College is hopelessly unaffordable. Only the very wealthy can manage to pay full freight at high-prestige private universities, and even less exalted institutions bleed their students dry. Sure, financial aid provides some help. But the bottom-line cost is still extraordinary, leaving many students and their families mired in debt.
Just this week, President Obama underscored the heavy burden of all this borrowing and called for additional college aid. “We are here today,” he said, “because we believe that in America, no hard-working young person should be priced out of a higher education."
Despite its cost, though, college is still a good deal. According to one recent study, not going to college will cost you dearly – on the order of half a million dollars. “That’s right,” wrote David Leonhardt of The New York Times. “Over the long run, college is cheaper than free.”
But long-run value doesn’t help with short-run tuition payments. Aware of this problem, political leaders have tried to help, creating a variety of grant and loan programs to make college more affordable. And since the 1990s, they’ve used the tax code, too.
As the Center for American Progress recently observed:
- The United States tax code is full of provisions designed to encourage or reward specific behaviors, such as owning a home or saving for retirement. Tax benefits for higher education are no exception: Contributions to some college savings accounts grow tax-free, college tuition is often tax deductible, and some student-loan borrowers are able to deduct the interest paid on their student loans just as they would the interest paid on their mortgage.
Partly because those tax breaks don’t work very well. As a group, they are poorly targeted and needlessly complex. Many deliver benefits to students who would attend college even without tax assistance – yet they still fail to provide adequate help for those in real need.
“There are multiple downsides to using the tax system as a way to help students pay for their postsecondary education,” concluded Tatyana Guzman in a recent article for Tax Notes.
- Tax-based aid creates a steep price tag for some educational preferences, while challenges remain with the timeliness of its delivery and low-income students' familiarity with it. Its regressivity, poor targeting, and incidence pose problems. Finally, educational tax provisions complicate the federal income tax system and make it less transparent.
That complexity is something to behold. There are at least 12 tax preferences targeting higher education, Guzman notes. Many are complex in their own right. When combined, however, they became a hopeless nightmare of complexity.
“Higher education tax provisions should be transparent and understandable,” wrote the Government Accountability Office in a typically understated report. “The multiple higher education tax expenditures available to help offset current education expenses fall short of this principle.“
The Center for American Progress was more direct. Existing tax incentives, it charged, “needlessly confuse families and complicate the tax system.”
In the big budgetary picture, education tax breaks are not especially expensive. According to one estimate, they account for only about $30 billion of the $1 trillion tax expenditure budget. But in a tight fiscal environment, they still seem pricey, leading some critics to suggest refinement, reduction, and reform.
I have a better idea: Let’s get rid of tax incentives for education entirely. Generally speaking, they are Rube Goldberg contraptions, best replaced by something more straightforward – like direct spending programs.
If Congress wants kids to go to college, it should just give them money. It would be cheaper and more efficient, not to mention a lot more transparent. Analysts at the Treasury Department have been making this point for decades. Or at least they were until various presidents put them to work designing new tax incentives.
Those presidents, of course, understood the central virtue of education tax incentives: In the political arena, they count as tax cuts, not spending hikes. Which is ridiculous when you consider the bottom line -- but not so ridiculous when you consider the politics.
Still, tax incentives are a bad way to deliver education assistance. We’d all be better off if politicians would just make the case for helping kids go to college -- and give them money to make it possible.