Earlier this year, Colorado passed a law to reimburse two years of tuition and fees for recent in-state high school graduates from families earning up to $90,000 per year. Colorado is one of many states to have passed a law with the aim of making college tuition-free, but its program will be implemented differently from most free college programs. The tuition reimbursement will be distributed through a tax credit that students can receive the following year, rather than through an up-front grant. And the program can be used at any public institution in the state, including technical colleges, community colleges, and four-year institutions. But which Colorado students will benefit the most from the program, and how much will funding cover the true cost of attending schools?

Key Findings

Using data from the 2020 National Postsecondary Student Aid Study, the findings show the following:

• The distribution of tuition dollars by family income is roughly proportional among eligible families. Students from families making close to the $90,000 income cap receive a proportional share of the policy’s benefits, and the lowest-income students receive a substantial share of the tuition reimbursement dollars. For example, 48 percent of the tuition reimbursement would go to families earning no more than $30,000 per year, who make up 43 percent of those eligible for the reimbursement.
• The distribution of benefits by race and ethnicity reveals that white students receive a larger share of reimbursement dollars relative to their share of the eligible population, and Hispanic or Latino students receive a smaller share of reimbursement dollars. Specifically, white students make up 58 percent of the eligible population but account for 70 percent of reimbursement dollars. Hispanic or Latino students make up 30 percent of the eligible population but account for 18 percent of the benefit.
• For students with household incomes less than $90,000, the tuition tax credit—which does not address living expenses—would leave between $12,000 and $14,000 to be paid out of pocket or with loans. For those with household incomes between $90,001 and $120,000, who are not eligible for the credit, net cost of attendance, which would include tuition and living expenses, is $25,552, on average.

Implications

In addition to middle-income families, many Colorado students with the lowest household incomes will benefit from the tuition tax credit. On average, both groups are left with similar net costs, which are largely living expenses and are a major piece of college affordability. One option to address this barrier is to set a minimum benefit for students eligible for the tuition reimbursement program, which could be implemented so students who already pay little or no tuition would receive an additional credit to help with living expenses. Another option could be to create a separate living expense stipend that tapers with household income.

But the tax credit could leave families earning just over $90,000 with double the net cost of attendance of those earning just under $90,000. One option to adjust for this could be to offer a partial credit to families making more than $90,000. This type of phaseout could reduce large gaps in costs of attendance between students with similar household incomes.

Distributing the tuition reimbursement as a tax credit may limit the policy’s overall benefits. Students and their families will be required to pay tuition as they otherwise would, paying out of pocket or using loans. In the past, federal tax incentives have had little effect on postsecondary enrollment, suggesting this reimbursement may not increase college access and success even if it reduces costs. Furthermore, eligible students often do not claim these tax credits, particularly students of color. Implementation of the tax credit will be an important factor for this policy, and making the credit accessible while ensuring information about the program is widely shared will be essential for maximizing its effect on college affordability.

Additional Resources

• The Fine Print on Free College: Who Benefits from New York’s Excelsior Scholarship?
• The Returns to the Federal Tax Credits for Higher Education
• Colorado Will Ease Path to College by Paying Back 2 Years of Tuition for Lower-Income Students
• What Better Data Reveal about Pell Grants and College Prices
• A Living Stipend for Students with Financial Need
• The Impact of Federal Tax Credits for Higher Education Expenses