Tax Preferences for Education Are Simpler but Not Simple

Maximizing the Available Credits and Deductions

Charles R. Pryor, PhD, and Christopher R. Jones, PhD, CPA, and Chrisa L. Anderson, CPA

Student grant and loan programs intended to assist families in paying for college were first authorized under Title IV of the Higher Education Act of 1965. Examples include Pell Grants, Stafford Loans, and Plus Loans. Since the 1990s, however, new federal initiatives aimed at helping families pay for college have been implemented through the tax code. The tax code now offers many options for eligible filers to assist in paying for post-secondary education, including deductions, exemptions, exclusions, and credits. The number of taxpayers using education related tax preferences has been increasing since their inception; as of 2002, more taxpayers are being assisted with the cost of education through these tax preferences than through Title IV aid (GAO-08-717T: “Multiple Higher Education Incentives Create Opportunities for Taxpayers to Make Costly Mistakes,” Government Accountability Office [GAO], 2008).