Each year, the federal government spends billions of dollars on tuition tax credits to encourage more students to attend college. But these tax credits have little or no effect on college enrollment, have become a ripe target for abuse, and have made it easier for universities to increase prices. It’s time to end them.
Currently, the federal government offers two types of credits to offset tuition: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.
The American Opportunity Tax Credit allows taxpayers to reduce their tax liability by as much as $2,500 — as long as their income doesn’t exceed $90,000 ($180,000 for joint filers). Forty percent of the AOTC is “refundable,” meaning the Treasury will send you a check if you have little or no tax liability.
The Lifetime Learning Credit allows students or parents to reduce their taxes by up to $2,000 annually for an unlimited number of years. Qualified students must be enrolled in at least one college course, but don’t have to be pursuing a degree. Individuals earning less than $60,000 — or families earning less than $120,000 — are eligible for the credit.