The tax incentives and other programs designed to help with the escalating costs of college are so varied and confusing that many Americans aren't taking full advantage of the benefits, a government report has found.
The Government Accountability Office reported that many families choose the wrong benefit and leave money on the table because the rules governing Title IV aid and tax programs such as the American Opportunity Credit are too complex.
About 1.5 million of the 11 million eligible tax returns do not include a credit or deduction for which families appear eligible, the GAO report said. That's an average loss of a tax benefit of $466 to filers and a total of $726 million in unclaimed tax benefits in 2009.
The report also showed that more tax filers overall are using the benefits. The number of tax filers claiming an education tax expenditure increased by 25% from 14.4 million to 18 million households from 2006 to 2009. Title IV grants, which generally benefit families with income under the national median, also increased 23% to 12.8 million people from 2006 to 2009.
At a Senate Finance Committee hearing on education tax programs Wednesday, some lawmakers said they believe the continuing examination of the nation's tax code should include a look at the nation's education tax breaks. Others questioned whether the government tax and loan programs have contributed to the skyrocketing cost of higher education.
Senate Finance Committee Chairman Max Baucus, D-Mont. said education tax benefits should be simplified.
“The multitude of education tax benefits can result in complexity and confusion for American families,” Mr. Baucus said. “We should improve these benefits for students.”
Sen. Chuck Grassley, R-Iowa, encouraged members to consider reforms beyond the tax incentives offered to students and families, including the tax benefits that colleges and universities receive. Tax-exempt colleges and universities don't owe income tax and can raise money through tax-deductible charitable contributions and by issuing tax-exempt bonds, he said.
“All education-related tax expenditures should be examined to ensure that students and families, in addition to taxpayers, are getting the most bang for their buck.”
Barry Dyke, a financial adviser at Castle Asset Management LLC, agrees that the U.S. tax incentives for higher education and the student loan process are too complex.
“We need to rethink college in terms of the cost,” Mr. Dyke said. “There's no correlation between the money being spent and the rewards.”
He said students are graduating from schools that cost $40,000 a year and taking jobs as nannies because those are the highest-paying positions they can find.