Policy Documents

Case Study #8: Education Credits

August 7, 2013

In this case study, the authors write that the federal government provides many types of higher education assistance through the tax code. Two education tax credits are the Hope Scholarship Tax Credit (renamed and expanded as the American Opportunity Tax Credit) and the Lifetime Learning Credit. The Joint Committee on Taxation considers these education credits to be tax expenditures because it sees them as aid programs that encourage a particular activity by reducing its cost. Recently, there have been concerns that the assistance provided by the tax credits may have gone too far. Are educational institutions capturing the subsidies through inflated tuition and other charges, with little benefit to students? Is the aid persuading some people to take courses that are of little economic benefit? Is government largesse creating an education bubble similar to the housing bubble?