Tax credits not the best way to help students

There are a number of ways to make current system of tax breaks fairer, more effective, analysts say

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When most people think about the ways that governments help to subsidize the cost of attending college and university, they think of student loan and grant programs. But it is the variety of federal and provincial tax credits directed at post-secondary students and their families that have payday loans Alabama actually ended up doing more of the heavy lifting.

Tuition, education and textbook tax credits cost the federal treasury about $1.6 billion in 2012 – more than twice the net cost of the Canada Student Loans Program, for instance. Provincial tax credits are in addition to that aid.

How much are these tax credits worth? A lot, as it turns out. The federal tuition tax credit amounts to 15 per cent of the tuition and other eligible fees paid. Add to that the education tax credit, which is a claim of $400 for each month of full-time attendance ($120 a month for part-timers). The federal tax credit amounts to 15 per cent of that total. There’s also a federal textbook credit of $65 a month for full-timers and $20 a month for part-timers. Again, the credit is worth 15 per cent of that total.

Any tax credits that students don’t need to reduce their tax owing to zero can be transferred to parents, grandparents, spouses or common law partners. They also can be carried forward indefinitely to a time when the student has tax owing.

Worth $2,000 a year

Depending on the province, federal and provincial tax credits have the effect of lowering the annual university tuition bill by at least a third – effectively, dropping the net cost of a year’s tuition from $6,000 to about $4,000. In the case of college tuition, the fees are less, but the tax credits, proportionately, can be worth even more.

All well and good, you may say. But more and more analysts say the current tax credit system is just not good public policy. In an attention-getting C.D. Howe Institute paper published last November, Wilfrid Laurier University economist Christine Neill argues that these post-secondary tax breaks should be rethought because they are largely ineffective in accomplishing two of the purported goals of these policies: 1) to increase post-secondary enrolment; and 2) to fairly provide financial support to post-secondary students in need when they need it.

Neill cites research that suggests that many students and their parents – especially those from low-income households – know about the “sticker price” of annual tuition bills but don’t know nearly as much, if anything, about the specific range of tax credits and other programs available to reduce the net cost of going to college or university.

“I regularly talk to people who are surprised by the existence or value of tax credits,” she said in an interview with . “You’re more likely to be aware of these things if you’ve gone to college or university or if people around you have gone to college or university. If that’s not the case, the awareness is not necessarily there.”

Need not a factor

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Neill isn’t alone in pointing out that tax credits are so-called universal subsidies: they are handed out regardless of income or financial need. So, a big chunk of the financial benefits from these tax credits goes to wealthier students and their families.

“Since kids from better-off backgrounds are more likely to go to [college or university], tax credit expenditure, on aggregate, mostly ends up in the hands of people from the top two income quartiles,” notes Alex Usher, president of Higher Education Strategy Associates, a Toronto-based research and consultancy group. “Grants, on the other hand, are more likely to end up in the hands of people from the bottom two quartiles.”