Hacking the American Opportunity Tax Credit for College Tuition

What started as a set of modest federal income tax breaks for college tuition nearly two decades ago, has been expanding ever since. In 1997, two well-targeted tax credits for tuition were adopted for middle-income families. Today, these benefits provide substantial benefits to families all along the income spectrum. But there are well-known flaws in providing student aid through tax benefits, and our paper, A New Look at Tuition Tax Benefits, offers fresh evidence on that point. It also shows how the Obama administration’s policies have produced unintended consequences.