An Analysis of the Use of Education Tax Credits at Four Public Community Colleges

This study examined the use of education tax credits at four community colleges using data from the Federal Quality Assurance Program in 1998, the first year of the HOPE Scholarship and Lifetime Learning Tax Credit (LLTC). Preliminary estimates indicated that the two tax credits were expected to primarily benefit middle income tax filers with adjusted gross incomes (AGI) falling between $40,000 and $80,000. Also, claimants were not expected to benefit from the Federal Pell Grant program. Of the sample of federal 1998 tax returns examined in this study, only 11.2% claimed a HOPE/LLTC, averaging $859. In addition, the average AGI of claimants was $35,867, with approximately 59% of AGI levels falling below $40,000. This study also examined Federal Pell Grant and Earned Income Tax Credit (EITC) use to determine to what extent lower income tax filers are claiming the HOPE/LLTC. The results indicate that approximately 58% of student HOPE/LLTC claimants also received Pell, averaging $1,775, while 14% of independent student and parent HOPE/LLTC claimants also claimed an EITC, averaging $924. Other variables examined include use of a paid tax preparer or self-preparation (by hand vs. tax software). The results indicate that a larger percentage of the HOPE/LLTC came from lower income levels than originally projected. While the results of this study are limited and only examine data elements from a financial aid filer database, the information can be useful to policy makers in determining if the HOPE/LLTC is benefiting taxpayers in accordance with the policy's intent.