HIGHER EDUCATION

Improved Tax Information 

Could Help Pay for College

Statement of James R. White 

Director, Strategic Issues 

George A. Scott 

Director, Education, Workforce, and Income Security 

Issues

Testimony 

Before the Committee on Finance, 

U.S. Senate

For Release on Delivery 

Expected at 10:00 a.m. EDT

Wednesday, July 25, 2012

GAO-12-863T

United States Government Accountability Office

GAO
 

Page 1 GAO-12-863T 

Chairman Baucus, Ranking Member Hatch, and Members of the 

Committee:

We are pleased to be here to discuss federal assistance for higher 

education. 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, it may be difficult for families to 

understand and apply for higher education assistance.

This statement summarizes our recently issued report that addressed 

how tax information could help families pay for college.1 In response to 

your request, our report: (1) described the size and distribution of federal 

grants, loans, and tax expenditures available to assist students and 

families with higher education expenses; (2) assessed the extent to which 

tax filers select higher education provisions that maximize their tax 

benefit; (3) summarized what is known about the effect of grants, loans, 

and tax expenditures on student attendance, choice, persistence,2 and 

completion; and (4) described factors that contribute to the effectiveness 

and efficiency of federal higher education student assistance programs. 

To address these issues, we analyzed data from the Department of 

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

Governors of the Federal Reserve, and conducted a literature review for 

original empirical research.3

 

1

GAO, Higher Education: Improved Tax Information Could Help Families Pay for College, 

We also developed a framework for 

evaluating federal assistance and validated it with recognized experts of 

GAO-12-560 (Washington, D.C.: May 18, 2012).

2

Persistence is the likelihood that students will continue their education. 

3

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. 

 
 

Page 2 GAO-12-863T 

higher education finance. Detailed information on our findings as well as 

our scope and methodology is available in the report.

We found that multiple Title IV programs and tax expenditures provided 

substantial aid to populations across income levels. Figure 1 summarizes 

the Title IV programs and tax expenditures we reviewed.4

Figure 1: Title IV Programs and Tax Expenditures Available to Save, Pay, or Repay Higher Education Expenses

 

4

Details on each program can be found in GAO-12-560. 
 

Page 3 GAO-12-863T 

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.5

In our analysis of 2009 IRS data for selected returns with information on 

education expenses, we found that tax filers do not always choose tax 

expenditures that maximize their potential tax benefits.

The number of students receiving Title IV aid increased from 

10.4 million to 12.8 million, or 23 percent, from 2006 to 2009. The number 

of tax filers benefiting from an education tax expenditure was larger, and 

increased from 14.4 million to 18 million, or 25 percent, from 2006 to 

2009. Recent increases in both Title IV aid and tax expenditures 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 to 2010), while loans and work-study serve these students as well 

as students at family incomes above the median. Most tax benefits from 

the tuition and fees deduction and the parental exemption for dependent 

students went to families with incomes above $60,000, whereas the 

majority of benefits from the other higher education tax expenditures in 

our review—such as the American Opportunity Credit—went to families 

with lower incomes.

6

 

5

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. The most current year 

for which data are available for both tax and Title IV programs is 2009.

We 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. 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. Taxpayers might not maximize their tax benefits because 

they are unaware of their eligibility for the provisions or confused about 

their use. IRS and Education have taken steps to provide information on 

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

6

Our analysis is limited to tax filers who appeared eligible for the lifetime learning credit (LLC) or the 

tuition and fees deduction in 2009, had a Form 1098-T Tuition Statement 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. Estimates have 95 

percent confidence intervals that are within 10 percent of the estimate itself. Details on our 

methodology and its limitations can be found in GAO-12-560. 
 

Page 4 GAO-12-863T 

education tax provision suggests more could be done. For example, IRS 

stated that it coordinated with tax preparation software providers to 

provide links to relevant higher education forms, while Education’s 

Federal Student Aid website provides a link to IRS’s Publication 970, Tax 

Benefits for Education. Developing a coordinated, comprehensive 

strategy to better inform eligible students could improve take-up of these 

tax provisions.

We also found that despite Education’s research efforts, evaluative 

research on the effects of federal assistance for higher education on 

student outcomes—such as the likelihood students will complete their 

education—remains limited, as shown in table 1. 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. Education’s efforts to 

sponsor and undertake research represent an important step, but 

research available at present still lacks evaluative information on the 

effects of federal grants, loans, and work-study. 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 us they 

have not conducted such research due in part to the level of resources 

Education officials told us they devote to such research. In an 

environment of constrained budgets, evaluative research can help inform 

policy decisions.
 

Page 5 GAO-12-863T 

Table 1: Research We Reviewed on the Effects of Federal Assistance Is Limited and Cannot Be Generalized

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

Parental exemption for students age 19 to 23

American Opportunity Credit

Hope Credit 

Lifetime Learning Credit  

Earned Income Tax Credit for students age 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.

Finally, we identified factors that contribute to effective and efficient 

higher education assistance programs to help policymakers allocate 

limited resources among multiple programs.7 These factors can be used 

as a policy tool for considering improvements to current programs, 

consolidating programs, eliminating programs, or designing features of 

new programs. They can be used as a framework for assessing whether 

a higher education program:8

• achieves program goals and produces demonstrable results,

• provides appropriate incentives for targeted populations,

• facilitates beneficiaries’ use of the program,

 

7

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

GAO-12-560 for details on the framework and our methodology.

8

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

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

Page 6 GAO-12-863T 

• interacts effectively with other programs,

• minimizes costs and risks, and

• establishes monitoring and evaluation mechanisms.

Based on our work, we recommended 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.

We also recommended that 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.

Education and IRS agreed with our recommendations. Education noted 

that while it does not have access to tax data, it will work with IRS to 

assist in taxpayer outreach. A complete discussion of agency comments 

and our evaluation are provided in the report.

Chairman Baucus, Ranking Member Hatch, and Members of the 

Committee, this completes our prepared statement. We would be happy 

to respond to any questions you and Members of the Committee may 

have at this time.

For further information regarding this testimony, please contact James R. 

White, Director, Strategic Issues, at (202) 512-9110 or whitej@gao.gov, 

or George A. Scott at (202) 512-7215 or scottg@gao.gov. Contact points 

for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this statement.

GAO Contact and 

Staff 

Acknowledgments 
 

Page 7 GAO-12-863T 

Individuals making key contributions to this statement and the related 

report include David Lewis and Tranchau (Kris) Nguyen, Assistant 

Directors; Shannon Finnegan, Analyst-In-Charge; Patrick Dudley; John 

Mingus; Amy Moran Lowe; Tom Moscovitch; Erika Navarro; and Mark 

Ramage. JoAnna Berry, Jessica Botsford, Amy Bowser, Andrew Ching, 

Susannah Compton, Michele Fejfar, Lois Hanshaw, Donna Miller, Edward 

Nannenhorn, Mimi Nguyen, and Melanie Papasian provided technical 

support.

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