of the flowchart below to see the number of

beneficiaries, the total dollars of the benefit, the average amount of each benefit, and the median

income of recipients.

Directions:

Programs used to pay for current expenses

Programs used to save for future expenses 

Programs used to repay expenses 

Key:

Source: GAO analysis of U.S. Department of Education documents, school-year 2007-2008 NPSAS data, IRS SOI data for tax year 2009, and the 2007 Federal Reserve Survey of Consumer Finance.

Note: For estimates of tax expenditures other than QTPs and ESAs, we report the tax benefit a filer receives from claiming the tax expenditure. All figures 

presented are sample estimates and are subject to sampling error. We are 95 percent confident that in 2006, between 3.5 and 4.9 million households held a 

QTP or ESA; that the median account balance was between $7,500 and $12,000; and that the median gross income of households was between $106,000 

and $138,000. Data for QTPs and ESAs are presented together because the public SCF data file does not provide separate estimates for the two accounts.

Our estimates for the number of filers claiming an education tax benefit only include those filers that reduced their tax liability by claiming these expenditures.

All other estimates in this figure have 95% confidence intervals that are within +/- 10 percent of the estimate itself.
 

Page 13 GAO-12-560 Higher Education 

Since 2006, the number of recipients and the value of benefits provided 

through Title IV aid and tax expenditures have generally increased, 

though the overall size of each program differed.18

 

18In this and following sections, we estimate the tax benefit that tax filers receive when 

claiming a higher education-related tax provision using SOI data for tax year 2009. Our 

estimates only include those filers that have a benefit after claiming other tax benefits. 

These estimates are not equivalent to revenue loss estimates presented previously in the 

background section of this report. For example, our SOI estimates include the tax benefit 

a filer receives from claiming the EITC for a student ages 19-23. Revenue loss estimates 

for this specific tax expenditure are not available in Analytical Perspectives, Budget of the 

U.S. Government. Also, revenue loss estimates presented in the background section are 

for fiscal year 2010, whereas our analysis uses SOI data for tax year 2009.

The number of 

students receiving Title IV aid increased by 23 percent from 2006–2009, 

from 10.4 million to 12.8 million. The number of tax filers benefiting from 

an education tax expenditure was larger, and increased by 25 percent 

from 2006 to 2009, from 14.4 million to 18.0 million (see fig. 3). The total 

number of Title IV and tax recipients should not be added together, as in 

some cases students and families may be eligible for benefits from both 

types of programs.
 

Page 14 GAO-12-560 Higher Education 

Figure 3: Number of Recipients of Title IV Programs and Tax Expenditures Who Pay 

for Current Expenses, 2006–2009

Note: Title IV data are presented by federal fiscal year (October–September) and IRS data are by tax 

year (January–December). The number of Title IV aid recipients may include students and families 

who also filed for tax benefits as well, and vice versa. Within Title IV and tax expenditures, separately, 

the number of recipients is unduplicated. For example, a family with two students claiming AOC’s for 

both students would be counted as one tax filer. For the number of recipients, Title IV programs 

include grants, work-study, and loans within the scope of this review. These figures also include 

programs we did not review, including Academic Competitiveness Grants, National Science & 

Mathematics Access to Retain Student Talent Grants, and Leveraging Educational Assistance 

Partnership Grants. Tax expenditures include the AOC, Hope credit, LLC, tuition deduction, EITC for 

students ages 19–23, and the parental exemption for dependent students ages 19–23. Estimated 

number of recipients from IRS data have 95 percent confidence intervals that are within 10 percent of 

the estimate itself. 

From 2006 to 2009, tax filers claimed a roughly comparable dollar amount 

of tax benefits as students received through Title IV grants during these 

years (see fig. 4). This analysis focuses on Title IV grants because they 
 

Page 15 GAO-12-560 Higher Education 

are most comparable to tax expenditures.19 The dollar value of both tax 

benefits and grants increased from 2006 to 2009. Tax benefits increased 

by about 78 percent ($16.4 billion in 2006 to $29.2 billion in 2009) and 

grants by 97 percent ($15.5 billion in 2006 to $30.5 billion in 2009).20

Figure 4: Amount of Benefits from Selected Title IV Programs and Tax Expenditures 

That Pay for Current Expenses, 2006–2009

 

 

19Student loans and work-study have different terms, including repayment and 

employment, which require different methods of estimating costs and benefits. In contrast 

to Title IV grants and tax expenditures, the dollar value of student loans provided through 

Title IV decreased between fiscal years 2006 and 2009. The amount of loan assistance 

(face value) through the Title IV programs decreased by over $40 billion from $152.5 

billion in 2006 to $110.4 billion in 2009, although borrowing limits increased for Stafford 

and Perkins loans during this time.

20These figures are in constant 2012 dollars. 
 

Page 16 GAO-12-560 Higher Education 

Note: Values are reported in 2012 constant dollars. Title IV data are presented by federal fiscal year 

(October–September) and IRS data are by tax year (January–December). For the Title IV benefits, 

only Pell Grants and Federal Supplemental Educational Opportunity Grants are included. Tax 

expenditures include the AOC, Hope credit, LLC, tuition deduction, EITC for students ages 19–23, 

and the parental exemption for dependent students ages 19–23. Dollar estimates from IRS data have 

95 percent confidence intervals that are within 10 percent of the estimate itself. 

The sharp increase in benefits for both tax expenditures and Title IV 

grants from 2008 to 2009 may be due to increases in enrollment and 

legislative changes, among other factors. The overall number of students 

enrolling in college increased 11.9 percent from 2007 to 2009—from 18.2 

million to 20.4 million. The most recent national recession—which lasted 

from December 2007 through June 2009—may have led more individuals 

to enroll in college. Researchers have found that as unemployment 

increases during a recession, unemployed individuals may return to 

school to obtain additional skills, certifications, or degrees.21 In addition to 

these factors, legislative changes influenced the increase in benefits from 

2008 to 2009. For example, for Title IV programs, Congress increased the 

maximum Pell Grant award by 13 percent, from $4,731 in the 2008–2009 

school year to $5,350 in the 2009–2010 school year.22 During this period, 

the total benefits provided through Pell Grants increased by 

approximately $10 billion.23

• is larger (the maximum available credit increased from $1,800 to 

$2,500);

For tax expenditures, legislation in 2009 

replaced the Hope credit with the AOC. Compared to the Hope credit, the 

AOC is available to a broader range of tax filers because it:

• has higher income phase-out limits;

• adds required course materials to the definition of qualified education 

expenses;

• is available for the first 4 years of higher education, instead of the first 

2; and

 

21See Julian R. Betts and Laurel L. McFarland, “Safe Port in a Storm: The Impact of Labor 

Market Conditions on Community College Enrollments,” Journal of Human Resources

30(4), Autumn 1995, 741-765; Harris Dellas and Vally Koubi, “Business Cycles and 

Schooling,” European Journal of Political Economy 19 (2003), 843-859; and Harris Dellas 

and Plutarchos Sakellaris, “On the Cyclicality of Schooling: Theory and Evidence,” Oxford 

Economic Papers 55, January 2003, 148-172. 

22The maximum Pell Grant has subsequently increased to $5,550. See app. II. 

23At the same time, the number of Pell recipients increased by 26 percent from 6.1 million 

in 2008 to 7.7 million in 2009.
 

Page 17 GAO-12-560 Higher Education 

• is refundable up to 40 percent of the credit (up to $1,000 a year),

allowing filers without income tax liability to receive a benefit they 

would not get under the Hope credit, which was not refundable.

In 2008, before the legislative change, approximately 7.7 million tax filers 

claimed a Hope credit or LLC, receiving $7.6 billion in benefits.24 In 2009, 

after the change, 12.5 million tax filers claimed an AOC, LLC, or Hope 

credit,25

 

24Dollar values in this paragraph are presented in 2012 constant dollars in accordance 

with the multiyear comparison in fig. 5.

receiving about $18.7 billion in benefits. This increase more than 

offset a concurrent decrease in the number of tax filers’ claiming the 

tuition deduction. From 2008 to 2009, the number of tax filers claiming the 

tuition deduction decreased from about 3.3 million to about 1.7 million, 

and the amount of benefits received decreased from about $1.5 billion to 

about $658 million (see fig. 5).

25While the AOC replaced the Hope credit for most filers in 2009, students attending an 

eligible institution in a Midwestern disaster area were eligible for a larger Hope credit 

($3,600 maximum) if they met eligibility requirements.
 

Page 18 GAO-12-560 Higher Education 

Figure 5: Tax Benefits Received by Tax Filers Claiming the Tuition Deduction, Hope 

Credit, LLC, and AOC, 2006–2009

Note: Values are presented in 2012 constant dollars. We are 95 percent confident that our estimate 

for the 2009 Hope credit is between about $270 million and $382 million. All other dollar estimates 

have 95 percent confidence intervals that are within 10 percent of the estimate itself. 

Title IV grants tend to benefit students and families26

 

26In the case of dependent students, we refer to family income. 

with incomes below 

the national median (which was about $52,000 from 2006–2010), while 

Title IV and Tax 

Expenditures Offer 

Assistance to Students 

across Income Levels

Title IV Programs
 

Page 19 GAO-12-560 Higher Education 

loans and work-study benefit these students and families with incomes 

well above the national median. The income distribution of students 

served by the two largest Title IV programs—the Pell Grant and Stafford 

loan programs—differs by dependency status because independent 

students generally have lower incomes and less accumulated savings 

than dependent students and their families.

27 Funds from these programs 

were generally spread across various income levels for dependent 

students, but concentrated at lower income levels for independent 

students, as shown in figure 6. For example, nearly 90 percent of 

subsidized Stafford funds for independent students went to the 91 percent 

of independent students with incomes $60,000 and below. In contrast, 

about 60 percent of subsidized Stafford funds for dependent students 

went to students and families with incomes $60,000 and below.28

 

27Overall, more independent students received Title IV aid than dependent students in the 

2007-2008 school year (12.8 million and 10.5 million, respectively) and independent 

students received more benefits than dependent students ($52.4 billion and $36.5 billion, 

respectively). Dollar figures in this section are not adjusted for inflation.

28A proportional 60 percent of dependent students receiving subsidized Stafford funds 

were from families with incomes $60,000 and below. 
Page 20 GAO-12-560 Higher Education

 Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by Income 

 Category and Dependency Status, 2007-2008 Interactive graphic

Source: GAO analysis of Education NPSAS 2007-2008 data.

Note: Numbers may not add due to rounding. See app. III for confidence intervals.

$0-$20,000

$20,001-$40,000

$40,001-$60,000

$60,001-$80,000

$80,001-$100,000

Greater than $100,000

Income

45%

44%

11%

0%

0%

0%

72%

26%

3%

0%

0%

0%

Dollars received

Dependent students

Share of

benefits Dollars received

Independent students

Pell grant $2,993,296,755 $5,708,275,819

$9,421,293,323

$9,539,027,035

$4,980,847,097

$2,688,876,994

$1,531,454,768

$1,474,347,793

$702,578,936

$5,143,430,349

$2,332,929,154

$1,065,865,463

$831,217,599

$2,033,734,008

$220,020,619

$1,576,033,411

$2,600,677,516

$2,399,719,215

$1,777,159,779

$1,145,483,437

$1,268,645,799

$480,773,388

$706,246,969

$668,956,702

$863,722,923

$1,055,285,595

$2,539,426,756

$306,178,690

$791,392,564

$1,069,231,412

$1,332,716,460

$1,434,575,441

$3,567,182,411

$2,962,215,274

$708,298,173

$8,350,502

$0

$0

$0

$0

$0

$0

15%

24%

22%

17%

11%

12%

50%

27%

12%

6%

4%

0%

Dollars received

8%

11%

11%

14%

17%

40%

46%

24%

13%

7%

7%

3%

Unsubsidized Stafford Loan

4%

9%

13%

16%

17%

42%

PLUS Loan

Share of

benefits

Subsidized Stafford Loan

Figure includes PLUS loans for parents of 

dependent students only. Grad PLUS loans for 

independent students are not in the scope of this 

review because they served under 500,000 

students in 2007-2008.

Program

Directions: Roll over each 

program for more details.
 

Page 21 GAO-12-560 Higher Education 

The distribution of the three small campus-based aid programs (FSEOG, 

Perkins, and Federal Work-Study) has some similarities and differences 

with the larger Title IV programs. While the larger Title IV programs—Pell 

Grants, Stafford loans, and PLUS loans—distributed more funds to 

independent students, more campus-based aid went to dependent 

students.29 Like Pell Grants, and as intended, campus-based FSEOG 

primarily benefited students and families with incomes below the national 

median household income.30

 

29In 2007-2008, $4.3 billion of campus-based aid was distributed to dependent students 

compared with $2.1 billion for independent students.

Like subsidized Stafford loans, the majority 

of all campus-based Perkins loan recipients with incomes $40,000 and 

under received the majority of funds from the program. See figure 7 for 

additional detail.

30The 91 percent of all FSEOG recipients with incomes $40,000 and under received 

nearly 90 percent of FSEOG funds.
Page 22 GAO-12-560 Higher Education

 Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars Received, by 

 Income Category and Dependency Status, 2007-2008 Interactive graphic

Source: GAO analysis of Education NPSAS 2007-2008 data.

Note: Numbers may not add due to rounding. See app. III for confidence intervals.

Cannot provide estimate due to sample size.

$0-$20,000

$20,001-$40,000

$40,001-$60,000

$60,001-$80,000

$80,001-$100,000

Greater than $100,000

Income

40%

44%

14%

1%

79%

18%

3%

0%

0%

0%

Dollars received

Dependent students

Share of

benefits Dollars received

Independent students

FSEOG

$209,167,876 $287,140,334

$433,717,269

$707,382,578

$238,661,357

$97,670,405

$51,330,515

$21,051,799

$2,987,375

$95,943,420

$38,661,997

$7,690,437

$15,385,335

$64,666,358

$12,253,894

$152,790,728

$259,282,922

$220,640,219

$118,530,334

$67,018,955

$95,266,510

$349,134,109

$605,006,564

$535,082,448

$434,541,331

$342,452,892

$580,623,357

$229,314,569

$74,901,541

$5,224,562 $198,775

$0

$0

$0

17%

28%

24%

13%

7%

10%

73%

16%

7%

1%

3%

0%

12%

21%

19%

15%

12%

20%

63%

21%

9%

5%

2%

0%

Federal Work Study

Share of

benefits

Federal Perkins Loan

Campus-Based Aid Programs

Directions: Roll over each 

program for more details.
 

Page 23 GAO-12-560 Higher Education 

While FSEOG and Perkins provide aid in the form of grants and loans 

(respectively) for students with exceptional financial need, the Federal 

Work-Study program provides funding for the employment of students 

with any financial need. This difference in targeted populations is 

reflected in the distribution of work-study funds by income. For example, 

36 percent of the funds went to the 36 percent of recipients from families 

with incomes over $60,000. The share of work-study funds distributed to 

students from families with incomes over $100,000 grew significantly from 

the 2003–2004 school year to the 2007–2008 school year, from 9 percent 

to 15 percent.31

Most tax benefits from the tuition and fees deduction and the parental 

exemption for dependent students went to households with incomes 

above $60,000, whereas the majority of benefits for the other higher 

education tax expenditures in our review (e.g., student loan interest 

deduction, AOC, LLC, and EITC) went to households with incomes below 

$60,000.

 

32

 

31Similarly, the share of work-study recipients from families with incomes over $100,000 

grew from 8 percent in 2003-2004 to 15 percent in 2007-2008.

Figure 8 summarizes the distribution of tax benefits to filers, by 

income.

32Specifically, 67 percent of tax benefits from the tuition and fees deduction ($419.5 

million) and 75 percent of the exemption for dependent students ($4 billion) went to tax 

filers with incomes above $60,000 in 2009.

Tax Expenditures
Page 24 GAO-12-560 Higher Education

 Figure 8: Number and Percentage of Tax Filers Claiming Higer Education Tax Expenditures and 

 Total Benefits, by Income Category, 2009 Interactive graphic

Source: GAO analysis of IRS SOI data.

Note: Numbers may not add due to rounding. See app. III for confidence intervals. Our estimates for the percentage of filers 

claiming the intuition and fees deduction and the student loan interest deduction only include those filers that reduced their tax liability

by claiming these deductions.

$0-$20,000

$20,001-$40,000

$40,001-$60,000

$60,001-$80,000

$80,001-$100,000

Greater than $100,000

Income

4%

10%

20%

13%

9%

45%

15%

21%

16%

14%

11%

22%

Total benefits Share of

benefits Total benefits

$23,237,000 $2,410,738,000

$3,415,061,000

$2,592,059,000

$60,962,000

$125,127,000

$78,621,000

$55,363,000

$285,550,000

$2,228,655,000

$1,795,974,000

$0 $3,526,694,000

Share of

benefits

Tuition and fees deduction

4%

20%

26%

15%

13%

21%

$56,757,000

$271,208,000

$341,352,000

$204,966,000

$177,270,000

$282,212,000

Student loan interest deduction

1%

12%

13%

13%

12%

50%

$49,874,000

$615,251,000

$669,819,000

$675,441,000

$662,782,000

$2,664,082,000

Parental exemption for students ages 19-23

7%

30%

24%

19%

16%

5%

$177,536,000

$717,486,000

$573,645,000

$453,702,000

$375,959,000

$113,646,000

Lifetime learning credit

61%

39%

0%

0%

0%

0%

2,012,304,000

1,271,618,000

$0

$0

$0

Earned Income Tax Credit for students ages 19-23

American opportunity credit

Program Program

Cannot provide estimate due to sample size

Directions: Roll over each 

program for more details.
 

