Education is the primary agency overseeing federal investments in support of students enrolled in postsecondary education. Education’s grant and loan programs are the largest source of student aid in the United States; however, tax provisions recently enacted by Congress have created new sources of support to assist students in paying for postsecondary education. These two sources of student assistance—grants and loans, and tax benefits—are intended to promote access to higher education and to ensure its affordability. To help track progress toward these and other goals, Education has developed strategic and performance goals in accordance with the Government Performance and Results Act of 1993 (GPRA). Title IV of the HEA of 1965, as amended, authorizes the federal government’s financial aid programs for postsecondary education. Title IV programs include Pell grants for low-income students, parent loans known as PLUS loans, and Stafford loans. Stafford loans may be either subsidized or unsubsidized. The federal government pays the interest cost on subsidized loans while the student is in school. The terms and conditions of unsubsidized loans are the same as those for subsidized loans, but the federal government does not pay the interest costs on the loan while the student is in school; rather, students are responsible for all interest costs. Title IV also authorizes programs funded by the federal government and administered by participating higher education institutions, commonly known as campus-based aid—Supplemental Educational Opportunity grants (SEOG), Perkins loans, and federal work-study aid. In academic year 1999-2000, Education awarded approximately $53 billion to students through the title IV programs. In order to receive title IV aid, a student must apply using the Free Application for Federal Student Aid (FAFSA). Information from the FAFSA is used to determine the amount of money—called the expected family contribution (EFC)—that the student and/or the family is expected to contribute to the student’s education. Statutory definitions establish the criteria that students must meet to be considered independent of or dependent on their parents for purposes of financial aid, and statutory formulas establish the share of income and assets that are expected to be available for the student’s education. Once the EFC is established, it is compared to the cost of attendance at the institution chosen by the student. If the EFC is greater than the cost of attendance, the student is not considered to have financial need for federal title IV aid programs. If the cost of attendance is greater than the EFC, then the student is considered to have financial need. Financial aid administrators at the student’s school then create a federal financial aid package that may include grants, loans, and work-study. As part of the financial aid package students may also receive state, institutional, or private aid. In 1999-2000, about one in four undergraduates (23 percent) received federal Pell or SEOG grant aid. Awarded on the basis of financial need, these grants were highly targeted. About 75 percent of dependent students receiving Pell and SEOG grants had family incomes of $30,000 or less,while three-quarters of independent students receiving them had incomes of $20,000 or less. Stafford loans were received by 28 percent of undergraduates, and served a more varied population. A broad range of dependent undergraduates made use of need-based (or subsidized) student loans. Of the unsubsidized loans received by dependent undergraduates, 60 percent were received by those with family incomes of $60,000 or above per year. Of all loans received by independent students— subsidized and unsubsidized—three quarters of their total dollar amount went to students whose incomes were less than $30,000 per year. In recent years Congress has enacted eight higher education tax provisions that are specifically designed to help individuals and families save for, repay, or meet the current costs of higher education, and accomplish this by permitting tax filers to use their qualified educational expenses to reduce their federal income tax liability (see table 1). Education has a strategic goal that is particularly relevant to its title IV programs, to “Enhance the Quality of and Access to Postsecondary Education.” To ensure its progress toward this goal, Education has developed annual goals that focus on (1) reducing the gaps in student achievement and completion among students differing by race, ethnicity, income, and disability; and (2) improving the effectiveness of its title IV funding mechanisms in terms of, among other things, tuition prices and borrower indebtedness. In the 1999-2000 academic year, more than 4 in 10 undergraduate students received a higher education tax credit, according to our estimate. On average, the HOPE tax credit equaled about 20 percent of the tuition and fees that were charged to dependent students, and 30 percent of those charged to independent students. The Lifetime Learning credit equaled 8 percent of tuition and fees charged to dependent