Tax credits favour wealthy students

September 22, 2006

Seven years after the US Government began allowing federal tax deductions to offset the cost of university tuition, the deductions have been found to benefit wealthy families, according to the first government review of the programme.

Meanwhile, the percentage of students who take out loans to pay for tuition - and the amounts they borrow - continues to creep up. Moreover, the amount they pay after grants and loans have been exhausted has soared from $2,700 (Pounds 1,430) to between $8,300 and $20,000 a year over the past five years, depending on what kind of university they attend.

The study by the Government's National Center for Education Statistics concludes that tax credits save about $600 a year for the lowest-income families, but families earning more than $92,000 a year can save as much as $1,100.

While critics of the scheme complain that tax credits logically benefit families paying the highest income taxes, supporters point out that they are a way to help squeezed middle-class families whose children may not be eligible for other university tuition grants.

In fact, when direct government grants are included, low-income families receive much more tuition assistance than wealthier ones, to the tune of $3,300 a year versus $800. About a quarter of the poorest students have their entire tuition covered by grants.

The tax credits were enacted in 1997 as a way of helping the parents of university students without substantially increasing federal grant programmes.

But government initiatives have not managed to keep pace with rocketing tuition fees, and half of all students now take out loans.

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