Page 25 GAO-12-560 Higher Education 

With the introduction of the AOC, the distribution of filers claiming tax 

credits in the lowest and highest income categories changed. In 2008, 14 

percent of tax filers claiming a Hope credit had incomes under $20,000, 

and they received 6 percent of the total benefits provided. In 2009, 

however, 28 percent of tax filers claiming the AOC had incomes under 

$20,000, receiving 15 percent of the total benefits provided. Similarly, tax 

filers making more than $100,000 made up only 5 percent of the tax filers 

who claimed the Hope credit in 2008 (receiving 4 percent of benefits), but 

accounted for 16 percent of tax filers claiming the AOC in 2009 (receiving 

22 percent of the total benefits). Almost half of tax filers receiving an AOC 

in 2009 (about 4.2 million of the 9.1 million who claimed the credit) 

received a refundable credit that exceeded their tax liability.

Education savings accounts are primarily used by households with 

incomes greater than the national median. Education savings accounts 

are more advantageous to families with higher incomes and tax liabilities 

because, among other reasons, these families have more available 

money to save and have a higher marginal tax rate, and thus benefit the 

most from these tax preferences. According to our analysis of the 2007 

Survey of Consumer Finances, the most recent year which survey results 

are available, we found that the gross income of households with 

Coverdell and 529 accounts is significantly higher than households 

without these accounts, across all income ranges we reviewed. For 

example, in 2007, households with these accounts had a median income 

of $122,400, whereas households without these accounts had a median 

income of $43,400.33 In addition, we found that 12 percent of households 

with incomes above $100,000 held these accounts. In contrast, about 4 

percent of households with incomes from $50,001 to $100,000 and about 

1 percent of households with incomes below $50,000 held these 

accounts.34

 

33We are 95 percent confident that the median income of households with a 529 account 

or Coverdell ESA is between $106,460 and $138,340. For households without these 

accounts, the median income is between $41,439 and $45,361. 

34We are 95 percent confident the percentage of households with these accounts ranged 

from: 10.2 percent to 14.3 percent for households with incomes greater than $100,000; 

2.7 percent to 5.2 percent for households with incomes between $50,001 and $100,000; 

0.37 percent to 1.1 percent for households with incomes less than $50,000. 
 

Page 26 GAO-12-560 Higher Education 

Taxpayers may not maximize their tax benefits if they 1) claim no credit or 

deduction when they are eligible or 2) choose a credit or deduction that 

yields less of a tax benefit than another provision would, also known as 

making a “suboptimal choice.”35

Claiming no credit or deduction. Since 2005, we have repeatedly found 

that some taxpayers fail to claim the LLC or tuition deduction for which 

they appear eligible.

Our analysis only covers a portion of all 

returns claiming an education credit or tuition deduction. Our analysis is 

limited to tax filers who appeared eligible for the LLC or tuition deduction 

in 2009, had a 1098-T with information on the student’s education 

expenses, and had a tax liability after claiming other tax benefits. After 

eliminating returns where eligibility was not clear, we included only 29 

percent of returns in our analysis of filers with a 1098-T but selecting 

neither the LLC nor the tuition deduction in 2009. Our findings could also 

be influenced if institutions reported inaccurate expense information on 

the 1098-T. In addition, some of the students we include in our analysis 

have qualified tuition and related expenses reported on a 1098-T but may 

not be eligible to use those expenses to claim an education credit or the 

tuition deduction. For example, a tax filer cannot claim an AOC based on 

the same expenses paid for with a private scholarship, but the 

educational institution may not know to include this amount on box 5, 

“scholarships or grants” on the 1098-T. In addition, we examined whether 

taxpayers’ choices were suboptimal when state income taxes were taken 

into account. See appendix I for a full description of our methodology and 

its limitations.

36

 

35We use the term “suboptimal” only to describe a filer’s failure to minimize his or her 

federal tax liability. Because understanding tax provisions’ eligibility rules and calculating 

the optimal choice can be complex, filers may conclude that investing the time needed to 

maximize their benefit is not worth the effort. 

This continues to be the case. We estimate that 

36GAO-05-684 and GAO-08-717T. 

Taxpayers Do Not 

Always Select 

Provisions That 

Maximize Potential 

Tax Benefits

Some Filers Do Not Claim 

a Tax Credit or Deduction 

When Eligible, and Others 

Choose One That Does Not 

Give Them the Largest 

Available Tax Benefit
 

Page 27 GAO-12-560 Higher Education 

almost 11 million filers could have claimed the LLC or the tuition 

deduction and thereby reduced their taxes in 2009. However, about 14 

percent of those filers, representing more than 1.5 million returns, failed to 

claim either of them.37

Choosing a credit or deduction that yields less of a tax benefit. We 

found a portion of filers who appeared eligible for the LLC or the tuition 

deduction made suboptimal choices in 2009. For example, of the 

approximately 588,000 filers who claimed the tuition deduction, about 

237,000 (40 percent) would have increased their tax benefit by claiming 

the LLC instead. On average, these filers failed to increase their tax 

benefit by $284. We estimate that the total amount of tax benefit filers did 

not claim was approximately $67.2 million in 2009. In some states, 

lowering AGI (as the deduction does) can reduce state income tax liability 

enough to compensate for the higher federal income tax paid. Among 

filers who appeared to make a suboptimal choice at the federal level by 

claiming the tuition deduction (i.e., they claimed the tuition deduction but 

would have maximized their federal tax benefit by claiming the LLC), 

about one third (about 79,000 of 237,000 filers) actually maximized their 

combined federal and state tax benefit by selecting the tuition deduction, 

even though their federal income tax was higher. Table 1 summarizes 

other suboptimal choices we found among 2009 federal filers.

On average, taxpayers who claimed no credit or 

deduction could have claimed benefits of $466. We estimate that the total 

amount of tax benefits filers did not claim was approximately $726 million 

in 2009. We found no cases where filers’ combined state and federal tax 

liability would have been higher if they had claimed one of those benefits 

on their federal return.

 

37For perspective, entitlement programs, which are those programs that provide benefits 

to all applicants who meet program eligibility criteria, have lower take-up rates than higher 

education tax benefits we reviewed in this study. We reported in 2005 that of the selected 

entitlement programs we reviewed, the proportion of those eligible for the program who 

were enrolled ranged from about 50 percent to more than 70 percent. While it may not be 

feasible for programs to serve 100 percent of those eligible for benefits, information on 

take-up rates and on particular recipient groups can help program managers more 

effectively address issues related to program access. GAO, Means-Tested Programs: 

Information on Program Access Can Be an Important Management Tool, GAO-05-221 

(Washington, D.C.: Mar. 11, 2005).
 

Page 28 GAO-12-560 Higher Education 

Table 1: Estimated Suboptimal Choices on Federal Tax Returns Made by Taxpayers in 2009

Type of suboptimal 

choice

Number of taxpayers 

making suboptimal 

choice

Percent of eligible 

taxpayers making a 

suboptimal choice

Average amount 

tax filer failed to 

increase their tax 

benefit

Total amount of 

tax benefit not 

claimed

Number of filers 

who appeared to 

make suboptimal 

choice at the federal 

level but maximized 

their combined 

federal and state tax 

benefit

Claiming no credit or 

deduction

1.5 million 14 $466 $726 million 0 

Claimed the LLC 

instead of the tuition 

deduction

38,000 2 a 0 a

Claimed the tuition 

deduction instead of the 

LLCb

237,000

 

40 $284 $67.2 million 79,000

Source: GAO analysis of IRS SOI data.

Note: Because of data limitations, we were unable to assess whether a filer claiming the LLC or 

tuition deduction would have increased his or her tax benefit by claiming the AOC instead. Our 

estimates for the number of filers making a suboptimal choice only include those filers that had a tax 

liability after claiming other tax benefits. See app. I for details. 

a

Sample size is too small to estimate the average amount the tax filers failed to increase their tax 

benefit. 

b

In some states, lowering AGI (as the deduction does) can reduce state income tax liability enough to 

compensate for higher federal income tax paid. Among filers who appeared to make a suboptimal 

choice at the federal level by claiming the tuition deduction (i.e., they claimed the tuition deduction but 

would have maximized their federal tax benefit by claiming the LLC), about one-third actually 

maximized their combined federal and state tax benefit by selecting the tuition deduction, even 

though their federal income tax was higher. 

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

own tax returns without assistance. We estimate that about 16 percent of 

returns prepared with software (representing about 689,000 returns) and 

17 percent of returns filed by paid preparers (representing about 912,000 

returns) did not select a credit or deduction that maximized higher 

education tax benefits in tax year 2009. However, filers preparing their tax 

returns without the aid of a paid preparer or software appeared more 

likely to make suboptimal choices. In tax year 2009, 38 percent of filers 

(about 206,000 of 539,000 paper returns filed) made a suboptimal choice.
 

Page 29 GAO-12-560 Higher Education 

It is good practice for tax systems to be transparent and understandable, 

giving as much certainty as possible to taxpayers and allowing them to 

better plan for decisions about employment, investment, and 

consumption.38 However, as we have previously reported, the apparently 

suboptimal use of higher education tax expenditures may arise, in part, 

from the complexity of these provisions.39

Unaware of tax provisions or misunderstanding eligibility rules. Tax 

filers may fail to maximize their tax benefits because they are unaware of 

their eligibility for the provision. In addition, determining one’s eligibility to 

claim a credit or deduction for qualified education expenses is a complex 

process. In the case of the AOC, a student (or tax filer on behalf of the 

student) is only eligible to claim the credit in the student’s first 4 years of 

higher education.40

For example, a student enrolls more than half time at an eligible 

community college in 2005 and then takes 4 calendar years to complete 2 

academic years’ worth of credits. He claims a Hope credit in 2007 and 

2008. In his fifth year, he enrolls full-time at a 4-year university. Although 

he is in his fifth calendar year of school, the student may be eligible for an 

AOC if the 4-year university considers him to be in his third academic 

year.

Since the academic year of the student is determined 

by the educational institution and is not equivalent to a calendar year, 

determining whether a student meets the AOC’s academic eligibility 

requirement—particularly for students who do not follow a traditional path 

of 4 years of college—can be challenging.

Number of provisions. The number of higher education tax provisions 

may make it harder for taxpayers to determine which one is best for them. 

For example, 12 higher education tax benefits are outlined in IRS 

Publication 970, Tax Benefits for Education: For Use in Preparing 2010 

Returns. Publication 970 does not include the parental personal 

exemption and the Earned Income Tax Credit, which may also be 

available to parents supporting dependents who are full-time students. 

 

38GAO, Understanding the Tax Reform Debate: Background, Criteria, & Questions, 

GAO-05-1009SP (Washington, D.C.: Sept. 1, 2005). 

39GAO-05-684 and GAO-08-717T. 

4026 U.S.C. § 25A(i)(2). See app. II for a description of the AOC’s other eligibility 

requirements. 

Taxpayers May Be 

Unaware of Tax Provisions 

or Confused about Their 

Use
 

Page 30 GAO-12-560 Higher Education 

Not all of the benefits are available to all tax filers, and the number of 

available benefits may make it more difficult to determine eligibility.

Similarity of provisions. If provisions are similar, it may be difficult for 

taxpayers to determine which one is best for them. For example, IRS 

Publication 970 includes four different tax expenditures for educational 

saving, each with different requirements and benefits to the taxpayer.

Differences in key definitions. What tax filers are allowed to claim as a 

qualified higher-education expense varies among some of the higher 

education savings and credit provisions in the tax code. For example, 

while Coverdell education savings accounts and qualified tuition 

programs under Section 529 of the Internal Revenue Code permit tax 

filers to include room and board as qualified expenses if the student is 

enrolled at least half time, the AOC and the LLC do not. Tax filers must 

keep track of expenses separately, applying some expenses to certain 

tax provisions, but not others.

Also, although IRS requires educational institutions to report on Form 

1098-T information about qualifying educational expenses to taxpayers 

and IRS, the information reported may not be easily understood by tax 

filers or it may not include all eligible expenses. Institutions can report the 

amount billed or paid, but these amounts may not equal the expenses the 

filer can use to claim a credit or deduction. For example, Form 1098-T 

may not account for all scholarships or grants the student received. In 

such cases, correctly reported qualified expenses on the tax return will 

not match the 1098-T. Conversely, if institutions do not provide 

information on other eligible expenses, such as books or equipment, 

taxpayers may underreport educational expenses. Because many of the 

higher education tax benefits are based on the expenses paid, taxpayers 

who underreport expenses may receive less of the benefit for which they 

would otherwise be eligible to receive. Also, if an institution reports the 

amount billed on the 1098-T, but the filer pays the bill in the following tax 

year, the 1098-T will not reflect the amount that can be reported on the 

tax return because a filer can only claim a higher education tax benefit in 

the year the filer paid for qualified education expenses.

Coordination with other tax provisions. In addition to learning about, 

comparing, and selecting tax provisions, tax filers must also understand 

how the use of one tax provision affects the use of others. The use of 

multiple education-related tax provisions is coordinated through rules that 

prohibit the application of the same qualified higher education expenses 

for the same student to more than one education-related tax preference, 
 

Page 31 GAO-12-560 Higher Education 

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.

State tax rules may add complexity. As discussed earlier, figuring out 

how to maximize tax benefits is complicated by interactions with state tax 

codes. Some states offer tax incentives for higher education, including 

benefits for qualified state tuition programs and student loan interest 

deductions. To maximize their combined federal and state tax benefit, tax 

filers may also need to take into account the state treatment of federal 

higher education tax expenditures. A recent study found that filers may be 

more aware of federal tax effects than state tax effects, since some tax 

filers may not be aware of the state tax implications of higher education 

provisions.41

While IRS and Education have taken steps to provide information on 

higher education tax benefits to students and their families, the number of 

filers failing to claim a higher education tax benefit suggests more could 

be done. Publication 970, Tax Benefits for Education provides

information—including eligibility rules and how to coordinate tax benefits 

with other forms of financial aid—on the tax provisions available to save 

or pay for higher education expenses. IRS also developed a 

communication plan for the AOC and other higher education tax benefits 

in 2009 and took steps to implement the plan. For example, IRS reached 

out to tax professionals at the IRS Nationwide Tax Forum and provided 

information through traditional and social media, including IRS.gov. 

Officials also stated they coordinated with software providers to ensure 

that tax preparation software provided links to the relevant higher 

education forms, including the Form 8863 Education Credits and the 

Form 8917 Tuition and Fees Deduction. Education’s Federal Student Aid 

 

41In a review of individual tax returns claiming the tuition deduction or LLC in 2002-2008, 

Turner (2011) finds that roughly one out of four returns fail to select a provision that 

minimizes federal and state tax liabilities. One reason for this is that taxpayers, paid 

preparers, and tax software are more aware of federal tax effects than state tax effects, 

since federal tax effects are the result of an active choice, whereas state tax effects are 

not explicitly selected on state tax forms. See Nicholas Turner, “Why Don’t Taxpayers 

Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection,” The 

B.E. Journal of Economic Analysis & Policy, vol. 11, no. 1 (2011).

IRS and Education Have 

Taken Steps to Inform 

Filers, but Additional Tax 

Information Could 

Improve Take-Up of Tax 

Benefits
 

Page 32 GAO-12-560 Higher Education 

Web site provides a link to IRS’s Publication 970, Tax Benefits for 

Education. Education officials told us they are considering whether they 

could provide additional information to increase students’ and families’ 

awareness of these tax benefits.

IRS and Education officials have begun to coordinate their efforts to 

inform students and families of tax benefits. In its AOC communication 

plan, IRS indicates it is coordinating with the Department of Education 

and state education agencies to discuss communication options.

Education officials told us that they have a general agreement with IRS 

on what tax benefit information Education will provide to students and 

families. Education officials told us they were willing to provide additional 

information to students and families, as long as it does not contradict 

guidance provided by IRS. Also, Education officials told us they are 

discussing the possibility of sharing information with IRS to help the IRS 

target outreach to students and families that may be eligible for higher 

education tax benefits.

It may be possible to reduce the number of filers who fail to claim a higher 

education tax benefit and improve students’ and families’ ability to pay for 

college. A possible starting point could be for IRS to identify the key 

characteristics of filers who appear eligible for higher education tax 

provisions but fail to claim them. IRS could then work with software 

developers and tax preparers to identify reasons why filers using these 

services are not claiming benefits for which they appear eligible. IRS 

could also provide additional assistance to students and families by 

developing a calculator (similar to the net price calculator) that students 

and families could use to estimate their tax benefits for the upcoming 

school year. In addition, Education officials stated that they could 

coordinate with IRS to provide tax benefit information before students and 

families need to make key financial decisions. For example, Education 

officials expressed interest in working with IRS to provide a link to the 

Publication 970 in the College Scorecard and the Model Financial Aid 

Offer Form, which Education is developing to assist students and families 

in comparing college costs and financial aid offers. Given the number of 

filers not claiming benefits, it should be possible for IRS and Education 

officials to design outreach efforts in such a way that the potential benefits 

outweigh the costs.
 

