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Thursday, July 15, 2010

Opportunity vs. Hope vs. Reality - Tax Incentives for Higher Ed

The federal income tax law includes several incentives and subsidies for higher education expenses. The Hope Scholarship credit that has been around since 1997 was temporarily replaced for 2009 and 2010 with a more generous American Opportunity Tax Credit that applies to almost all taxpayers with higher education expenses because the AGI phase-out range is so high (ends at $180,000 for MFJ) and it applies to the first four years of college rather than just the first two under Hope.

President Obama has proposed making the AOTC a permanent replacement for the Hope Credit.

I've got a short article comparing these incentives against each other and against the reality of how long it really takes most people to finish college today and what it costs, as well as a critique of the AOTC using principles of good tax policy. You can find it here (AICPA Tax Insider, 7/15/10).

I'd like to see these incentives pulled from the tax law where they really don't work well. The funds aren't available when tuition is due, they provide benefits to many people who really don't need them while others struggle to get to and stay in college, the federal government already has various programs for helping students pay for college, and they complicate the tax law.

What do you think?

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