Education Builds a Nation

POLICY STATEMENT:
REPLACING EDUCATION RELATED TAX CREDITS
WITH A SYSTEM OF UP-FRONT GRANTS

Category: AFFORDABILITY
Adopted: March 27, 2004
Reviewed: December 2004
Amended: January 27, 2004, March 2008
Repealed: n/a

WHEREAS:

CASA believes that students should not accumulate an unreasonable or insupportable amount of debt in the
pursuit of a post-secondary education or in continuing such an education.

Currently, the federal government spends about 1.6 billion annually, on education-related tax credits.1 In
fact, tax spending has quadrupled since 1993.2 The tuition fee tax credit and the education tax credit are the
largest education-related tax expenditures of the government. The tuition fee tax credit was created in 1961,
and allows students to claim their tuition fees (and since 1997 their ancillary fees) as a non-refundable tax
credit. The education tax credit provides assistance to students irrespective of their actual tuition costs. For
every month of full-time studies, students can claim a tax credit of $400. Part-time students can claim a
monthly credit of $120. In their 2006 budget, the federal government also introduced a textbook tax credit.
Namely, students can claim an additional $65 for each month they are registered as full-time students and
$20 for each month they are registered as part-time students.

Because these credits are nonrefundable however, it is often impossible for students with low incomes to
benefit from them because they owe little or no tax.3 Most often, these credits are carried over into future
years or transferred to parents or spouses (regardless of whether they helped to pay for their education or
not). Further, if the family’s income is minimal to moderate, they may not even be able to use the tax credits
for several years.

Due to a limited income and in some cases, a lack of awareness, few students are able to take advantage of
tax credits while in school. It is, therefore, difficult to ensure that the money being spent on tax credits truly
benefits students. Almost 50% of tuition and education credits are claimed by tax-filers with incomes above
$30,000 (roughly the median income for individuals) while more than 25% are claimed by those with
incomes exceeding $50,000.

The student loan interest credit is the only one of the education related tax credits available that is
progressive, and it is progressive only in the sense that students who have a larger loan to pay off will also
accumulate the most interest over time.

1
Berger, Joseph, Anne Motte and Andrew Parkin. (2007). “Tax Credits.” The Price of Knowledge 2006-07. pp.103
2
Ibid 101
3
Ibid.
 Education Builds a Nation

CASA believes that student financial assistance spending should be progressive and targeted, yet the
majority of tax credits are not. CASA further believes that students who have student loans should receive
greater assistance in the form of debt reduction than they already do.

59% of undergraduate students graduated with debt in 2006, accumulating an average of $24, 047 worth of
debt during their 4-year degree.4 On a 10 year repayment plan, with a prime + 2.5% floating interest rate, a
graduate would pay $11,082.27 in interest, bringing their total indebtedness up to $35,129.27.

The federal government budgets for existing tax credits on an annual basis. Rather than budgeting for a tax
credit for some claimants, the federal government could budget for an annual, up-front non-repayable grant
for all students. It is at the beginning of the school year when students must shoulder the heaviest financial
burdens. CASA believes creating an up-front grant program is more meaningful and beneficial to students
than the existing education and tuition tax credits are.

BE IT RESOLVED THAT:

CASA advocate that the federal funding currently provided to students through tax credits, instead be
provided to students in the form of annual, up-front non-repayable grants.

4
PRA Inc. (May, 2007). Report on Student Debt: Canadian College Student Survey and Canadian Undergraduate Survey
Consortium. Montreal: The Canada Millennium Scholarship Foundation. pp. 5
2