Page 33 GAO-12-560 Higher Education 

Since 2005, when we last reported on this subject,42 research into the 

effects of federal assistance for higher education on the student 

outcomes of attendance, choice, persistence, and completion has 

addressed more Title IV aid programs and tax expenditures, but some 

forms of assistance and outcomes remain largely unstudied (see table 

2).43

Table 2: Research We Reviewed on the Effects of Federal Assistance Is Limited and 

Cannot Be Generalized

In addition to new studies that complement existing research on 

federal grants, loans, and tax credits, a few researchers have recently 

examined the effects of the Federal Work-Study program and the tuition 

deduction, which we previously reported had not been the subject of any 

evaluative research. We did not, however, identify evaluative research 

into these student outcomes for a number of federal tax expenditures for 

higher education including 529 savings plans, Coverdell ESAs, the 

student loan interest deduction, or the parental personal exemption. The 

studies we identified did not cover the effects of any single program or tax 

provision on all four student outcomes. We found that researchers have 

examined the effects of Title IV aid and federal tax expenditures on a 

limited basis—in particular, only for certain states, types of schools, and 

groups of students. The studies we reviewed suggest that federal 

assistance has varying effects, depending on the students and situations 

involved and provide an incomplete view of the effects of federal 

assistance because of the studies’ narrow focus. As a result, research on 

federal assistance for higher education continues to provide an 

incomplete picture of the effectiveness of federal assistance for higher 

education.

Federal assistance for higher 

education Attendance Choice Persistence Completion

Grants  a  

Student loans   

Work-study  

Tax expenditures

Tuition and fees deduction  

Student loan interest deduction

 

42See GAO-05-684. 

43A bibliography of the studies we reviewed is included at the end of this report.

Research on Effects 

of Federal Assistance 

for Higher Education 

Remains Limited
 

Page 34 GAO-12-560 Higher Education 

Federal assistance for higher 

education Attendance Choice Persistence Completion

Parental exemption for 

students 19 to 23

American opportunity credit

Hope credit 

Lifetime learning credit  

Earned income tax credit for 

students 19 to 23

Coverdell education savings 

account

529 Qualified tuition program

Source: GAO analysis.

Note: We did not find research that could be generalized. A check mark indicates that one or more 

Title IV aid or tax provisions in the category has been studied for certain states, types of school, or 

groups of students. 

a

Research conducted into the effects of Pell Grants but not Federal Supplemental Educational 

Opportunity Grants.

Although evaluative research linking federal assistance to student 

outcomes remains limited, a number of studies address other issues that 

promote or complicate the effective use of federal assistance, and 

researchers have also studied the effects of nonfederal student-aid 

programs. For example, researchers have determined that a lack of 

information on the costs and benefits of higher education can limit 

students’ choice of institutions to attend. In addition, researchers have 

provided mixed evidence on the extent to which schools raise their tuition 

or decrease the institutional aid they offer in response to federal 

assistance. There is also a wide body of research into the effectiveness of 

both need- and merit-based state, regional, and institutional aid 

programs. Researchers we interviewed told us they have turned to the 

study of state-based student aid—for which there may be better data than 

for federal programs, and some of which are designed to allow for high 

quality evaluation—because these studies can yield informative lessons 

about the effects of assistance for higher education.

Continuing gaps in research-based evidence on the effectiveness of Title 

IV aid and tax expenditures may be due, in part, to data and 

methodological challenges that have proved difficult to overcome. Data 

from Education necessary to conduct evaluative research on Title IV aid 

are fragmented and not routinely available to researchers. Education 

commissioned a 2011 study to report on issues associated with 

Data and Methodological 

Challenges Remain 

Persistent Obstacles to 

Research
 

Page 35 GAO-12-560 Higher Education 

Education’s sources of data on federal grants, loans, and work-study.44

According to the study, multiple offices within Education are responsible 

for tracking and compiling data and the datasets produced by these 

offices are often incompatible with each other. For example, Education 

does not have a uniform method for assigning codes to identify college 

and university campuses. As a result, researchers are unable to combine 

information from the datasets to create comprehensive, comparable, and 

accurate data that would allow them to estimate the effect of Title IV aid 

programs on student outcomes. Additionally, some of Education’s data 

sources are subject to time lags, and others are not regularly made 

available for research. According to Education officials, data for individual 

students developed primarily for the administration of Title IV aid are also 

protected by privacy laws and generally unavailable to researchers.45

Education officials reported they are addressing the study’s 

recommendations through several recently completed and ongoing 

initiatives intended to make its data more accessible and useable. For 

example, in March 2012 Education expanded an ongoing effort to provide 

school districts with data on which students have submitted a FAFSA and 

whether their submissions were complete. Education told us these data 

are intended to help high school principals and guidance counselors 

increase FAFSA filings and attendance at institutions of higher education 

In 

some cases, the data that Education does make publicly available are 

preliminary and subject to change with little public notice. The study 

recommended that Education should assess the feasibility of making its 

data more compatible and accessible, acknowledging that this would 

require additional resources and could place increased reporting burdens 

on higher education institutions.

 

44Steele, P. (2011). Suggestions for Improvements to the Collection and Dissemination of 

Federal Financial Aid Data (NPEC 2012-834). U.S. Department of Education. Washington, 

D.C.: National Postsecondary Education Cooperative. Available from 

http://nces.ed.gov/pubsearch (accessed Dec. 19, 2011).

45We have previously reported that sharing data from a student’s records must be done in 

accordance with the Family Educational Rights and Privacy Act (FERPA), 20 U.S.C. § 

1232g, which limits the disclosure of those records to third parties. See GAO-10-927, 

Postsecondary Education: Many States Collect Graduates’ Employment Information, but 

Clearer Guidance on Student Privacy Requirements Is Needed (Washington, D.C.: Sept. 

27, 2010). For more information on key constraints agencies face in using administrative 

data for research, see GAO, Federal Statistical System: Agencies Can Make Greater Use 

of Existing Data, but Continued Progress Is Needed on Access and Quality Issues

GAO-12-54 (Washington, D.C.: Feb. 24, 2012).
 

Page 36 GAO-12-560 Higher Education 

by their students. Education also reported taking steps intended to 

facilitate higher education research by improving the accuracy of its data 

on the student outcome of completion and by developing a tool for 

possible release in 2012 that will address differences between 

Education’s various data sources in the codes used to identify colleges 

and universities. Education told us these steps will allow for more precise 

measurement of student outcomes for Title IV recipients and may enable 

researchers to merge some of Education’s data sources to create reports 

on institutions of higher education. Education is also pursuing a process 

for the release of additional data both to the public and to fulfill specific 

research requests while protecting the privacy of federal aid recipients. 

Education estimates that one of the steps required to do this could take 

between 2 and 6 months to complete while the other could take close to a 

year or more to complete.

Individual taxpayer data needed to evaluate federal tax expenditures are 

subject to privacy restrictions or are not collected by IRS. Although tax 

expenditures are now a well-established source of assistance for students 

and their families, tax information that may be useful for research is 

unavailable to most researchers. Section 6103 of the Internal Revenue 

Code protects tax returns and other tax information collected by IRS as 

confidential, and it prohibits disclosure of federal tax information, except 

as specifically authorized by statute. Also, IRS in general only collects tax 

information required for administering the tax code. For example, while 

the IRS collects data on distributions from 529 plans, it does not collect 

information on contributions to these accounts, as these plans do not 

have a defined contribution limit.46

Methodological challenges also add to the difficulty of measuring the 

effect of federal assistance efforts. Opportunities are limited within the 

study of higher education financial aid for researchers to conduct the type 

of experiments that allow them to isolate the effects of a particular federal 

aid program or tax expenditure. This is because, in addition to sufficient

data, evaluative research requires some level of variation in a Title IV 

program or tax expenditure that allows researchers to compare outcomes 

across students before and after a change. Most of the federal 

 

46Section 529(b)(6) of the Internal Revenue Code states that a program shall not be 

treated as a qualified tuition program unless it provides adequate safeguards to prevent 

contributions on behalf of a designated beneficiary in excess of those necessary to

provide for the qualified higher education expenses of the beneficiary. 
 

Page 37 GAO-12-560 Higher Education 

government’s major Title IV programs and higher education tax 

expenditures have been in place for many years and have changed 

incrementally over this time. Changes often affect all eligible students 

nationwide in the same way, which makes it hard to determine students’ 

behavior in the absence of a change. Also, it is difficult to separate the 

effects of a change from larger social or economic events that can affect 

student outcomes. For example, using the introduction of the AOC in 

2009 to measure the effects of tax credits on student outcomes might be 

complicated by economic changes attributable to the national recession, 

which lasted through June of that year. Although capitalizing on the 

opportunities substantive changes provide for evaluative research can be 

challenging, recent changes in Title IV aid and higher education tax 

expenditures—such as the introduction of the AOC in 2009—could 

provide the needed variation to conduct evaluations of these programs.

Researchers can in some cases mitigate such challenges through the use 

of various statistical techniques and research designs. For example, 

program administrators can create experiments in which individuals are 

randomly divided into a treatment group that is subject to a change in 

benefits and a control group that is not. Short of such efforts by federal 

agencies to create experiments in partnership with the higher education 

community, substantive changes, including the introduction and expiration 

of federal programs and tax provisions, are among the most viable 

opportunities for evaluative research. For example, one researcher used 

the introduction of unsubsidized Stafford loans in 1992, which extended 

federal loans to previously ineligible families, to estimate the effects of 

student loans on attendance.47

Education’s efforts to sponsor and undertake research into the effects of 

Title IV aid represent an important step, but research available at present 

still lacks evaluative information on the effects of federal grants, loans, 

and work-study. Education has taken steps to sponsor research into the 

effects of student aid programs. In 2006, Education’s Institute of 

Education Sciences (IES) funded the National Center for Postsecondary 

 

47In addition, Education used the introduction of two new grant programs under Title IV—

the Academic Competitiveness Grant and National Science and Mathematics Access to 

Retain Talent Grant programs—to conduct evaluative research, but Education officials told 

us these programs expired prior to learning the results of their evaluation. Funding for 

these programs expired at the end of fiscal year 2011.

Education Has Taken 

Steps to Address Research 

Limitations
 

Page 38 GAO-12-560 Higher Education 

Research with a grant of about $9.8 million. The center conducts 

research on the effectiveness of programs designed to reduce barriers to 

higher education and improve student outcomes such as attendance, 

persistence, and completion. In 2011, IES funded the Center for Analysis 

of Postsecondary Education and Employment with a grant of about $10 

million to conduct research on labor market outcomes for higher 

education students, including ongoing research into the effects of Federal 

Work-Study on students in Florida.48 IES has also awarded a number of 

grants funding research into, among other things, efforts to increase 

access to, persistence in, and completion of higher education. Although 

these steps have not resulted in published research evaluating the effects 

of federal assistance on student outcomes, they have resulted in a 

number of published and ongoing studies, including experimentation with 

efforts to simplify the application process for Title IV aid49 and encourage 

savings for higher education,50 and research into the effects of state and 

local financial aid programs.

51

In addition to sponsoring research, Education has also taken steps to 

directly undertake experimental research in partnership with the higher 

education community. The Secretary of Education has flexibility to grant 

higher education institutions waivers from federal requirements in order to 

test alternate methods for administering Title IV programs.52

 

48Both the National Center for Postsecondary Research and the Center for Postsecondary 

Education and Employment are research partnerships housed within Columbia University. 

The centers collaborate with other entities such as nonprofit organizations and academic 

institutions, as well as state partners. 

Using this 

flexibility, Education is soliciting participation in an Experimental Site 

Initiative that will allow participating institutions to set up evaluations 

49See Bettinger, Long, Oreopolous, and Sanbonmatsu (2009). 

50Education sponsors an ongoing experiment in the use of College 529 savings plans by 

families of high school students in Ohio.

51Education funds such research on the basis of a competitive peer review of research 

proposals by experts in the higher education research community. Proposals are selected 

based on the strength and feasibility of the research design and a consideration of the 

importance of the programs being studied. For example, Education funds ongoing studies 

of a state-based student aid program in Florida, a state with a large population, and a local 

student aid program in Michigan that may yield lessons for similar programs used around 

the country. In some cases, this type of research might also produce insights that can be 

applied to federal student aid programs.

5220 U.S.C. § 1094a(b)(3). 
 

Page 39 GAO-12-560 Higher Education 

including random experiments to test, among other things, specific 

aspects of the Pell Grant and Stafford Loan programs. For example, 

Education is inviting institutions to set up an experiment to test whether 

allowing low-income students who have a bachelor’s degree to receive a 

Pell Grant in order to complete vocational training would reduce 

unemployment.53

Education’s efforts to date have not resulted in direct evidence of Title IV 

aid’s effect on student outcomes.54

 

53The Secretary’s authority to waive Title IV requirements is limited. For example, the 

Secretary can modify eligibility provisions, but may not generally waive provisions with 

respect to award rules, see 20 U.S.C. § 1094a(b)(3)(B).

Although policymakers may in some 

cases be able to draw on lessons learned from studies of nonfederal aid 

programs, state and institutional aid programs are different from federal 

programs in important ways—such as the types of incentives they offer 

and the requirements they make of students—that make direct 

comparisons difficult. While Education’s initiatives to conduct 

experimental research in conjunction with institutions of higher education 

may provide insights into specific aspects of Title IV programs, these 

initiatives are fairly narrow in scope due in part to both limitations in 

Education’s authority to waive Title IV provisions and in the level of 

resources Education officials told us they devote to such experimentation. 

As a result, these initiatives are unlikely to yield broadly applicable 

lessons about the effects of Title IV aid on student attendance, choice, 

persistence, or completion. Recent and future substantive changes to 

Title IV grants and loans may represent valuable opportunities to study 

the effects of these programs, but Education officials told us they have 

not have not sponsored or conducted such research.

54Congress has directed Education to provide reliable information about the effectiveness 

of federal programs by conducting and sponsoring evaluative research. See Education 

Sciences Reform Act of 2002, Pub. L. No. 107-279, 116 Stat. 1940, (Nov. 5, 2002). 

Standards for internal control in the federal government cite a number of roles for 

evaluations including control activities such as top level performance reviews to support 

goals, plans, and objectives, as well as reviews at the functional or activity level. 

Evaluations are also a component of relevant, reliable, and timely communications 

necessary for an agency to achieve its objectives. Evaluations conducted by program 

officials and external parties improve the agency’s ability to assess the quality of 

performance over time. See GAO, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1, 1999).
 

Page 40 GAO-12-560 Higher Education 

We have long recommended greater scrutiny of tax expenditures,55 as tax 

expenditures and their relative contributions toward achieving federal 

missions and goals are often less visible than spending programs, which 

are subject to more systematic review. To date, IRS and Treasury have 

not conducted studies on the effects of tax expenditures, and have no 

plans to do so. Also IRS officials stated that their focus is on 

administering programs as opposed to evaluating their effectiveness.

The challenges that students and families face in planning for and 

choosing among federal higher education benefits and that researchers 

face in determining the impact of federal higher education assistance on 

student outcomes, raise questions about the effectiveness and efficiency 

of federal higher education assistance programs and the potential for 

improving them. In this challenging fiscal climate, policymakers face 

difficult choices in allocating limited resources among multiple programs. 

In response to these issues, we identified factors that contribute to 

effective and efficient higher-education assistance programs and 

developed a framework of questions to help assess whether programs 

incorporate these elements in their design.56

This framework can be used as a policy tool for considering 

improvements to current programs, consolidating programs, eliminating 

programs, or designing features of new programs (table 3). It guides the 

user to think strategically about both program design and implementation. 

Some of the questions raised in the framework may be difficult to answer 

completely, but are important to analyze and consider. For example, 

determining whether the program has clearly defined purposes may yield 

different results as policymakers modify the program over time. A few 

concepts appear in multiple places within the framework, highlighting the 

importance of certain program characteristics. For example, the timing of 

the assistance, and information provided about it, may influence whether 

students seek out the aid at all and whether they use it to inform their 

decisions about attendance. Timing is also a factor in how effectively the 

 

 

55GAO, Government Performance and Accountability: Tax Expenditures Represent a 

Substantial Federal Commitment and Need to Be Reexamined, GAO-05-690 

(Washington, D.C.: Sept. 23, 2005) and Tax Policy: Tax Expenditures Deserve More 

Scrutiny, GAO/GGD/AIMD-94-122 (Washington, D.C.: June 3, 1994).

56We consulted subject-matter experts and our prior work as we identified these factors. 

See app. I for more information on our methodology.

Factors That 

Contribute to the 

Effectiveness and 

Efficiency of Federal 

Higher Education 

Assistance Programs
 

Page 41 GAO-12-560 Higher Education 

program interacts with other federal assistance—Title IV programs tend to 

provide benefits while the student is enrolled in school and tax 

expenditures cover a range of timeframes. The examples below provide 

an illustration of how each factor is relevant to federal higher education 

assistance programs. The examples indicate how considering each factor 

could help improve a program or policy scenario, but they are not 

intended to be specific suggestions.

