Higher education has long been crucial to Americas ability to remain competitive in the global knowledge economy; however, the affordability of American higher education remains a topic of concern. The federal government assists with the cost of higher education through a variety of mechanisms, including federal student aid programs authorized under Title IV of the Higher Education Act of 1965, as amended (Title IV); tax expenditures (reductions in federal tax liabilities through tax credits, deductions, exemptions, and tax-preferred savings programs); and tuition assistance provided to veterans and military service members. In fiscal year 2010, the U.S. Department of Education (Education) provided approximately $37.5 billion in grants and made more than $104.3 billion in loan assistance available through Title IV programs reviewed in GAOs May 2012 report. GAO also reported that revenue lossesthe amount of revenue the government forgoesfrom higher education tax expenditures were an estimated $25 billion in the same year. In addition, the Department of Veterans Affairs (VA) provided $7.4 billion to fund education benefits in fiscal year 2010, and the Department of Defenses (DOD) Military Tuition Assistance Program provided $531 million in tuition assistance in the same fiscal year. For over 10 years, GAO has identified weaknesses in the coordination of federal assistance for higher education, as well as a lack of evaluative research on the effectiveness of this assistance. GAO identified higher education as part of a broader governmental challengeEducation and Employmentand has raised questions about whether and how the federal governments higher education policy programs can be better coordinated.
GAO found that federal assistance for higher education is fragmented across four departments: Education, which administers Title IV programs; the Department of the Treasury (Treasury), which administers higher education tax provisions; VA, which administers funds through the Post-9/11 Veterans Educational Assistance Act of 2008 (Post-9/11 GI Bill) and other programs for service members, veterans, or their dependents; and DOD, which provides tuition assistance to service members. Moreover, within these departments there are multiple forms of assistance available with the same fundamental purposeto assist students and families with financing higher educationthough they do so for different populations at different times. GAO identified eight large tax expenditures, seven large Title IV programs, five VA programs, and one DOD program that help students and families save for, pay, and repay the costs of higher education (see the fig. below and table 13 in app. IV).
Federal Higher Education Assistance
Note: The Earned Income Tax Credit and the Parental Personal Exemption are included here because they provide additional tax benefits to parents of students. Parents can generally claim children as dependents under the age of 19, but both of these tax provisions permit parents to claim dependents aged 19 through 23 if the dependent is a full-time student at least 5 months of the year.
Providing federal financial assistance in these varied ways presents students and their families with multiple tools to help them pay higher education expenses. While many meaningful results that the federal government seeks to achieveincluding those for higher educationrequire the coordinated efforts of more than one agency, level of government, or sector, the fragmented nature of federal higher education assistance may make it difficult for some families to understand and make the best use of this assistance. For example, in GAOs analysis of 2009 Internal Revenue Service (IRS) data for selected returns with information on education expenses, GAO found that tax filers do not always choose tax expenditures that maximize their potential tax benefits. Specifically, about 14 percent of filers (1.5 million of almost 11 million eligible returns) failed to claim an education credit or deduction for which they appear eligible. Taxpayers might not maximize their tax benefits because they are unaware of their eligibility for the provisions or confused about their use. The number and similarity of higher education tax provisions may make it harder for taxpayers to determine which one is best for them. For example, IRS Publication 970 includes four different tax expenditures for educational saving, each with different requirements and benefits to the taxpayer. IRS and Education have taken steps to provide information on these provisions, but the number of filers failing to claim a higher education tax provision suggests more could be done. In addition to filing taxes to obtain federal assistance, there is a separate application process for students or families seeking Title IV aidthe Free Application for Federal Student Aid (FAFSA) administered by Education. Many experts, both within and outside the government, have raised concerns that the length and complexity of the FAFSA may discourage some students from applying for aid.
Agencies fragmented processes for administering federal assistance for higher education could benefit from better interagency coordination. After the start of VAs comprehensive Post-9/11 GI Bill program on August 1, 2009, improper payments for education benefits increased from $63.7 million, or 2 percent of the total outlay, in fiscal year 2008 to $712.8 million, or 8 percent of the total outlay, in fiscal year 2010. GAO found in May 2011 that to address program implementation challenges, VA could leverage lessons learned from Educations experience with streamlining its administrative processes for delivering student aid. Specifically, Education has gained efficiencies in its processes to return and reconcile federal student aid funds, and these practices could help improve VAs administration of the Post-9/11 GI Bill program. Similarly, GAO found in March 2011 that DOD could better leverage compliance information already collected by Education to improve its oversight of postsecondary schools. This information could provide additional insight into a schools financial stability, quality of education, and compliance with regulations that provide consumer protections for students and the federal government. Collaborating with Education could provide opportunities for VA and DOD to achieve greater efficiencies in program administration and effectively safeguard federal funds.