students, and 11 percent for independent students. For both groups of students the HOPE and Lifetime Learning credits comprised a larger share of the net tuition and fees they paid—that is, tuition and fees charged, minus all types of grant assistance. In addition to the credits, some students—about 14 percent—also received title IV aid. For these students, credit amounts ranged from 4 to 26 percent of the face value of the title IV aid that they received. Taken together, credits and title IV student aid now assist about 7 out of 10 undergraduate students in meeting the costs of postsecondary education. According to our estimates, more than 4 in 10 undergraduate students received a higher education tax credit in 1999-2000, a larger share of students than participated in the federal government’s title IV programs. About 29 percent received a Lifetime Learning tax credit, while 17 percent received a HOPE tax credit. Students may receive title IV aid and a HOPE or Lifetime Learning credit, and many did—an estimated 14 percent of undergraduate students received both. Not all undergraduates were eligible to receive a HOPE or Lifetime Learning tax credit. One factor that affects eligibility is income. Students from families with parents who filed jointly and had incomes above $100,000 were ineligible to receive the credits. In addition, in order to receive a credit, tax filers must have a positive tax liability. For a two- parent family with one dependent college student, federal income tax liability began in 2000 at about $15,750. As shown in figures 2 and 3, a small proportion of those dependent students whose family incomes were below $20,000 received the credits. Figures 4 and 5 show that students who received the credits did not necessarily receive the full amount. Students may not have a sufficiently large tax liability or qualified educational expenses necessary to receive a tax credit’s full value. Tax filers must have qualified educational expenses of $2,000 per student to receive the maximum HOPE credit, while they must have $5,000 of qualified expenses (for themselves or others claimed on their return) to receive the maximum value of the Lifetime Learning credit. Tax filers must subtract the nontaxable aid they received, such as Pell grants or scholarships, from qualified educational expenses. The reduction of qualified educational expenses by nontaxable aid reduces the number of students who might otherwise receive the credits, and it reduces the credit amounts obtained, particularly, we estimate, among dependent students with family incomes in the $10-$50,000 range. For the 47 percent of all undergraduates who received a tax credit in 1999-2000, the higher education tax credits equaled a varying share of the tuition and fees. On average, the HOPE tax credit equaled about 20 percent of the tuition and fees that were charged to dependent students, and 30 percent of independent students’ tuition and fee charges. The Lifetime Learning credit equaled 8 percent of tuition and fees charged to dependent students, and 11 percent for independent students. Many students receive private, institutional, state, and federal grants that reduce the tuition and fee costs that they must pay out of their own resources. In claiming the HOPE and Lifetime Learning credits, tax filers must reduce their qualified educational expenses, tuition and fees, by these (and any other) forms of nontaxable aid. We calculated students’ net tuition and fees as the tuition and fees they were charged minus all private, institutional, state, and federal grant aid they received. We estimate that the HOPE credit equaled, on average, 28 percent of dependent students’ net tuition and fees, and 36 percent of independent students’ net tuition and fees. The Lifetime Learning credit equaled about 12 percent of dependents’ net tuition and fees, and 15 percent of independents’ net tuition and fees. Figure 6 compares the estimated HOPE credit to the total tuition and fees charged to dependent students, and to the net tuition and fees they paid. Figure 7 presents the same comparisons for independent students. Figure 8 compares the estimated Lifetime Learning credits received to the total tuition and fees charged to dependent students, and to the net tuition and fees they paid. Figure 9 presents the same comparisons for independent students. Approximately 14 percent of undergraduate students received both title IV aid and a higher education tax credit in 1999-2000; for these students, the HOPE and Lifetime Learning tax credits equaled a varying share of the face value of the title IV aid they received. The HOPE credit equaled, on average, about one-fifth of the average title IV aid received by students. The Lifetime Learning tax credit provided a smaller benefit relative to title IV aid than the HOPE credit, equaling, on average, about one-tenth of the title IV aid received by dependent and independent students. For dependent students with family incomes of $20,000-$40,000, we estimate that the average HOPE credit ($924) was larger than the average title IV grant award ($569).