Table 3: GAO Framework for Evaluating Federal Higher Education Assistance Programs

Factors Key questions Example 

Achieves program goals and 

produces demonstrable 

results

1. Does the program have clearly defined and 

measurable goals or objectives? a

a. If so, do the program’s stated goals reflect the 

current objectives of various policymakers 

and practitioners?

b. If not, what should be the goals and 

objectives of the program?

2. To what extent does the program produce 

benefits that are timely and sufficient to achieve 

its purpose, e.g., encouraging choice, attendance, 

persistence, and completion?

3. Does the program produce long-term results for 

the individual, institutions, and society?

Considering the program’s purpose may help 

align the structure or features of the program 

with intended outcomes. For example, if the 

purpose of a given program is to encourage 

students to attend school in the first place, the 

program could be designed to maximize 

benefits in the first years of school. Because 

education is a long-term investment, 

considering how the program’s benefits are 

distributed to different groups across time could 

help in assessing whether and how well the 

program produces benefits. 

Provides appropriate 

incentives for targeted 

populations

4. Is it clear what behaviors the program is designed 

to incentivize?

5. Is it clear what population the program is designed 

to target?

6. Does the program provide appropriate incentives 

to individual students who are likely to change 

their behavior?

7. Are there disincentives associated with the 

program that adversely affect individuals’ 

participation, such as the risk of debt and default 

for those participating in federal student loan 

programs?

8. Does the program reasonably address how 

different populations may respond to incentives, 

such as the different responses that independent 

and dependent students may have?

9. To what extent does the program minimize 

“windfalls,” i.e., rewarding beneficiaries for 

activities that they would have undertaken without 

the aid? 

Some programs target assistance to students 

and families with specific income ranges, while 

others distribute benefits to a broader range of 

incomes. Considering these key questions can 

help clarify whether a given program is meant, 

for example, to target low-income students and 

incentivize them to complete school, or 

whether the program is meant to help students 

from all income levels to complete school. This 

can inform decisions about the distribution of 

assistance and allocation of resources. 
 

Page 42 GAO-12-560 Higher Education 

Factors Key questions Example 

Facilitates use of the 

program by beneficiaries

10. Does the program provide sufficient and timely 

information to make students and families aware 

of the assistance available and manage 

expectations?

a. Can families obtain timely and reliable 

estimates of how much assistance they are 

eligible to receive?

b. Does the program provide sufficient guidance 

so that families can make informed and 

appropriate decisions about college 

attendance and financing their postsecondary 

education?

c. Do students and families understand whether 

and how the program interacts with other 

programs?

11. How do the procedures for accessing and using 

the program affect individuals’ participation? For 

example, is the application process simple 

enough to understand and complete?

12. Does the timing of the assistance facilitate 

participation in the program? 

The administration of a program can affect the 

public’s ability to take advantage of benefits for 

which they may be eligible. For example, 

researchers have raised questions about the 

length and complexity of the application 

process for Title IV aid and whether the FAFSA 

could be simplified. In addition, tax filers face 

challenges in selecting the best choice from 

among the numerous tax expenditures 

available for higher education. Considering 

whether the design and administration of these 

tax programs are user-friendly may help 

determine how to minimize confusing choices 

and provide further guidance to facilitate 

program use. 

Interacts effectively with 

other programs

13. To what extent does the program effectively 

complement other programs, in terms of 

incentives created, populations served, reducing 

the cost of attendance, and the timing of the 

assistance?

It is important to consider how programs 

function together to assist students with the 

costs of higher education. For example, 

students and families generally receive Title IV 

benefits early in the school year, and tax 

benefits toward the end. Considering how 

programs interact could also help avoid 

duplication, for example, by incorporating 

provisions similar to current rules that prevent 

double dipping. Additionally, identifying 

whether multiple programs serve similar needs 

for similar populations could help in 

redesigning programs to reduce overlap or 

fragmentation. 

Minimizes costs and risks 14. Does the design of the program reasonably and 

appropriately address costs and risks (e.g., the 

compliance burden placed on individuals or the 

risk of fraud) to the individual, institutions, and 

society?

15. Can the program produce its benefit while 

minimizing administrative, compliance, budget, 

and tax revenue costs? 

16. Does the program incorporate safeguards to 

protect against fraud, waste, abuse, and 

mismanagement?

Addressing issues of cost and risk can help 

protect taxpayer funds and improve efficiency. 

Different mechanisms of providing higher 

education assistance may involve different 

costs and risks. For example, student loans 

must be repaid and therefore may come at a 

low cost to the government and a high cost to 

the individual. However, the risk of loan default 

is borne by the government and taxpayers. 
 

Page 43 GAO-12-560 Higher Education 

Factors Key questions Example 

Establishes monitoring and 

evaluation mechanisms

17. To what extent does the program establish 

mechanisms for continuous monitoring and 

periodic evaluations?

18. How does the program’s performance compare 

with similar programs, particularly with regard to 

efficiency and effectiveness?

19. Is it clear which entities are responsible for 

collecting data and evaluating the program?

20. Are the data necessary for evaluation available on 

a continuous or timely basis?

Performance measurement and program 

evaluation help agencies assess the impact of 

their programs and learn how to improve 

results. Considering whether programs have 

sufficient mechanisms for this would help to 

determine the need for a new or revised 

performance monitoring mechanism or data 

collection process to analyze program 

performance in relation to its objectives. In the 

case of a new program, considering whether to 

establish these mechanisms at the outset 

would create opportunities for evaluating the 

program in future years.

Source: GAO.

Note: Programs include federal assistance through Title IV grants, loans, and work-study, and tax 

expenditures directed at future, current, and past education expenses. 

a

The first factor, Achieves program goals and produces demonstrable results, can be assessed at the 

program level and also underlies many of the key questions under other factors. Generally, the other 

factors are most relevant at the individual level, such as changing individuals’ behavior or minimizing 

costs and risk to the individual. 

This framework can help shed light on how well a program is designed 

and how well it functions. The user should consider which issues in the 

framework are most applicable when considering the design or 

implementation of a given program. While this framework focuses on 

characteristics of federal higher education assistance programs, it may 

also provide insight on other policy areas.

Higher education tax provisions should be transparent and 

understandable. Students and families need sufficient and timely 

information on these provisions to ensure they are aware of their eligibility 

and understand how to claim the tax benefits. The multiple higher 

education tax expenditures available to help offset current education 

expenses fall short of this principle in that tax filers must be aware that 

they are eligible to claim tax expenditures and understand the provisions’ 

eligibility requirements as well as the interaction of those provisions. 

Identifying the key characteristics of filers who appear eligible for higher 

education tax expenditures but fail to claim them could provide important 

information on why some filers are not claiming these benefits. While IRS 

and Education have taken steps in providing information to students and 

families, developing a coordinated and comprehensive strategy that 

seeks to better inform eligible students could improve eligible taxpayers’ 

take-up of these programs. Without such information, some tax filers will 

Conclusions
 

Page 44 GAO-12-560 Higher Education 

continue to fail to maximize their tax benefit—in some cases forgoing 

hundreds of dollars in benefits.

Evaluative research on the effects of federal assistance for higher 

education continues to be limited. Without this kind of research, 

policymakers will be challenged to make fact-based decisions on the 

merits and value of various federal assistance efforts. While 

methodological and data limitations pose considerable obstacles to 

conducting evaluative research on these federal programs, program 

administrators and researchers have shown that it is possible to take 

advantage of changes in Title IV programs and tax expenditures to 

conduct evaluative research. In an environment of constrained budgets, 

evaluative research can help inform decisions to build on successful 

programs and make changes to less effective programs.

To help ensure individuals who are eligible to claim a higher education tax 

expenditure are aware of their eligibility and the benefit they may receive, 

we recommend that the Commissioner of Internal Revenue and the 

Secretary of Education work together to

• identify characteristics of tax filers who are not claiming a higher 

education tax expenditure when they appear to be eligible for one and 

possible reasons for this, and

• use this information to identify strategies to improve information 

provided to eligible students and families.

To provide federal policymakers information on the relative effectiveness 

of Title IV programs and higher education tax expenditures, we 

recommend the Secretary of Education take advantage of opportunities 

presented by recent and anticipated substantive program changes to 

sponsor and conduct evaluative research into the effectiveness of Title IV 

programs and higher education tax expenditures at improving student 

outcomes.

We provided a draft of this report to the Secretary of Education, Secretary 

of the Treasury, and the Commissioner of Internal Revenue for comment. 

In written comments, reproduced in appendix IV, Education agreed with 

our two recommendations. Education noted that it does not currently have 

jurisdiction over or access to tax data to determine which filers may be 

eligible for tax benefits but have not claimed such benefits, or their 

reasons for not claiming such benefits. Education said that after IRS 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 45 GAO-12-560 Higher Education 

identifies such individuals, Education will work with IRS to explore how 

Education may assist with outreach to these individuals and further 

disseminate information on tax expenditures to assist students and their 

families. Education also recognized the need for more research into the 

effects of federal assistance for higher education and said it will 

determine whether additional data can be made available to support such 

research.

With respect to Education’s access to taxpayer data, our recommendation 

was not meant to imply that Education should have access to taxpayer 

data or that IRS could disclose taxpayer data to Education without 

authorization in Section 6103 of the Internal Revenue Code. Rather, the 

recommendation was meant to suggest other means by which Education 

and IRS can coordinate in their efforts to provide information on higher 

education tax benefits to eligible students and families.

In written comments, reproduced in appendix V, IRS agreed with our 

recommendation to identify characteristics of taxpayers claiming suboptimal benefits and devise strategies to improve the information 

available to them. IRS noted that improved clarity around higher 

education tax benefits can assist taxpayers in determining which 

provisions will yield the greatest benefit. IRS also stated that the nuances 

of each taxpayer’s situation affecting their eligibility for education credits 

or deductions are not evidenced by information reported on their tax 

return or by information reported by educational institutions on Form 

1098-T, Tuition Statement. For this reason, IRS considered education 

and outreach effective means of addressing this issue. IRS stated that it 

is taking steps to simplify the decision-making process faced by taxpayers 

by revising Form 8863, Education Credits (American Opportunity and 

Lifetime Learning Credits) to use a series of questions for the taxpayers 

to ascertain eligibility on a per-student basis.

Treasury and Education provided technical comments on our draft report, 

which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretary of 

Education, the Secretary of the Treasury, and the Commissioner of 

Internal Revenue. In addition, the report will be available at no charge on 

the GAO Web site at http://www.gao.gov.
 

Page 46 GAO-12-560 Higher Education 

If you or your staff have any questions about this report, please contact 

James R. White at (202) 512-9110 or George A. Scott at (202) 512-7215. 

You may also reach us by email at whitej@gao.gov or scottg@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this report. GAO staff who made 

key contributions to this report are listed in appendix VI.

James R. White

Director, Strategic Issues

George A. Scott

Director, Education, Workforce, and Income Security Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-12-560 Higher Education 

This appendix describes our methodology for addressing the following 

objectives: (1) describe the size and distribution of federal grants, loans, 

and tax expenditures available to assist students and families with higher 

education expenses; (2) assess the extent to which tax filers select higher 

education provisions that maximize their tax benefit; (3) summarize what 

is known about the effect of grants, loans, and tax expenditures on 

student attendance, choice, persistence, and completion; and (4) 

describe factors that contribute to the effectiveness and efficiency of 

federal higher education student assistance programs.

To address these objectives, we reviewed federal student aid—including 

grants, loans, and work-study—authorized under Title IV of the Higher 

Education Act of 1965, as amended, and tax expenditures—reductions in 

federal tax liabilities that result from provisions in the tax code such as tax 

credits, deductions, exemptions, and tax-preferred savings programs. We 

selected Title IV programs that served more than 500,000 participants in 

school year 2007–2008. We excluded Academic Competitiveness Grants 

and the National Science & Mathematics Access to Retain Talent Grants 

because these programs expired at the end of fiscal year 2011. We 

selected tax expenditures that: (1) are designed to help students and their 

families save for, pay current expenses, or repay expenses for higher 

education; (2) have eligibility requirements that are not based on criteria 

other than income or higher education expenses; (3) were available in tax 

years 2006–2009; and (4) had more than 50,000 tax filers claim the 

benefit in 2009. We did not include the tax exclusion for scholarships and 

fellowships, which may include awards based upon scholastic 

achievement or promise. We selected these years because they were the 

most recent years data that were available. Appendix II summarizes Title 

IV aid and higher education-related tax expenditures, including those not 

reviewed in this report.

To describe the size and distribution of Title IV aid and higher education 

tax expenditures, we analyzed data from the U.S. Department of 

Education (Education), Internal Revenue Service (IRS), and the Board of 

Governors of the Federal Reserve System (Federal Reserve). We also 

reviewed statutes, regulations, and guidance relevant to federal student 

aid and tax expenditures. Our analysis of data from Education’s 2007–

2008 National Postsecondary Student Aid Study (NPSAS), IRS’s 2006–

2009 Statistics of Income (SOI) individual tax return file, and the Federal 

Reserve’s 2007 Survey of Consumer Finances (SCF) are subject to 

sampling errors because these data sets are based on samples. Because 

NPSAS, the SOI files, and SCF follow a probability procedure based on 

Appendix I: Objectives, Scope, and 

Methodology 

Objectives and Scope

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-12-560 Higher Education 

random selections, they represent only one of a large number of samples 

that could have been drawn. Since each sample could have provided 

different estimates, we express our confidence in the precision of our 

particular sample’s results as a 95 percent confidence interval (e.g., plus 

or minus 2.5 percentage points). This is the interval that would contain the 

actual population value for 95 percent of the samples we could have 

drawn. Unless otherwise noted, all percentage estimates based on the 

SOI and NPSAS have 95 percent confidence intervals that are within 10 

percentage points of the estimate itself, and all numerical estimates other 

than percentages have 95 percent confidence intervals that are within 10 

percent of the estimate itself. The 95 percent confidence intervals for all 

SCF estimates are provided along with the estimates in table notes or 

footnotes. We also reviewed studies by GAO, the Congressional Budget 

Office, Congressional Research Service, Education, and the Department 

of the Treasury.

The 2007–2008 NPSAS, 2009 SOI, and 2007 SCF were the most recent 

data available at the time of our engagement. NPSAS is a comprehensive 

study that examines how students and their families pay for higher 

education. It includes nationally representative samples of 113,535 

undergraduates, 12,585 graduate students, and 1,581 first-professional 

students1

To estimate the number of households that hold Coverdell education 

savings accounts (ESA) or qualified tuition programs (also known as 529 

plans), we analyzed 2007 data from the Federal Reserve’s SCF. This 

survey is conducted every 3 years to provide detailed information on the 

finances of U.S. households. The SCF collects detailed financial 

characteristics on an economically dominant single individual or couple 

(married or living as partners) in a household. For our analysis, we 

enrolled during the 2007–2008 academic year. The NPSAS 

data are based on administrative records and student interviews, and 

NPSAS includes survey results from both students who received financial 

aid and those who did not. The SOI individual tax return file is a stratified 

probability sample of income returns filed with IRS. The SOI sample of 

230,364 returns represented approximately 140.5-million tax returns filed 

for 2009. The SCF sample of 4,418 households represented 

approximately 116-million households in 2007.

 

1

First-professional students are students pursuing degrees in fields such as pharmacy, 

dentistry, medicine, or law.
Appendix I: Objectives, Scope, and 

Methodology

Page 49 GAO-12-560 Higher Education 

aggregated the financial information of these persons to obtain 

household-level financial information, including whether the household 

possessed a Coverdell ESA or 529 account and the balances of those 

accounts. We were unable to analyze Coverdell ESAs or 529 accounts 

separately because SCF combines these into one variable. Our analysis 

does not incorporate possible changes in account trends due to the 

recession ending in June 2009, as the most recent survey data publicly 

available are for 2007.

To assess the extent to which tax filers selected higher education tax 

provisions that maximized their tax benefit, we combined information from 

the SOI individual tax file with information from tax filers’ Form 1098-T 

Tuition Statement.2 We then calculated which tax provision would 

maximize filers’ tax benefit based on program eligibility criteria for tax 

year 2009. We calculated filers’ tax benefit using the instructions on IRS 

Forms 1040 U.S. Individual Income Tax Return, 8917 Tuition and Fees 

Deduction, and 8863 Education Credits. Our analysis included the lifetime 

learning credit (LLC) and the tuition and fees deduction (tuition 

deduction). Details on these tax provisions’ eligibility rules are included in 

appendix II. Our analysis did not consider whether a taxpayer who 

appeared to make a suboptimal choice by not claiming an LLC or tuition 

deduction did so to avoid being subject to alternative minimum tax 

liability.3

Form 1098-T includes the student’s name, address, social security 

number, and the education institution’s federal identification number. 

Form 1098-T also indicates if students were graduate students and if they 

were enrolled at least half-time. Education institutions have the option of 

providing information on the payments they have received or the amounts 

billed for qualified tuition and related expenses. By combining information 

on the Form 1098-T with information on the tax return, we were able to 

identify the higher education student population in the SOI sample and 

the choices that tax filers made concerning education-related tax 

 

2

Eligible higher educational institutions must file Form 1098-T. An eligible educational 

institution that is a government unit, or an agency or instrumentality of a government unit, 

is subject to the reporting requirements of Form 1098-T.