Although multiple federal agencies provide higher education assistance, evidence on the effects of this assistance on student outcomessuch as the likelihood students will continue their educationis limited. Evaluative research can help policymakers better understand the merits and value of various federal assistance efforts, especially in an environment of limited resources. Given the methodological challenges associated with such research, substantive changes such as the introduction and expiration of federal programs and tax provisions are among the most viable opportunities for evaluative research. Building on evidence from evaluative research, policymakers can consider whether to invest further in successful programs and make changes to less effective programs. To help inform these decisions, GAO identified factors that contribute to effective and efficient higher education assistance programs. Policymakers can assess whether programs incorporate the following elements in their design:
Considering these factors can help inform the need to make improvements to current programs, consolidate programs, eliminate programs, or design features of new programs.
Title IV programs and tax expenditures are available to the general public, depending on eligibility. VA and DOD administer benefit programs specifically for veterans, service members, or their dependents. For more information on these programs, see appendix IV.
There are other Title IV programs beyond the scope of our review, in addition to other higher education provisions listed in the Publication 970 Tax Benefits for Education. For detailed information on our scope and methodology, see GAO-12-560.
On average, these filers lost a tax benefit of $466. GAO estimates that the total amount of tax benefits filers did not claim was approximately $726 million in 2009. GAOs analysis is limited to tax filers who appeared eligible for the lifetime learning credit (LLC) or the tuition and fees deduction in 2009, had a Form 1098-T Tuition Statement with information on the students education expenses, and had a tax liability after claiming other tax benefits. After eliminating returns where eligibility was not clear, GAO included only 29 percent of returns in our analysis of filers with a 1098-T but selected neither the LLC nor the tuition deduction in 2009. Estimates have 95 percent confidence intervals that are within 10 percent of the estimate itself. Details on GAOs methodology and its limitations can be found in GAO-12-560.
Education began coordinating with IRS in 2010 to provide an option for tax filers to prepopulate the FAFSA using an automatic data transfer from their tax returns. Education estimated this IRS data retrieval process would improve the administration of student aid and reduce inaccurate payments by at least $340 million in fiscal year 2012.
The term improper payments refers to any payment that should not have been made or that was made in an incorrect amount, any payment to an ineligible recipient, any payment for an ineligible service, and duplicate payments. This includes both over- and underpayments.
To address the issues related to fragmentation, GAO has previously recommended that the federal agencies providing higher education assistance take the five actions outlined below. Some of the five actions focus on program efficacy and maximizing program benefits, while others have the potential to generate efficiencies or reduce improper payments.
To help ensure individuals who are eligible to claim a higher education tax expenditure are aware of their eligibility and the benefit they may receive, GAO recommended in May 2012 that the Commissioner of Internal Revenue and the Secretary of Education should work together to take the following two actions:
To improve VAs administration of the Post-9/11 GI Bill program and address ongoing challenges, GAO recommended in May 2011 that the Secretary of Veterans Affairs take the following action:
To improve its oversight of schools receiving Tuition Assistance funds, GAO recommended in March 2011 that the Secretary of Defense take the following action:
To provide federal policymakers information on the relative effectiveness of Title IV programs and higher education tax expenditures, GAO recommended in May 2012 that the Secretary of Education take the following action:
The information contained in this analysis is based on findings from the reports in the related GAO products section and additional work GAO conducted. GAO analyzed fiscal year 2010 and fiscal year 2011 budget data from Education and VA. GAO also analyzed Educations 2007-2008 National Postsecondary Student Aid Study, IRS 2006-2009 Statistics of Income (SOI) individual tax return file, and the Federal Reserves 2007 Survey of Consumer Finances. GAO also reviewed relevant federal laws, regulations, and agency documents and conducted interviews with agency officials and other parties. Tables 13 and 14 in appendix IV list the programs and tax expenditures GAO identified that might have similar or overlapping objectives, provide similar services, or be fragmented across government missions. Overlap and fragmentation might not necessarily lead to actual duplication, and some degree of overlap and duplication may be justified.
In commenting on the May 2012, May 2011, and March 2011 reports on which this analysis is based, Defense, Education, IRS, and VA agreed with GAOs recommendations. Education noted that while it does not have access to tax data, it will work with IRS to assist in taxpayer outreach.
GAO provided a draft of this report section to these agencies for review and comment. In e-mails received on January 17, 23, and 24, 2013, officials from Education, IRS, Treasury, and DOD provided updated information on their progress in implementing the recommended actions. In an e-mail received on January 22, 2013, a VA official stated that the agency did not object to the language in this report section. Regarding the first and second actions, Education and IRS officials stated they have held meetings to discuss opportunities for additional outreach to taxpayers. IRS officials stated they are using information learned through collaboration with Education to inform their American Opportunity Credit communication strategy. Treasury added that there is new language on IRS Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents, notifying tax filers who paid higher education expenses that they may be eligible for benefits. In addition, IRS research group is in the process of identifying tax filers that appeared to be eligible for an education credit but did not claim one. Regarding the fourth action, DOD stated it has begun working with Education and other agencies to share monitoring information and strengthen enforcement in the area of higher education benefits. Regarding the fifth action, Education officials said they are in the process of determining whether financial aid data can be made available to researchers for evaluative research.