Increasing take-up of the American Opportunity Tax Credit

What was the challenge?

Despite the American Opportunity Tax Credit (AOTC) being the most generous federal higher education tax credit, many eligible students or their families do not claim it.¹ These students may lack awareness of the benefits of AOTC or the steps to claim it, be uncertain about their own eligibility, have difficulty remembering key deadlines and locating necessary documents, and face coordination problems with family members, among other barriers to take-up.²³

What was the program change?

The program change was a series of emails and a letter encouraging AOTC take-up among current and recently enrolled college students. To increase the likelihood that eligible taxpayers opened and read the materials, the communications included multiple modes (emails and a letter), multiple audiences (the letter was sent to students’ permanent addresses), and for some students multiple senders (University and IRS).

How did the evaluation work?

Undergraduate students enrolled at a collaborating University during the 2019 tax year were randomly assigned to a business-as-usual group or communications-bundle group. The University sent five AOTC emails to communications-bundle students. Additionally, the IRS sent one letter to half of the communications-bundle group and the University sent the letter to the other half.

What was the impact?

Sending a series of emails and a letter increased AOTC take-up by 1.5 percentage points (p = 0.02; 95% CI [0.2, 2.8]), but did not have statistically significant effects on exploratory outcomes, such as AOTC credit amount or academic credits earned, and the effects did not vary depending on the sender of the letter.

Notes:

1. Guyton, John, Dayanand Manoli, Brenda Schafer, Michael Sebastiani, and Nick Turner. “Credits for College.” In Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association, vol. 110, pp. 1-20. National Tax Association, 2017.
2. Bergman, Peter, Jeffrey T. Denning, and Dayanand Manoli. “Is information enough? The effect of information about education tax benefits on student outcomes.” Journal of Policy Analysis and Management 38, no. 3 (2019): 706-731.
3. Dynarski, Susan, Judith Scott-Clayton, and Mark Wiederspan. “Simplifying tax incentives and aid for college: Progress and prospects.” Tax policy and the economy 27, no. 1 (2013): 161-202.

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