3

All taxpayers subject to regular tax are also subject to the alternative minimum tax, 

regardless of the income tax bracket or whether they claim certain exclusions, deductions, 

or credits. Taxpayers may be limited in the credits they can claim based on their 

alternative minimum tax calculations. 
Appendix I: Objectives, Scope, and 

Methodology

Page 50 GAO-12-560 Higher Education 

provisions. Because of data limitations, we were unable to assess 

whether a tax filers who selected an LLC or tuition deduction would have 

increased their tax benefits by selecting the AOC. Since the AOC is 

available only during a student’s first 4 years of higher education, a 

student claiming the tuition deduction or the LLC may not be eligible for 

the AOC. Information on whether students are in their first 4 years of 

higher education is not included in the Form 1098-T. Our analysis may 

also be limited if institutions reported inaccurate information on Form 

1098-T.

We excluded tax returns where filers were ineligible to claim the tuition 

deduction or LLC. We excluded returns from filers that: 

• were claimed as a dependent on someone else’s tax return;

• filed using a married filing separately filing status;

• used a Form 1040-EZ; 

• had (1) income that exceeded the program thresholds for the relevant 

tax year, (2) no taxable income, (3) no tax liability after claiming other 

tax credits, or (4) no net educational expenses after accounting for 

scholarships and grants as reported on the Form 1098-T;

• received an education tax credit or tuition deduction but did not 

receive a Form 1098-T; and

• received a Form 1098-T with no information concerning students’ 

education expenses because we could not analyze the corresponding 

tax returns without these data. We only used Form 1098-Ts that 

reported amounts paid in the current year.

This limited our analysis of SOI data to approximately 10.3-million returns 

in 2009. Table 4 summarizes the percentage of returns we included in our 

suboptimal analyses.

Table 4: Percentage of Returns Included in GAO’s Analysis of Taxpayers’ 

Maximizing Their Benefits in Tax Year 2009

Credit selected Other option

Percent of returns 

included in analysis

Lifetime learning credit

a

Choosing the tuition and fees 

deduction

57

Tuition and fees deduction Choosing lifetime learning credit 35

Selected no higher education 

credit or deduction

Choosing lifetime learning credit 

or the tuition and fees deduction

29

Source: GAO analysis of IRS data.

a

The denominators for the first two rows are those returns that claimed the provision. For the 

“selected no credit or deduction” category, the denominator includes those returns with a Form 1098-

T that appear to be eligible for either the credit or deduction. 
Appendix I: Objectives, Scope, and 

Methodology

Page 51 GAO-12-560 Higher Education 

In our analysis of taxpayers who would have reduced their liability by 

choosing a different tax benefit, in addition to using data from the 1098-

Ts, we also used data reported by the taxpayer elsewhere on their tax 

return. For example, for tax filers who claimed the tuition and fees 

deduction we used the expenses they reported on the Form 8917 to 

calculate their potential benefit from claiming the LLC. Using these 

expenses rather than expenses reported on 1098-Ts allowed us to 

directly compare the benefits by using the same expenses for a taxpayer. 

Relying on the amounts the taxpayer reported in claiming the tuition 

deduction or LLC should take into account expenses that cannot be used 

in claiming an education tax provision. These include expenses paid with 

tax-exempt assistance, such as the tax-exempt portion of a distribution 

from a Coverdell ESA or a 529 account, scholarship, grant, or employer 

assistance.

Of the returns that we included in our analysis of taxpayers who claimed 

LLC but possibly could have reduced their tax liability by choosing the 

tuition deduction, 46 percent of the cases had expenses reported on the 

Form 8863 and 1098-T that were the same. Forty percent of the cases 

had a 1098-T with reported expenses that were larger than those the filer 

reported on the Form 8863. This is consistent with the idea that these 

taxpayers adjusted their education expenses to account for tax-exempt 

aid that cannot be used to claim a higher education tax provision.

To estimate the effect state tax laws may have on the optimal choices of 

taxpayers filing their federal income taxes, we utilized the National 

Bureau of Economic Research’s (NBER) TAXSIM Model, a 

microsimulation model of U.S. federal and state income tax systems. 

TAXSIM calculates estimated liabilities under U.S. federal and state 

income tax laws from actual tax returns prepared for public uses by the 

Statistics of Income Division of the Internal Revenue Service.4

To identify available academic research on the effects of Title IV aid 

programs and higher education tax expenditures within our research 

scope, we reviewed studies that examined whether the programs or tax 

expenditures affect college choice, attendance, persistence, and 

completion. We looked for these measures because they are utilized by 

 

4

See Daniel Feenberg and Elisabeth Coutts, “An Introduction to the TAXSIM Model,” 

Journal of Policy Analysis and Management, vol. 12, no. 1, (1993): 189-194. 
Appendix I: Objectives, Scope, and 

Methodology

Page 52 GAO-12-560 Higher Education 

academic researchers and administrators of student aid programs; they 

allow for comparison with past GAO literature reviews; and they have 

been the focus of congressional concern as expressed in requests for our 

work from Congress and a statutorily established study committee report. 

We searched literature published since 2005, when we published a 

similar literature review.5

Of the over 300 studies we identified, 12 studies met the following criteria: 

(1) provided original empirical data analyses according to professional 

standards of econometric analysis for their methodological rigor, (2) 

contained acceptably identified statistical estimates, or (3) are cited in 

studies by other researchers. We used the results of the studies that we 

judged to contain acceptably identified statistical estimates to form the 

basis of the findings about the availability of information concerning the 

relative effectiveness of major federal financial assistance programs. 

Because few studies met our criteria for evaluative research, we selected 

examples of studies on the effects of nonfederal student-aid programs to 

provide context for other forms of higher education studies that have been 

published. These included studies on the effects of state, regional, and 

institutional financial aid programs. Our selection of non-federal studies is 

not exhaustive. We also found related research on the responses of 

institutions of higher education to federal assistance. A bibliography of 

studies we reviewed is provided at the end of this report.

We searched information sources such as 

EconLit, the NBER Web site, JSTOR, Social SciSearch, Education 

Research Information Center, Nexis, and ProQuest Dissertations & 

Theses. These online sources are nationally recognized databases that 

index research results. Our search terms included phrases such as “tax 

relief and education,” “tuition and college,” “financial aid and tuition,” 

program names such as “American opportunity credit,” and the names of 

authors included in our 2005 literature review.

For our fourth objective, we developed a framework to help identify 

factors that contribute to the effectiveness and efficiency of federal higher 

education programs. To develop the framework, we reviewed criteria from 

prior and ongoing GAO studies, as well as relevant work from other 

federal agencies. We informed and validated our framework by 

conducting semi-structured interviews with five academic experts in 

higher education and economic policy. We interviewed a small number of 

 

5

GAO-05-684. 
Appendix I: Objectives, Scope, and 

Methodology

Page 53 GAO-12-560 Higher Education 

experts since the framework was developed using previous GAO reports. 

We selected experts based on their recognition in the professional 

community, the relevance of their published work on higher education 

assistance, demonstrated expertise in Title IV programs or tax 

expenditures, and others’ recommendations. We also consulted with 

these experts to provide context for the challenges researchers face in 

studying the effects of federal assistance for higher education on college 

choice, attendance, persistence, and completion.

To assess the reliability of the NPSAS, SOI, and SCF data we analyzed, 

we reviewed agency documentation and interviewed agency officials 

familiar with the data. We determined that these data were sufficiently 

reliable for our purposes.

We conducted this performance audit from June 2011 to May 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Data Reliability and Audit 

Standards
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 54 GAO-12-560 Higher Education 

Tables 5 and 6 below provide descriptions of Title IV programs and higher 

education-related tax expenditures reviewed in this report.

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 (school year 2010–2011)

Pell Grants Grant amounts are based on the student’s 

enrollment status and the difference between 

the expected family contribution and cost of 

attendance, up to the maximum Pell Grant 

allowed under the Higher Education Act.

For the 2010 – 2011 school years, undergraduates 

can receive from $555 to $5,550.

Federal Supplemental 

Educational Opportunity 

Grants (FSEOG)

a

Schools administer grant funds, which are 

awarded to undergraduate students with 

exceptional financial need, with a priority given 

to students who receive Pell Grants. Schools 

are generally required to match at least 25 

percent of the federal funds allocated.

Undergraduates can receive up to $4,000 per year 

(up to $4,400 for students participating in an 

approved study-abroad program). The minimum 

award amount is $100.

Federal Work-Study Schools administer federal funds and make 

part-time employment available to 

undergraduate, graduate and professional 

students with federally defined financial need. 

Participating schools or nonprofit employers 

generally contribute at least 25 percent of the 

student’s earnings (50 percent in the case of 

for-profit employers).

No specific limits. Net earnings may not exceed the 

student’s financial need.

Federal Perkins Loans

b

Loans are made to undergraduate, graduate 

and professional students with priority given to 

those with exceptional financial need. Schools 

administer funds for the low-interest (5 percent) 

loans, comprised of federal capital 

contributions and school matching funds (at 

least one-third of federal contributions). 

Repayment is made to the school.

Undergraduates can borrow up to $5,500 annually, 

up to a total of $11,000 for undergraduates who 

have not completed two academic years and 

$27,500 for undergraduates who have completed 

two academic years.

Graduate or professional students can borrow up to 

$8,000 annually, up to a total of $60,000, including 

loans borrowed as an undergraduate.

Subsidized Direct Stafford 

Loans

c

Loans are made on the basis of financial need 

to undergraduate, graduate and professional 

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 a grace period of 6 months after the 

student leaves school, and during subsequent 

periods if needed.

d Undergraduate students can borrow between 

$3,500—the maximum available in their first year—

and $5,500 annually, up to a total of $23,000.

e

Graduate or professional students can borrow up to 

$8,500 per year up to a total of $65,500.

Appendix II: Descriptions of Title IV 

Programs and Higher Education-Related Tax 

Expenditures 
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 55 GAO-12-560 Higher Education 

Title IV student aid program Program details Annual award amounts (school year 2010–2011)

Unsubsidized Direct Stafford 

Loans

Loans are made to undergraduate graduate 

and professional students who are enrolled at 

least half-time.

Unlike subsidized Stafford Loans, students are 

responsible for interest costs throughout the life 

of the loan. Annual and aggregate borrowing 

limits for unsubsidized Stafford Loans include 

any subsidized Stafford Loans taken by the 

student.

Undergraduate students and graduate or 

professional students can borrow between $5,500 

and $20,500 annually, depending on their year of 

schooling and dependent status (including any 

subsidized loan amounts received for the same 

period).

Aggregate limits are $31,000 for dependent 

undergraduate students, $57,500 for independent 

undergraduate students, and $138,500 for graduate 

or professional students.

Students completing coursework in certain health 

professions can borrow an additional amount 

between $12,500 and $26,667 annually, up to a 

total of $224,000.

Parent Loans for 

Undergraduate Students 

(PLUS) Loans

f

Loans are made to parents of dependent 

undergraduates and to graduate and 

professional students who are enrolled at least 

half-time. Borrowers are subject to a credit 

check for adverse credit history and may be 

denied a loan. Borrowers are responsible for 

paying all interest on the loan.

There are no fixed annual or aggregate loan limits 

for PLUS loans. Parents, graduate students, and 

professional students can borrow up to the cost of 

attendance minus any financial aid the student 

receives.

Source: GAO analysis of applicable federal laws, regulations, and Education guidance.

a

The maximum annual Pell Grant award has increased over $1,000 since school year 2007–2008, 

with the largest increase occurring in school year 2009–2010, when the annual maximum Pell Grant 

Award increased by over $600. Additionally, under the Student Aid and Fiscal Responsibility Act, part 

of the Health Care and Education Reconciliation Act of 2010,(Pub. L. No. 111-152, Title II, Subtitle A) 

the maximum EFC for Pell Grant eligibility increased in school year 2010–2011. 

b

Student’s gross earnings can exceed the student’s financial need by the amount of taxes and jobrelated expenses the student pays. 

c

Perkins loan limits were increased by the Higher Education Opportunity Act of 2008, Pub. L. No. 

110-315. 

d

The Student Aid and Fiscal Responsibility Act terminated the authority to make new Federal Family 

Education Loans as of July 2010. 

e

Borrowers can temporarily suspend repayment of their loans if for example they pursue additional 

higher education studies, provide military service, or experience economic hardships. 

f

In the Deficit Reduction Act of 2005, Pub. L. No. 109-171, Congress increased Stafford loan limits for 

school year 2007–2008—the first such increase since school year 1993–1994—in order to help 

students finance higher education amid concerns about high tuition rates. For undergraduates, the 

higher limits reflected an increase of between $875 and $1,000 depending on the undergraduate’s 

class level, dependency status, and whether the student was receiving a subsidized or an 

unsubsidized loan. Congress increased Stafford loan limits more recently in the Ensuring Continued 

Access to Student Loans Act of 2008, Pub. L. No. 110-227. 
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 56 GAO-12-560 Higher Education 

Table 6: Description of Selected Higher Education Tax Expenditures (Tax Year 2010) 

Tax 

expenditure Eligibility

Income ranges 

for phasing out 

benefits Eligible expenses a Tax benefit 

American 

opportunity 

credit

Tax filer on behalf of self, spouse, or 

dependent who:

(1) for at least one academic period 

during the tax year, is working toward 

an undergraduate degree, certificate or 

other recognized education credential;

(2) is enrolled at least half-time for at 

least one academic period that begins 

during the tax year;

(3) has not completed the first four 

years of higher education (including any 

year(s) Hope credit was claimed); and

(4) has not been convicted of a federal 

or state felony offense for possession or 

distribution of a controlled substance.

Single filer:

$80,000–$90,000

Joint return:

$160,000–

$180,000

Tuition, fees and 

required course 

materialsb

Maximum credit: $2,500 per 

each eligible student. Credit 

rate is 100 percent on first 

$2,000 of qualified education 

expenses and 25 percent on 

the next $2,000.

Forty percent of credit may be 

refundable as long as the 

student is not a child whose 

income is subject to the “kiddie” 

tax.c

Lifetime 

learning credit

Tax filer on behalf of self, spouse or 

dependent who is enrolled in a course 

that is part of a higher education degree 

program or taken by the student to 

acquire or improve job skills.d

Single filer:

Credit is 

available for one or more courses at an 

eligible institution and there is no limit 

on the number of years the credit can 

be claimed.

$50,000–$60,000

Joint return:

$100,000–

$120,000

Tuition and fees 

required for 

enrollment

Maximum credit: $2,000 per 

return (20 percent of the first 

$10,000 of qualified education 

expenses).

Nonrefundable credit limited to 

the amount of tax paid on 

taxable income.

Tuition and 

fees deduction

Tax filer on behalf of self, spouse or 

dependent who is enrolled in one or 

more courses at an eligible educational 

institution.

e Single filer:

$65,000–$80,000

Joint return:

$130,000–

$160,000

Tuition and fees 

required for 

enrollment

Maximum deduction:

$4,000 per return for single 

filers whose modified adjusted

gross income does not exceed 

$65,000 ($130,000 for joint 

filers); $2000 per return for 

single filers whose modified 

adjusted gross income is more 

than $65,000 but does not 

exceed $80,000 (more than 

$130,000, but does not exceed 

$160,000 for joint filers).

Student loan 

interest 

deduction

Tax filer on behalf of self, spouse or 

dependent. Student must have been 

enrolled at least half-time in a program 

leading to a degree, certificate or other 

recognized educational credential.

Single filer:

f

$60,000–$75,000

Joint return:

$120,000–

$150,000

Eligible loans are 

those used to pay for 

tuition, fees, room 

and board, books, 

supplies and 

equipment, and 

other necessary 

expenses (e.g., 

transportation).

Maximum deduction: $2,500 

interest paid on eligible 

education loans 
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 57 GAO-12-560 Higher Education 

Tax 

expenditure Eligibility

Income ranges 

for phasing out 

benefits Eligible expenses a Tax benefit 

Section 529 

qualified tuition 

programs 

(QTP) 

For use by designated beneficiary. No 

eligibility requirements but withdrawals 

must be used for qualified higher 

education expenses at an eligible 

educational institution. QTPs are 

established and maintained by states or 

higher education institutions and 

eligibility for enrollment varies by 

program.

No income limits Tuition, fees, books, 

supplies, and 

equipment if 

required for 

enrollment or 

attendance. 

Expenses paid to 

purchase computer 

technology or 

Internet access in 

2009 or 2010. Room 

and board if enrolled 

at least half-time.

No tax is due on a distribution 

from an account unless the 

amount distributed is greater 

than the beneficiary’s adjusted 

qualified education expenses.

Contributions cannot be more 

than the amount necessary for 

the qualified education 

expenses of the beneficiary.

Coverdell 

education 

savings 

accounts (ESA)

g

Beneficiary must be under age 18 or be 

a special needs beneficiary when the 

account is established and when any 

contributions are made.

Account must be closed within 30 days 

after the earlier of the beneficiary 

reaching age 30, unless it’s a special 

needs beneficiary, or the beneficiary’s 

death.

