Colleges have been rocked by student protests, but now they’re launching a demonstration of their own in Washington against reductions to their tax subsidies. They’re throwing a tantrum because they may, at long last, have to rationalize their spending.
The IRS code contains about a dozen individual tax subsidies for higher education, all with disparate rules that the IRS describes in a 95-page brochure that makes academic prose look lucid. Parents and students can claim three different tax credits, deduct loan interest, and receive an exemption for some discharged loans and tuition assistance.
These dispensations are layered on top of low-interest federal loans (4.45% for undergrads), grants and loan-forgiveness programs. The Congressional Budget Office estimates that the government will lose about 25 cents on every dollar of subsidized Stafford loans.
Colleges that have been riding this gravy train are howling that Republican House reforms repealing and consolidating their tax carveouts will raise tuition. But stripping down the subsidies might make students and parents more aware of costs and impel colleges to curb unnecessary spending.
Take the three tax credits, which the House bill proposes to combine into a partly refundable $2,500 American Opportunity Tax Credit that can be claimed for up to five years. This simplification would yield about $17.5 billion in revenue over 10 years and reduce the enticement for students to drag out their education. The Lifetime Learning Credit, which is part of the consolidation, can now be claimed indefinitely.