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College Tax Credits

College tax credit attacked Hope Scholarships 'drain tax system'
By Tracey Wong Briggs

President Clinton's Hope Scholarship tax credit only moderately helps the middle class and fails to broaden access to higher education, says a working paper out today by Thomas Wolanin, a former Clinton senior level education policy adviser.

''This is clearly a case of good politics triumphing over public policy,'' says Wolanin, senior associate for the non-profit Institute of Higher Education Policy. ''It drains the federal tax system to no good purpose.''

Billed as the first major review of the scholarships since they were enacted in the Taxpayer Relief Act of 1997, the paper criticizes the tax credit as a policy shift away from making college possible for the poor to making it more affordable to those who already are going. It's also a bad move away from providing direct aid to using the tax code, which makes both financial aid and the tax code more complex, Wolanin says. Ultimately, he says, Hope Scholarships provide incentive to states and colleges to raise tuition and lower financial aid.

The federal Hope Scholarships, not to be confused with Georgia's lottery-funded program, are college tuition tax credits of up to $1,500. When enacted, the Hope Scholarships and Lifelong Learning tax credits were projected to cost around $35 billion over five years. Actual cost estimates are not available, Wolanin says.

Hope Scholarships do ease the burden of attending college for the middle class, but only moderately -- the percentage of annual income it costs to go to college drops by an average of 2% for families making $30,000 to $90,000 per year, the paper says. But because the benefit phases in as families pay more taxes, those who need it most don't benefit.

Still, ''nobody saw this as a need-based aid program when it was created,'' says Terry Hartle, vice president of the American Council on Education, which backed the plan. ''We think the Hope Scholarship and Lifelong Learning tax credits have done exactly what they were intended to do: provide a tax break to middle- and low-income families.''

And with tax relief a major goal of the Bush administration, using tax credits to benefit those saving for or paying for college may even increase, he adds.

Many of the paper's criticisms were discussed before the tax credits were implemented, Hartle says. ''But there is no evidence, and the report provides none, that any college or state has increased tuition as a result of the tax credits. We think it unlikely that states or colleges would do that. You don't increase tuition for everyone because 30% are getting a modest benefit.''

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