For contributions,

single filer:

$95,000–

$110,000;

Joint returns:

$190,000–

$220,000.

Tuition, fees, books, 

supplies, and 

equipment if 

required for 

enrollment or 

attendance. Room 

and board if enrolled 

at least half-time.

No tax is due on a distribution 

from an account unless the 

amount distributed is greater 

than the beneficiary’s adjusted 

qualified education expenses.

Total annual contribution limit is 

$2,000 per beneficiary from all 

sources (through age 17 unless 

he or she is a special needs 

beneficiary).

h

Parental 

personal 

exemption for 

students ages 

19–23

Tax filer can claim an exemption for a 

dependent who is a child ages 19 

through 23 and a full-time student at 

least five months of the year. Other 

dependency tests must also be met.

No income limits N/A Taxpayer is allowed an 

exemption of $3,650 per 

dependent
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 58 GAO-12-560 Higher Education 

Tax 

expenditure Eligibility

Income ranges 

for phasing out 

benefits Eligible expenses a Tax benefit 

Earned Income 

Tax Credit for 

students ages 

19–23

Tax filer with earned income and a 

qualifying child who is ages 19 through 

23 and a full time student at least 5 

months of the year can claim a larger 

EITC.i

Tax filer’s adjusted 

gross income 

must be less than:

Other requirements must also be 

met.

Single filer:

$43,352 (if 3 or 

more qualifying 

children);

$40,363 (if 2 

qualifying 

children);

$35,535 (if 1

qualifying child,

Joint returns:

$48,362 (if 3 or 

more qualifying 

children);

$45,373 (if 2 

qualifying 

children);

$40,545 (if 1

qualifying child)

N/A Maximum credit:

$5,666 with 3 or more 

qualifying children

$5,036 with two qualifying 

children

$3,050 with one qualifying child

Credit is refundable.

Source: GAO analysis of the Internal Revenue Code, Treasury regulations, and applicable IRS guidance.

a

Unless otherwise noted, amounts refer to modified adjusted gross income, which is the taxpayer’s 

adjusted gross income increased by amounts which were excluded as foreign income or income from 

Puerto Rico or other U.S. Territories. 

b

Course materials mean books, supplies, and equipment needed for a course of study whether or not 

the materials are purchased from the educational institution as a condition of enrollment or 

attendance. 

c

You do not qualify for a refund if (1) you were (a) under 18 at the end of the tax year; or (b) 18 at the 

end of tax year and your earned income was less than one-half of your support, or (c) a full time 

student over 18 and under 24 at the end of the tax year and your earned income was less than onehalf of your support; (2) at least one of your parents was alive at the end of the tax year; and (3) you 

are filing as a single filer, head of household, qualifying widow(er) or married filing separately for 

2010. 26 U.S.C. § 25A(i)(6); 26 U.S.C. § 1(g); see also IRS Publication 970. 

d

Student does not need to be pursuing a degree or other recognized education credential. 

e

The tuition deduction expired December 31, 2011 and as of May 10, 2012, has not been extended. 

f

Includes graduate school. 

g

Contributors are permitted to contribute to both a Section 529 program and Coverdell ESA account 

in the same year for the same designated beneficiary. 

h

Beneficiary must pay taxes on distributions in excess of qualified education expenses for the year. 

Beneficiary must pay a 6 percent excise tax each year on excess contributions (more than $2000 per 

year) in the account at end of the year. 

i

Tax filers do not need a qualifying child to claim the EITC provided other rules are met. 

While the Hope credit was not available in 2010, our analysis of tax 

expenditures from 2006 to 2009 includes this credit. The American 
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 59 GAO-12-560 Higher Education 

opportunity credit replaced the Hope credit for most taxpayers in 2009. 

However, a larger Hope credit (up to $3,600) was available for students in 

2008 and 2009 who attended an eligible institution in a Midwestern 

disaster area and met other eligibility requirements.

We did not review the following higher education tax expenditures in this 

report:

Education Savings Bond Program. Tax filers may exclude the tax due 

on interest accrued on qualified U.S. savings bonds if the interest is used 

to pay for qualified education expenses and other eligibility criteria are 

met.

Education Exception to Additional Tax on Early IRA Distributions.

Generally, taxpayers must pay an additional 10 percent tax on 

distributions from IRA accounts before they reach age 591⁄2. However, if 

taxpayers use these distributions for qualified higher education expenses, 

they may not have to pay the 10 percent additional tax.

Scholarships, Fellowships, Grants, and Tuition Reductions.

Scholarships and fellowships received by degree-candidate students at 

eligible educational institutions and used to pay for tuition, fees, books, 

supplies, and equipment required for enrollment are not taxed as income. 

Pell Grants and other Title IV need-based education grants are treated as 

scholarships for tax purposes. Tuition reductions, where tax filers are 

allowed to study tuition free or for a reduced rate, are not counted as 

income for tax purposes provided certain requirements are met. The rules 

for determining whether a tuition reduction is tax free depend on whether 

the education provided is below the graduate level or is graduate 

education.

Employer-Provided Educational Assistance. Tax filers who receive 

educational assistance benefits from their employers under an 

educational assistance program do not have to count a certain amount of 
Appendix II: Descriptions of Title IV Programs 

and Higher Education-Related Tax 

Expenditures

Page 60 GAO-12-560 Higher Education 

that assistance as income for tax purposes.1

Student Loan Cancellations and Repayment Assistance. Tax filers 

whose student loans are cancelled or who receive repayment assistance 

in exchange for working for a certain period of time, in certain 

professions, and for any of a broad class of employers may qualify for

tax-free treatment of cancelled loan or repayment assistance.

Only funds used to pay for 

tuition, fees, books, equipment, and similar expenses are tax-free.

Business Deduction for Work-Related Education. Tax filers may 

deduct the cost of work-related education as business expenses if the 

education meets one of the following tests: 1) the education is required by 

the tax filer’s employer or the law to maintain the tax filer’s present salary, 

status, or job; or 2) the education maintains or improves skills needed in 

the tax filer’s present work. Deductible expenses include tuition, books, 

supplies, lab fees, certain transportation and travel costs and other 

education expenses.

Gift Tax Educational Exclusion. Tuition paid directly to a qualifying 

education institution for another person as a gift is not a taxable gift. No 

exclusion is allowed for amounts paid for books, supplies, room and 

board, or other expenses that are not direct tuition costs.

 

1

Under the Working Condition Fringe Benefit Exclusion, employer-provided educational 

assistance that exceeds $5,250 in 2010 does not have to be counted as income, provided 

it is used to pay for any educational expenses that are required by the employer or the law 

to maintain the tax filer’s present salary, status, or job and maintain or improve skills 

needed in the tax filer’s present work. 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 61 GAO-12-560 Higher Education 

Table 7: Text to Accompany Interactive Figure 1: Illustration of Planning and Payment Processes for Higher Education 

Expenses 

Before college During college After college

Birth through senior year of high school

Parents make financial planning decisions for 

future educational expenses. For example, 

parents decide whether to invest in tax-preferred 

savings plans.

Each academic year

(Repeats until end of college)

Student or parents track expenses they can 

use toward education-related tax provisions.

Monthly 

Student or parents repay federal 

student loans.

Senior year of high school

Fall through spring

1. Student applies to college.

2. College receives application and admits 

student.

January through March

1. Student or parents receive information returns 

(such as a W-2 Wage and Tax Statement) that 

help complete their individual tax return.

2. Student or parents file a tax return by April.

3. Student or parents complete a Free Application 

for Federal Student Aid (FAFSA) using information 

from their income tax return and other sources.

4. Education processes FAFSA to calculate the 

family’s expected family contribution (EFC) and 

reports the EFC to the student and schools.

a

March through April

Student learns aid eligibility.

[Eligibility notification period.]

August

1. Student or parents begin paying tuition for 

fall semester.

2. Student or parents use financial aid package 

(tax-preferred saving, grants, and loans) and 

other savings to pay for college expenses.

January through March

Student or parents receive information returns 

that help them complete their individual tax 

return. For example, student or parents receive 

a 1098-T Tuition Statement. The 1098-T may 

not have all the information needed to claim 

education tax provisions.

January through April 15th

On or before April 15th

Student or parents file an individual income tax 

return (i.e., a 1040) with supporting forms if 

claiming an education tax credit or tuition 

deduction.

[Eligibility notification period.]

January

Student or parents receive a 

1098-E Student Loan Interest 

Statement. 

January through April 15th 

Student or parents claim the 

student loan interest deduction 

on individual income tax return.

Sources: GAO (information); Digital Vision (photo).

Notes: This graphic provides one example of the timing for financial aid, tax, and loan repayment 

decisions. The process may differ for nontraditional students. For example, students who attend 

school less than half time or at times other than the fall through spring semesters may make 

decisions and payments at times other than those depicted in this illustration. Also, individuals other 

than parents—such as legal guardians—may be involved in financial aid and tax decisions. 

FAFSA deadlines vary by state, and the Department of Education Web site often directs students to 

contact their financial aid administrator for deadlines. Each college within a state may also have a 

different deadline. For 2011-2012, the federal deadline is June 30, 2012. 

a

Some education institutions may require a FAFSA before families have filed a tax return. 

Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 62 GAO-12-560 Higher Education 

Table 8: Text to Accompany Interactive Figure 2: Size and Characteristics of Title IV 

Aid Programs and Higher Education Tax Expenditures

Pell Grants School Year 2007-2008:

Total grants awarded: 5.7 million

Total dollars awarded: $14.6 billion

Average grant award: $2,559

Median income of recipients: $18,128

Federal Supplemental Educational 

Opportunity Grants (FSEOG)

School Year 2007-2008:

Total grants awarded: 1.3 million

Total dollars awarded: $883.7 million

Average grant award: $696

Median income of recipients: $15,806

Federal Work-Study School Year 2007-2008:

Total awards: 1.6 million

Total dollars awarded: $4.0 billion

Average award: $2,461

Median income of recipients: $44,045

Federal Perkins Loans School Year 2007-2008:

Total loans made: 674,700

Total face value of loans: $1.5 billion

Average loan amount: $2,230

Median income of recipients: $31,939

Subsidized Direct Stafford Loans School Year 2007-2008:

Total loans made: 7.4 million

Total face value of loans: $29.6 billion

Average loan amount: $3,972

Median income of recipients: $30,286

Unsubsidized Direct Stafford 

Loans

School Year 2007-2008:

Total loans made: 5.8 million

Total face value of loans: $27.2 billion

Average loan amount: $4,731

Median income of recipients: $33,473

PLUS Loans School Year 2007-2008:

Total loans made: 790,600

Total face value of loans: $8.5 billion

Average loan amount: $10,753

Median income of recipients: $80,396
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 63 GAO-12-560 Higher Education 

American opportunity credit (AOC) Tax Year 2009:

Total filers claiming: 9.1 million

Total amount claimed: $16 billion

Average tax benefit: $1,755

Median income of filers claiming credit: $39,287

Lifetime learning credit Tax Year 2009:

Total filers claiming: 3.4 million

Total amount claimed: $2.4 billion

Average tax benefit: $714

Median income of filers claiming credit: $42,903

Tuition and fees deduction Tax Year 2009:

Total filers deducting: 1.7 million

Total amount deducted: $628.9 million

Average tax benefit: $378

Median income of filers using deduction: $73,277

Student loan interest deduction Tax Year 2009:

Total filers deducting: 9 million

Total amount deducted: $1.3 billion

Average tax benefit: $148

Median income of filers using deduction: $53,959

Section 529 qualified tuition 

programs (QTP)

and

Coverdell education savings 

accounts (ESAs)

Tax Year 2006:

Total households holding QTPs or Coverdell 

ESAs: 4.2 million

Median account balance: $9,880

Median gross income of households with QTPs or 

Coverdell ESAs: $122,400

Parental personal exemption for 

students ages 19-23

Tax Year 2009:

Total filers claiming: 7 million

Total amount claimed: $5.3 billion

Average tax benefit: $765

Median income of filers claiming: $77,070

Earned Income Tax Credit for 

students ages 19-23

Tax Year 2009:

Total filers claiming: 1.8 million

Total amount claimed: $3.3 billion

Average tax benefit: $1,849

Median income of filers claiming: $20,100

Source: GAO Analysis of U.S. Department of Education documents and school year 2007-2008 NPSAS data, IRS SOI data for tax year 

2009, and the 2007 Federal Reserve Survey of Consumer Finance.
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 64 GAO-12-560 Higher Education 

Note: For estimates of tax expenditures other than QTPs and ESAs, we report the tax benefit a filer 

receives from claiming the tax expenditure. All figures presented are sample estimates and are 

subject to sampling error. We are 95 percent confident that in 2006, between 3.5- and 4.9-million 

households held a QTP or ESA; that the median account balance was between $7,500 and $12,000; 

and that the median gross income of households was between $106,000 and $138,000. Data for 

QTPs and ESAs are presented together because the public SCF data file does not provide separate 

estimates for the two accounts. Our estimates for the number of filers claiming an education tax 

benefit only include those filers that reduced their tax liability by claiming these expenditures. All other 

estimates in this figure have 95 percent confidence intervals that are within +/- 10 percent of the 

estimate itself. 

Table 9: Text to Accompany Interactive Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by 

Income Category and Dependency Status, 2007–2008 (Information for Base Graphi

 

c) 

Dependent Independent

Dollars 

received

Share of 

benefits

Dollars 

received

Share of 

benefits

Pell Grant $0 - $20,000 Estimate $2,993,296,755 45 $5,708,275,819 72

Lower bound 2,893,105,484 44 5,566,262,444 71

Upper bound 3,093,488,026 46 5,850,289,195 73

$20,001- $40,000 Estimate 2,962,215,274 44 2,033,734,008 26

Lower bound 2,864,070,740 43 1,945,340,927 25

Upper bound 3,060,359,808 46 2,122,127,088 27

$40,001-$60,000 Estimate 708,298,173 11 220,020,619 3 

Lower bound 668,348,738 10 196,167,834 2 

Upper bound 748,247,608 11 243,873,403 3 

$60,001-$80,000 Estimate 8,350,502 0 0 0 

Lower bound 6,005,886 0 0 0 

Upper bound 10,695,117 0 0 0 

$80,001-$100,000 Estimate 0 0 0 0 

Lower bound 0 0 0 0 

Upper bound 0 0 0 0 

Greater than 

$100,000

Estimate 0 0 0 0 

Lower bound 0 0 0 0 

Upper bound 0 0 0 0 

Subsidized Stafford 

Loan

$0 - $20,000 Estimate 1,576,033,411 15 9,421,293,323 50

Lower bound 1,502,686,977 14 9,159,128,415 49

Upper bound 1,649,379,845 15 9,683,458,230 51

$20,001- $40,000 Estimate 2,600,677,516 24 5,143,430,349 27

Lower bound 2,497,875,430 23 4,854,802,992 26

Upper bound 2,703,479,602 25 5,432,057,707 29
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 65 GAO-12-560 Higher Education 

 Dependent Independent

Dollars 

received

Share of 

benefits

Dollars 

received

Share of 

benefits

$40,001-$60,000 Estimate 2,399,719,215 22 2,332,929,154 12

Lower bound 2,298,193,364 21 2,127,127,031 11

Upper bound 2,501,245,066 23 2,538,731,277 13

$60,001-$80,000 Estimate 1,777,159,779 17 1,065,865,463 6 

Lower bound 1,689,883,373 16 948,015,973 5 

Upper bound 1,864,436,185 17 1,183,714,953 6 

$80,001-$100,000 Estimate 1,145,483,437 11 831,217,599 4 

Lower bound 1,072,613,678 10 687,503,308 4 

Upper bound 1,218,353,195 11 974,931,890 5 

Greater than 

$100,000

Estimate 1,268,645,799 12 0 0 

Lower bound 1,193,721,012 11 0 0 

Upper bound 1,343,570,586 12 0 0 

Unsubsidized 

Stafford Loan

$0 - $20,000 Estimate 480,773,388 8 9,539,027,035 46

Lower bound 439,589,679 7 9,167,175,297 44

Upper bound 521,957,098 8 9,910,878,773 47

$20,001- $40,000 Estimate 706,246,969 11 4,980,847,097 24

Lower bound 653,568,889 10 4,650,336,624 22

Upper bound 758,925,049 12 5,311,357,570 25

$40,001-$60,000 Estimate 668,956,702 11 2,688,876,994 13

Lower bound 614,035,030 10 2,419,228,606 12

Upper bound 723,878,374 11 2,958,525,381 14

$60,001-$80,000 Estimate 863,722,923 14 1,531,454,768 7 

Lower bound 803,916,870 13 1,386,552,806 7 

Upper bound 923,528,976 15 1,676,356,730 8 

$80,001-$100,000 Estimate 1,055,285,595 17 1,474,347,793 7 

Lower bound 986,143,816 16 1,246,749,487 6 

Upper bound 1,124,427,374 18 1,701,946,098 8 

Greater than 

$100,000

Estimate 2,539,426,756 40 702,578,936 3 

Lower bound 2,435,744,774 39 571,149,930 3 

Upper bound 2,643,108,738 41 834,007,942 4 

PLUS Loan $0 - $20,000 Estimate 306,178,690 4 a a

Lower bound 248,794,084 3 a a

Upper bound 363,563,296 4 a a

$20,001- $40,000 Estimate 791,392,564 9 a a

Lower bound 642,770,660 8 a a
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8

Page 66 GAO-12-560 Higher Education 

 Dependent Independent

Dollars 

received

Share of 

benefits

Dollars 

received

Share of 

benefits

Upper bound 940,014,468 11 a a

$40,001-$60,000 Estimate 1,069,231,412 13 a a

Lower bound 915,551,532 11 a a

Upper bound 1,222,911,292 14 a a

$60,001-$80,000 Estimate 1,332,716,460 16 a a

Lower bound 1,186,491,288 14 a a

Upper bound 1,478,941,632 17 a a

$80,001-$100,000 Estimate 1,434,575,441 17 a a

Lower bound 1,272,533,699 15 a a

Upper bound 1,596,617,182 19 a a

Greater than 

$100,000

Estimate 3,567,182,411 42 a a

Lower bound 3,278,117,463 39 a a

Upper bound 3,856,247,358 44 a

Source: GAO analysis of Education NPSAS 2007-2008 data.

a

Note: Numbers may not add due to rounding. 

a

Figure includes PLUS loans for parents of dependent students only. Grad PLUS loans for 

independent students are not in the scope of this review because they served under 500,000 

students in 2007-2008. 

