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A Significant Number Of Students in Every State Are Shut Out Of Federal Higher Education Tax Credits

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Publication Date: June 2007

Publisher(s): Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): Aviva Aron-Dine; Arloc Sherman

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)
Education (Education policy and planning)

Keywords: Economic projections; Federal budget; Education costs; Income diversity

Type: Report


The higher education tax credits are “nonrefundable,” which means they can only benefit those with incomes high enough to generate sufficient federal income tax liability. As a result, students from low-income families generally do not qualify for them. This year, a family of four with income of less than $24,000 (more than twice full-time minimum wage earnings) would receive no benefit from the tax credits. And the family would need an income of over $40,000 to qualify for the full benefits of either of the two credits. In contrast, if a tax credit is “refundable,” taxpayers can receive a tax refund for the amount by which the credit exceeds their income tax liability. Put another way, only refundable tax credits provide the same benefits to taxpayers at all income levels, rather than shutting out those with low incomes. "