View Research by Author - Katie Fitzpatrick

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The nation's 16.5 million postsecondary students can receive financial aid that does not need to be repaid from federal and state governments, institutions, and other private sources. During the 1970s and 1980s as college costs increased dramatically, these grants tended to focus on increasing access to college for low-income students.

In recent years, Congress has augmented traditional financial aid programs for higher education with tax-based subsidies. The tax subsidies can be very helpful to middle-income students who may not have been eligible for aid through traditional channels, but may be worth little or nothing to students from low-income families. This paper reviews financial assistance for higher education available through both traditional spending programs (grants, loans, and work-study) and tax assistance (credits, deductions, and tax-preferred savings plans). It summarizes recent research findings on the effectiveness of this aid and interactions among the various programs. It also discusses the role of future tax and fiscal policy choices in determining the level and nature of resources available for higher education needs.

The Taxpayer Relief Act of 1997 expanded assistance for postsecondary education for low- and middle-income families with the creation of two new credits: the Hope Scholarship Credit (Hope Credit) and the Lifetime Learning Credit (LLC). Both are intended to subsidize the cost of attending school by allowing a portion of a student's expenses to be offset by a tax credit.

[Dayton Daily News] The president's 2003 tax proposals include accelerating the so-called "marriage penalty" relief for middle- and upper-class married couples, rather than phasing in the change over a decade. Yet, for the largest source of cash assistance to low-income working families—the Earned Income Tax Credit—the administration has elected to ignore quicker remedies to the marriage penalty. While the tax credit is a vital mechanism for helping the working poor escape poverty, it imposes substantial marriage penalties on low-income couples.

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