Table 10: Text to Accompany Interactive Figure 6: Number and Percentage of Title IV Aid Recipients and Dollars Received, by 

Income Category and Dependency Status, 2007–2008 (Information for Roll-ove

 

r) 

Dependent Independent

Number of 

Recipients

Share of 

Recipients

Number of 

Recipients

Share of 

Recipients

Pell Grant $0 - $20,000 Estimate 877,503 36 2,218,880 67

Lower bound 848,046 35 2,164,529 66

Upper bound 906,959 37 2,273,231 68

$20,001- $40,000 Estimate 1,079,892 45 907,156 27

Lower bound 1,046,185 44 870,299 26

Upper bound 1,113,599 46 944,013 28

$40,001-$60,000 Estimate 434,219 18 183,458 6 

Lower bound 412,524 17 164,970 5 

Upper bound 455,915 19 201,947 6 

$60,001-$80,000 Estimate 18,717 1 a a

Lower bound 13,767 1 a a
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 67 GAO-12-560 Higher Education 

 Dependent Independent

Number of 

Recipients

Share of 

Recipients

Number of 

Recipients

Share of 

Recipients

Upper bound 23,668 1 a a

$80,001-$100,000 Estimate a a a a

Lower bound a a a a

Upper bound a a a a

Greater than 

$100,000

Estimate a a a a

Lower bound a a a a

Upper bound a a a

Subsidized 

Stafford Loan

a

$0 - $20,000 Estimate 456,220 15 2,156,910 50

Lower bound 434,945 14 2,098,700 49

Upper bound 477,494 15 2,215,119 51

$20,001- $40,000 Estimate 729,441 23 1,236,366 29

Lower bound 700,807 23 1,179,975 27

Upper bound 758,074 24 1,292,757 30

$40,001-$60,000 Estimate 671,967 22 516,525 12

Lower bound 643,347 21 478,359 11

Upper bound 700,587 22 554,692 13

$60,001-$80,000 Estimate 520,841 17 246,789 6 

Lower bound 494,685 16 223,258 5 

Upper bound 546,998 18 270,321 6 

$80,001-$100,000 Estimate 343,004 11 179,982 4 

Lower bound 321,623 10 156,697 4 

Upper bound 364,385 12 203,266 5 

Greater than 

$100,000

Estimate 385,491 12 a a

Lower bound 362,872 12 a a

Upper bound 408,110 13 a

Unsubsidized 

Stafford Loan

a

$0 - $20,000 Estimate 156,545 8 1,771,762 46

Lower bound 143,131 7 1,717,257 45

Upper bound 169,960 9 1,826,267 47

$20,001- $40,000 Estimate 251,950 13 1,057,347 28

Lower bound 233,387 12 1,002,933 26

Upper bound 270,512 14 1,111,761 29

$40,001-$60,000 Estimate 240,232 12 479,163 13

Lower bound 220,852 12 441,852 12

Upper bound 259,611 13 516,474 13
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 68 GAO-12-560 Higher Education 

 Dependent Independent

Number of 

Recipients

Share of 

Recipients

Number of 

Recipients

Share of 

Recipients

$60,001-$80,000 Estimate 293,565 15 260,392 7 

Lower bound 273,213 14 236,564 6 

Upper bound 313,916 16 284,220 7 

$80,001-$100,000 Estimate 309,798 16 194,390 5 

Lower bound 289,829 15 170,907 5 

Upper bound 329,768 17 217,874 6 

Greater than 

$100,000

Estimate 670,456 35 70,133 2 

Lower bound 643,657 34 56,753 1 

Upper bound 697,255 36 83,512 2 

PLUS Loan $0 - $20,000 Estimate a a b b

Lower bound a a b b

Upper bound a a b b

$20,001- $40,000 Estimate a a b b

Lower bound a a b b

Upper bound a a b b

$40,001-$60,000 Estimate a a b b

Lower bound a a b b

Upper bound a a b b

$60,001-$80,000 Estimate a a b b

Lower bound a a b b

Upper bound a a b b

$80,001-$100,000 Estimate a a b b

Lower bound a a b b

Upper bound a a b b

Greater than 

$100,000

Estimate a a b b

Lower bound a a b b

Upper bound a a b

Source: GAO analysis of Education NPSAS 2007-2008 data.

b

Note: Numbers may not add due to rounding. 

a

Cannot provide estimate due to sample size. 

b

PLUS loans for independent students are not in the scope of this review because they served under 

500,000 students in 2007-2008. 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 69 GAO-12-560 Higher Education 

Table 11: Text to Accompany Interactive Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 2007–2008 (Information for Base Graphic) 

Dependent Independent

Dollars 

Received

Share of 

Benefits

Dollars 

Received

Share of 

Benefits

FSEOG $0 - $20,000 Estimate $209,167,876 40 $287,140,334 79

Lower bound 191,444,182 38 267,377,116 76

Upper bound 226,891,570 43 306,903,553 81

$20,001- $40,000 Estimate 229,314,569 44 64,666,358 18

Lower bound 208,201,016 41 56,314,225 16

Upper bound 250,428,122 47 73,018,492 20

$40,001-$60,000 Estimate 74,901,541 14 12,253,894 3 

Lower bound 65,006,580 13 8,076,542 2 

Upper bound 84,796,502 16 16,431,247 4 

$60,001-$80,000 Estimate 5,224,562 1 198,775 0 

Lower bound 2,582,049 0 0 0 

Upper bound 7,867,076 2 477,611 0 

$80,001-$100,000 Estimate a 0 a 0 

Lower bound a 0 a 0 

Upper bound a 0 a 0 

Greater than 

$100,000

Estimate a 0 a 0 

Lower bound a 0 a 0 

Upper bound a 0 a 0 

Federal Perkins 

Loan

$0 - $20,000 Estimate 152,790,728 17 433,717,269 73

Lower bound 132,647,243 15 392,867,642 70

Upper bound 172,934,213 19 474,566,897 77

$20,001- $40,000 Estimate 259,282,922 28 95,943,420 16

Lower bound 233,558,609 26 79,398,864 14

Upper bound 285,007,236 31 112,487,976 19

$40,001-$60,000 Estimate 220,640,219 24 38,661,997 7 

Lower bound 195,048,110 22 26,745,360 5 

Upper bound 246,232,329 27 50,578,633 8 

$60,001-$80,000 Estimate 118,530,334 13 7,690,437 1 

Lower bound 100,699,980 11 3,375,164 1 

Upper bound 136,360,688 15 12,005,710 2 

$80,001-$100,000 Estimate 67,018,955 7 15,385,335 3 

Lower bound 50,713,975 6 6,394,314 1 

Upper bound 83,323,934 9 24,376,356 4 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 70 GAO-12-560 Higher Education 

Dependent Independent

Dollars 

Received

Share of 

Benefits

Dollars 

Received

Share of 

Benefits

Greater than 

$100,000

Estimate 95,266,510 10 0 0 

Lower bound 74,989,999 8 0 0 

Upper bound 115,543,021 12 0 0 

Federal WorkStudy $0 - $20,000 Estimate 349,134,109 12 707,382,578 63

Lower bound 312,290,322 11 644,186,709 59

Upper bound 385,977,896 14 770,578,448 67

$20,001- $40,000 Estimate 605,006,564 21 238,661,357 21

Lower bound 547,875,239 19 199,985,943 18

Upper bound 662,137,889 23 277,336,772 24

$40,001-$60,000 Estimate 535,082,448 19 97,670,405 9 

Lower bound 488,470,952 17 70,377,114 6 

Upper bound 581,693,944 20 124,963,696 11

$60,001-$80,000 Estimate 434,541,331 15 51,330,515 5 

Lower bound 388,756,824 14 26,856,536 2 

Upper bound 480,325,837 17 75,804,494 7 

$80,001-$100,000 Estimate 342,452,892 12 21,051,799 2 

Lower bound 297,724,485 11 9,357,957 1 

Upper bound 387,181,298 13 32,745,640 3 

Greater than 

$100,000

Estimate 580,623,357 20 2,987,375 0 

Lower bound 528,212,793 19 0 0 

Upper bound 633,033,922 22 7,826,508 1 

Source: GAO Analysis of Education NPSAS 2007-2008 data.

Note: Numbers may not add due to rounding. 

a

Cannot provide estimate because of sample size. 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 71 GAO-12-560 Higher Education 

Table 12: Text to Accompany Interactive Figure 7: Number and Percentage of Campus-Based Aid Recipients and Dollars 

Received, by Income Category and Dependency Status, 2007–2008 (Information for Roll-over) 

Dependent Independent

Number of 

Recipients

Share of 

Recipients

Number of 

Recipients

Share of 

Recipients

FSEOG $0 - $20,000 Estimate 246,780 43 524,336 76

Lower bound 231,282 41 497,380 74

Upper bound 262,278 45 551,292 78

$20,001- $40,000 Estimate 242,838 42 141,319 20

Lower bound 226,611 40 126,762 19

Upper bound 259,066 44 155,876 22

$40,001-$60,000 Estimate 83,023 14 24,232 4 

Lower bound 74,208 13 14,826 2 

Upper bound 91,839 16 33,638 5 

$60,001-$80,000 Estimate 5,621 1 a a

Lower bound 2,656 1 a a

Upper bound 8,585 2 a a

$80,001-$100,000 Estimate a a a a

Lower bound a a a a

Upper bound a a a a

Greater than 

$100,000

Estimate a a a a

Lower bound a a a a

Upper bound a a a

Federal Perkins 

Loan

a

$0 - $20,000 Estimate 77,162 17 160,257 73

Lower bound 67,682 15 147,483 69

Upper bound 86,641 19 173,031 75

$20,001- $40,000 Estimate 120,699 27 40,567 18

Lower bound 110,196 25 34,398 16

Upper bound 131,201 29 46,735 21

$40,001-$60,000 Estimate 112,790 25 12,892 6 

Lower bound 100,080 23 9,429 4 

Upper bound 125,500 27 16,356 8 

$60,001-$80,000 Estimate 60,826 13 3,488 2 

Lower bound 52,679 12 1,665 1 

Upper bound 68,974 15 5,310 3 

$80,001-$100,000 Estimate 35,724 8 3,794 2 

Lower bound 27,727 6 1,742 1 

Upper bound 43,720 10 5,846 3 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 72 GAO-12-560 Higher Education 

Dependent Independent

Number of 

Recipients

Share of 

Recipients

Number of 

Recipients

Share of 

Recipients

Greater than 

$100,000

Estimate 46,550 10 a a

Lower bound 38,822 9 a a

Upper bound 54,277 12 a

Federal WorkStudy 

a

$0 - $20,000 Estimate 155,404 13 262,659 68

Lower bound 142,022 12 244,673 65

Upper bound 168,786 14 280,645 70

$20,001- $40,000 Estimate 268,903 22 74,287 19

Lower bound 250,588 21 64,772 17

Upper bound 287,218 23 83,802 21

$40,001-$60,000 Estimate 231,671 19 31,134 8 

Lower bound 215,316 18 24,591 7 

Upper bound 248,026 20 37,677 10

$60,001-$80,000 Estimate 180,705 15 12,062 3 

Lower bound 165,556 14 7,563 2 

Upper bound 195,855 16 16,561 4 

$80,001-$100,000 Estimate 141,945 12 6,493 2 

Lower bound 126,505 10 3,688 1 

Upper bound 157,384 13 9,298 3 

Greater than 

$100,000

Estimate 245,298 20 a a

Lower bound 227,301 19 a a

Upper bound 263,294 21 a

Source: GAO Analysis of Education NPSAS 2007-2008 data.

a

Note: Numbers may not add due to rounding. 

a

Cannot provide estimate because of sample size. 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 73 GAO-12-560 Higher Education 

Table 13: Text to Accompany Interactive Figure 8: Number and Percentage of Tax Filers Claiming Higher Education Tax 

Expenditures and Total Benefits, by Income Category, 2009 (Information for Base Graphi

Program 

c) 

Total Benefits Share of Benefits

Tuition and fees deduction $0 to 20,000 Estimate 23,237,000 4 

Lower bound 17,298,000 3 

Upper bound 29,177,000 5 

$20,001 to 40,000 Estimate 60,962,000 10

Lower bound 50,985,000 8 

Upper bound 70,940,000 11

$40,001 to 60,000 Estimate 125,127,000 20

Lower bound 107,739,000 17

Upper bound 142,516,000 22

$60,001 to 80,000 Estimate 78,621,000 13

Lower bound 66,696,000 11

Upper bound 90,547,000 14

$80,001 to 100,000 Estimate 55,363,000 9 

Lower bound 43,828,000 7 

Upper bound 66,898,000 11

Over 100,000 Estimate 285,550,000 45

Lower bound 258,612,000 42

Upper bound 312,489,000 48

Student loan interest deduction $0 to 20,000 Estimate 56,757,000 4 

Lower bound 50,479,000 4 

Upper bound 63,035,000 5 

$20,001 to 40,000 Estimate 271,208,000 20

Lower bound 256,154,000 19

Upper bound 286,263,000 21

$40,001 to 60,000 Estimate 341,352,000 26

Lower bound 320,833,000 24

Upper bound 361,870,000 27

$60,001 to 80,000 Estimate 204,966,000 15

Lower bound 191,187,000 14

Upper bound 218,745,000 16

$80,001 to 100,000 Estimate 177,270,000 13

Lower bound 162,802,000 12

Upper bound 191,737,000 14

Over 100,000 Estimate 282,212,000 21

Lower bound 262,376,000 20
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 74 GAO-12-560 Higher Education 

Program Total Benefits Share of Benefits

Upper bound 302,047,000 22

Parental exemption for students 

ages 19–23

$0 to 20,000 Estimate 49,874,000 1 

Lower bound 41,344,000 1 

Upper bound 58,404,000 1 

$20,001 to 40,000 Estimate 615,251,000 12

Lower bound 580,580,000 11

Upper bound 649,922,000 12

$40,001 to 60,000 Estimate 669,819,000 13

Lower bound 629,216,000 12

Upper bound 710,422,000 13

$60,001 to 80,000 Estimate 675,441,000 13

Lower bound 631,910,000 12

Upper bound 718,972,000 13

$80,001 to 100,000 Estimate 662,782,000 12

Lower bound 615,339,000 12

Upper bound 710,224,000 13

Over 100,000 Estimate 2,664,082,000 50

Lower bound 2,574,733,000 49

Upper bound 2,753,432,000 51

American opportunity credit $0 to 20,000 Estimate 2,410,738,000 15

Lower bound 2,307,901,000 14

Upper bound 2,513,574,000 16

$20,001 to 40,000 Estimate 3,415,061,000 21

Lower bound 3,252,942,000 20

Upper bound 3,577,180,000 22

$40,001 to 60,000 Estimate 2,592,059,000 16

Lower bound 2,434,984,000 15

Upper bound 2,749,134,000 17

$60,001 to 80,000 Estimate 2,228,655,000 14

Lower bound 2,077,074,000 13

Upper bound 2,380,236,000 15

$80,001 to 100,000 Estimate 1,795,974,000 11

Lower bound 1,653,340,000 10

Upper bound 1,938,607,000 12

Over 100,000 Estimate 3,526,694,000 22

Lower bound 3,333,288,000 21

Upper bound 3,720,101,000 23
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 75 GAO-12-560 Higher Education 

Program Total Benefits Share of Benefits

Lifetime learning credit $0 to 20,000 Estimate 177,536,000 7 

Lower bound 157,273,000 7 

Upper bound 197,800,000 8 

$20,001 to 40,000 Estimate 717,486,000 30

Lower bound 657,953,000 28

Upper bound 777,019,000 32

$40,001 to 60,000 Estimate 573,645,000 24

Lower bound 516,394,000 22

Upper bound 630,896,000 26

$60,001 to 80,000 Estimate 453,702,000 19

Lower bound 397,276,000 17

Upper bound 510,129,000 21

$80,001 to 100,000 Estimate 375,959,000 16

Lower bound 324,105,000 14

Upper bound 427,813,000 18

Over 100,000 Estimate 113,646,000 5 

Lower bound 88,031,000 4 

Upper bound 139,261,000 6 

Earned Income Tax Credit for 

students ages 19–23

$0 to 20,000 Estimate 2,012,304,000 61

Lower bound 1,864,847,000 59

Upper bound 2,159,760,000 64

$20,001 to 40,000 Estimate 1,271,618,000 39

Lower bound 1,174,598,000 36

Upper bound 1,368,639,000 41

$40,001 to 60,000 Estimate 0 a

Lower bound 0 a

Upper bound 0 a

$60,001 to 80,000 Estimate 0 0 

Lower bound 0 0 

Upper bound 0 0 

$80,001 to 100,000 Estimate 0 0 

Lower bound 0 0 

Upper bound 0 0 

Over 100,000 Estimate 0 0 

Lower bound 0 0 

Upper bound 0 0 

Source: GAO analysis of IRS SOI data.
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 76 GAO-12-560 Higher Education 

Note: Numbers may not add due to rounding. Our estimates for the percentage of filers claiming the 

tuition and fees deduction and the student loan interest deduction only include those filers who 

reduced their tax liability by claiming these deductions 

a

Cannot provide estimate because of sample size. 

Table 14: Text to Accompany Interactive Figure 8: Number and Percentage of Tax Filers Claiming Higher Education Tax 

Expenditures and Total Benefits, by Income Category, 2009 (Information for Roll-ove

Program 

r) 

Number of Filers Share of Recipients

Tuition and fees deduction $0 to 20,000 Estimate 94,000 6 

Lower bound 75,000 5 

Upper bound 113,000 7 

$20,001 to 40,000 Estimate 233,000 14

Lower bound 203,000 12

Upper bound 264,000 16

$40,001 to 60,000 Estimate 321,000 19

Lower bound 286,000 17

Upper bound 356,000 21

$60,001 to 80,000 Estimate 250,000 15

Lower bound 219,000 13

Upper bound 281,000 17

$80,001 to 100,000 Estimate 139,000 8 

Lower bound 115,000 7 

Upper bound 162,000 10

Over 100,000 Estimate 628,000 38

Lower bound 580,000 35

Upper bound 676,000 40

Student loan interest deduction $0 to 20,000 Estimate 692,000 8 

Lower bound 641,000 7 

Upper bound 744,000 8 

$20,001 to 40,000 Estimate 2,335,000 26

Lower bound 2,241,000 25

Upper bound 2,429,000 27

$40,001 to 60,000 Estimate 2,059,000 23

Lower bound 1,971,000 22

Upper bound 2,147,000 24

$60,001 to 80,000 Estimate 1,524,000 17

Lower bound 1,449,000 16

Upper bound 1,600,000 18
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 77 GAO-12-560 Higher Education 

Program Number of Filers Share of Recipients

$80,001 to 100,000 Estimate 1,042,000 12

Lower bound 979,000 11

Upper bound 1,105,000 12

Over 100,000 Estimate 1,355,000 15

Lower bound 1,286,000 14

Upper bound 1,425,000 16

Parental exemption for students 

ages 19–23

$0 to 20,000 Estimate 135,000 2 

Lower bound 112,000 2 

Upper bound 158,000 2 

$20,001 to 40,000 Estimate 1,337,000 19

Lower bound 1,266,000 18

Upper bound 1,409,000 20

$40,001 to 60,000 Estimate 1,144,000 16

Lower bound 1,078,000 16

Upper bound 1,210,000 17

$60,001 to 80,000 Estimate 1,026,000 15

Lower bound 964,000 14

Upper bound 1,088,000 16

$80,001 to 100,000 Estimate 870,000 12

Lower bound 812,000 12

Upper bound 927,000 13

Over 100,000 Estimate 2,468,000 35

Lower bound 2,389,000 34

Upper bound 2,547,000 36

American opportunity credit $0 to 20,000 Estimate 2,540,000 28

Lower bound 2,442,000 27

Upper bound 2,637,000 29

$20,001 to 40,000 Estimate 2,102,000 23

Lower bound 2,013,000 22

Upper bound 2,192,000 24

$40,001 to 60,000 Estimate 1,262,000 14

Lower bound 1,193,000 13

Upper bound 1,332,000 15

$60,001 to 80,000 Estimate 978,000 11

Lower bound 917,000 10

Upper bound 1,038,000 11

$80,001 to 100,000 Estimate 764,000 8 
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 78 GAO-12-560 Higher Education 

Program Number of Filers Share of Recipients

Lower bound 710,000 8 

Upper bound 818,000 9 

Over 100,000 Estimate 1,451,000 16

Lower bound 1,381,000 15

Upper bound 1,521,000 17

Lifetime learning credit $0 to 20,000 Estimate 480,000 14

Lower bound 437,000 13

Upper bound 523,000 15

$20,001 to 40,000 Estimate 1,066,000 32

Lower bound 1,001,000 30

Upper bound 1,130,000 33

$40,001 to 60,000 Estimate 727,000 22

Lower bound 674,000 20

Upper bound 780,000 23

$60,001 to 80,000 Estimate 518,000 15

Lower bound 473,000 14

Upper bound 563,000 17

$80,001 to 100,000 Estimate 437,000 13

Lower bound 396,000 12

Upper bound 478,000 14

Over 100,000 Estimate 150,000 4 

Lower bound 126,000 4 

Upper bound 173,000 5 

Earned Income Tax Credit for 

students ages 19–23

$0 to 20,000 Estimate 878,000 49

Lower bound 820,000 47

Upper bound 936,000 52

$20,001 to 40,000 Estimate 875,000 49

Lower bound 817,000 47

Upper bound 933,000 51

$40,001 to 60,000 Estimate 27,000 2 

Lower bound 17,000 1 

Upper bound 38,000 2 

$60,001 to 80,000 Estimate a a

Lower bound a a

Upper bound a a

$80,001 to 100,000 Estimate a a

Lower bound a a
Appendix III: Text to Accompany Interactive 

Figures 1, 2, 6, 7, and 8 

Page 79 GAO-12-560 Higher Education 

Program Number of Filers Share of Recipients

Upper bound a a

Over 100,000 Estimate a a

Lower bound a a

Upper bound a

Source: GAO analysis of IRS SOI data.

a

Note: Numbers may not add due to rounding. Our estimates for the percentage of filers claiming the 

tuition and fees deduction and the student loan interest deduction only include those filers who 

reduced their tax liability by claiming these deductions. 

a

Cannot provide estimate because of sample size. 
Appendix IV: Comments from the Department 

of Education

Page 80 GAO-12-560 Higher Education 

Appendix IV: Comments from the 

Department of Education
Appendix IV: Comments from the Department 

of Education

Page 81 GAO-12-560 Higher Education 
Appendix V: Comments from the Internal 

Revenue Service 

Page 82 GAO-12-560 Higher Education 

Appendix V: Comments from the Internal 

Revenue Service
Appendix V: Comments from the Internal 

Revenue Service 

Page 83 GAO-12-560 Higher Education 
Appendix V: Comments from the Internal 

Revenue Service 

Page 84 GAO-12-560 Higher Education 
Appendix VI: GAO Contacts and Staff 

Acknowledgments

Page 85 GAO-12-560 Higher Education 

James R. White, Director, Tax Issues, Strategic Issues Team, (202) 512-

9110 or whitej@gao.gov. 

George A. Scott, Director, Education, Workforce, and Income Security 

Issues, (202) 512-7215 or scottg@gao.gov. 

In addition to the contacts named above, Michael Brostek (Director), 

David Lewis and Tranchau (Kris) Nguyen (Assistant Directors), Patrick 

Dudley, Shannon Finnegan, John Mingus, Amy Moran Lowe, Tom 

Moscovitch, Erika Navarro, and Mark Ramage made key contributions to 

this report. Also contributing to this report were JoAnna Berry, Jessica 

Botsford, Amy Bowser, Andrew Ching, Susannah Compton, Michele 

Fejfar, Donna Miller, Edward Nannenhorn, Mimi Nguyen, and Melanie 

Papasian.

Appendix VI: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments
Bibliography 

Page 86 GAO-12-560 Higher Education 

To identify available academic research on the effects of Title IV aid 

programs and higher education tax expenditures within our research 

scope, we reviewed studies published since 2005 that examined whether 

the programs or tax expenditures affect college choice, attendance, 

persistence, and completion. Of the over 300 studies we identified, we 

included in our review only 12 studies that met the following criteria: (1) 

provide original empirical data analyses according to professional 

standards of econometric analysis for methodological rigor, (2) contain 

acceptably identified statistical estimates, or (3) are cited in studies by 

other researchers. We used the results of the studies that we judged to 

contain acceptably identified statistical estimates to form the basis of the 

findings about the availability of information concerning the relative 

effectiveness of major federal financial assistance programs. See 

appendix I for a detailed description of our methodology.

Akers, Beth. Excess Sensitivity of Labor Supply and Educational 

Attainment: Evidence from Variation in Student Loan Debt. New York 

City, NY: Columbia University Job Market Paper, 2011. Accessed March 

20, 2012. http://www.columbia.edu/~eja2105/research.html.

Cellini, Stephanie R. “Financial Aid and For-Profit Colleges: Does Aid 

Encourage Entry?” Journal of Policy Analysis and Management, vol. 29, 

no. 3 (2010): 526-552.

Curs, Bradley R., Larry D. Singell, and Glen R.Waddell. “Money for 

Nothing? The Impact of Changes in the Pell Grant Program on 

Institutional Revenues and the Placement of Needy Students.” Education 

Finance and Policy, vol. 2, no. 3 (2007): 228-261.

Dowd, Alicia and Tarek Coury. “The Effect of Loans on the Persistence 

and Attainment of Community College Students.” Research in Higher 

Education vol. 47, no. 1 (2006): 33-62.

Dunlop, Erin R.. “What do Stafford Loans Actually Buy You? - The Effect 

of Stafford Loan Access on Community College Students.” Charlottesville, 

VA: University of Virginia Job Market Paper, 2011. Accessed March 12, 

2012. people.virginia.edu/~erd2r/Dunlop_job_market_paper_11.9.pdf.

Herzog, Serge. “Measuring Determinants of Student Return vs. 

Dropout/Stopout vs. Transfer: A First-to-Second Year Analysis of New 

Freshmen.” Research in Higher Education vol. 46, no. 8, (2005): 883-928.

Bibliography 

Studies Meeting GAO’s 

Search Criteria
Bibliography 

Page 87 GAO-12-560 Higher Education 

Kitmitto, Sami Tayseer. The Pell Grant Puzzle: An Inquiry into the 

Program’s Effects on College Enrollment and One Explanatory 

Hypothesis. PhD diss., University of California Davis, 2006. ProQuest 

Dissertation Publishing. Accessed December 8, 2011.

LaLumia, Sara. “Tax Preferences for Higher Education and Adult College 

Enrollment.” National Tax Journal, vol. 65, no. 1 (2012): 59-89.

Long, Bridget Terry. Do Loans Increase College Access and Choice? 

Examining the Introduction of Universal Student Loans. Boston, MA: New 

England Public Policy Center at the Federal Reserve Bank of Boston, 

2007 (NEPPC Working Paper 07-1). 

Mendez, Jessie P., Pilar Mendoza, and Zaria Malcolm. “The Impact of 

Financial Aid on Native American Students.” Journal of Diversity in Higher 

Education, vol. 4, no. 1 (2011): 12-25.

Scott-Clayton, Judith. “The Causal Effect of Federal Work-Study 

Participation: Quasi-Experimental Evidence from West Virginia.” 

Educational Evaluation and Policy Analysis, vol. 33, no. 4 (2011): 506-

527.

Turner, Nicholas. “The Effect of Tax-Based Federal Student Aid on 

College Enrollment.” National Tax Journal vol. 64, no. 3 (2011): 839-862.

Although evaluative research linking federal assistance to student college 

choice, attendance, persistence, and completion is limited, we found 

examples of studies on the effects of nonfederal student-aid programs, 

including regional and institutional financial aid programs. Our selection of 

non-federal studies is not exhaustive. We also found related research, 

including studies on the responses of institutions of higher education to 

federal assistance. Examples of these studies are listed below.

Avery, Christopher, and Sarah E. Turner. “Playing the College Application 

Game: Critical Moves and the Link to Socio-Economic Circumstances.” 

Paper presented at the National Bureau of Economic Research Education 

Program, California, November 2009.

Avery, Christopher, Caroline Hoxby, Clement Jackson, Kaitlin Burek, 

Glenn Poppe, and Mridula Raman. “Cost Should Be No Barrier: An 

Evaluation of the First Year of Harvard’s Financial Aid Initiative.” National 

Other Relevant Studies
Bibliography 

Page 88 GAO-12-560 Higher Education 

Bureau of Economic Research Working Paper 12029, Cambridge, MA, 

2006.

Bettinger, Eric P., Bridget Terry Long, Philip Oreopoulos, and Lisa 

Sanbonmatsu. The Role of Simplification and Information in College 

Decisions: Results from the H&R Block FAFSA Experiment. Cambridge, 

MA: National Bureau of Economic Research Working Paper 15361, 2009.

Bowen, William G., Matthew M. Chingos, and Michael S. McPherson. 

Crossing the Finish Line: Completing College at America’s Public 

Universities. Princeton, NJ: Princeton University Press, 2009.

Cellini, Stephanie R., and Claudia Goldin. “Does Federal Student Aid 

Raise Tuition? New Evidence on For-Profit Colleges.” National Bureau of 

Economic Research Working Paper 17827, Cambridge, MA, 2012.

Goldrick-Rab, Sara, Douglas N. Harris, James Benson, and Robert 

Kelchen. “Conditional Cash Transfers and College Persistence: Evidence 

from a Randomized Need-Based Grant Program.” Institute for Research 

on Poverty Discussion Paper no. 1393-11, Madison, WI, 2011.

Patel, Reshma. and Lashawn Richburg-Hayes. “Performance-Based 

Scholarships: Emerging Findings from a National Demonstration.” New 

York, NY: MDRC Testimony Submitted to the Advisory Committee on 

Student Financial Assistance, 2011.

Roderick, Melissa, Jenny Nagaoka, Vanessa Coca, and Eliza Moeller. 

From High School to the Future: Making Hard Work Pay Off. Chicago, IL: 

Consortium on Chicago School Research at the University of Chicago 

Urban Education Institute, 2009.

Singell, Larry D. Jr. and Joe A. Stone. “For Whom the Pell Tolls: The 

Response of University Tuition to Federal Grants-in-Aid.” Economics of 

Education Review, vol. 26, (2007): 285–295.

Scott-Clayton, Judith. “On Money and Motivation: A Quasi-Experimental 

Analysis of Financial Incentives for College Achievement.” The Journal of 

Human Resources, vol. 46, no. 3 (2011): 614-646.

Turner, Lesley J. “The Incidence of Student Financial Aid: Evidence from 

the Pell Grant Program.” New York, NY: Columbia University Job Market 

Paper, 2012. Accessed March 15, 2012.
Bibliography 

Page 89 GAO-12-560 Higher Education 

Turner, Nicholas. “Who Benefits from Student Aid? The Economic 

Incidence of Tax-Based Federal Student Aid.” Economics of Education 

Review (forthcoming).
Related GAO Products

Page 90 GAO-12-560 Higher Education 

Federal Statistical System: Agencies Can Make Greater Use of Existing 

Data, but Continued Progress Is Needed on Access and Quality Issues. 

GAO-12-54. Washington, D.C.: February 24, 2012.

Opportunities to Reduce Potential Duplication in Government Programs, 

Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, 

D.C.: March 1, 2011.

Postsecondary Education: Many States Collect Graduates’ Employment 

Information, but Clearer Guidance on Student Privacy Requirements Is 

Needed. GAO-10-927. Washington, D.C.: September 27, 2010.

Federal Student Aid: Highlights of a Study Group on Simplifying the Free 

Application for Federal Student Aid. GAO-10-29. Washington, D.C.: 

October 29, 2009.

Higher Education: Multiple Higher Education Tax Incentives Create 

Opportunities for Taxpayers to Make Costly Mistakes. GAO-08-717T. 

Washington, D.C.: May 1, 2008.

Postsecondary Education: Multiple Tax Preferences and Title IV Student 

Aid Programs Create a Complex Education Financing Environment. 

GAO-07-262T. Washington, D.C.: December 5, 2006.

Government Performance and Accountability: Tax Expenditures 

Represent a Substantial Federal Commitment and Need to Be 

Reexamined. GAO-05-690. Washington, D.C.: September 23, 2005.

Understanding the Tax Reform Debate: Background, Criteria, & 

Questions. GAO-05-1009SP. Washington, D.C.: September 1, 2005.

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.

Means-Tested Programs: Information on Program Access Can Be an 

Important Management Tool. GAO-05-221. Washington, D.C.: March 11, 

2005.

Student Aid and Tax Benefits: Better Research and Guidance will 

Facilitate Comparison of Effectiveness and Student Use. GAO-02-751. 

Washington, D.C.: September 13, 2002.

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