The federal government spends $23 billion on higher education tax credits, but nearly 40 percent of undergraduates are not eligible to receive them. Photographer: Daniel Acker/Bloomberg

Despite the billions of dollars the government spends on education tax credits, new research shows nearly 40 percent of undergraduate college students are ineligible to receive them, raising questions about whether the benefit is a good way to help families pay for school.

Tax credits are lauded by some politicians as an efficient way to address the high cost of college. As a result, the federal government in 2014 spent $23 billion on three programs offering tax credits for college tuition, books and supplies. But researchers at the New America Foundation found that restrictions in the programs and the way credits are calculated limit the reach.

Living expenses do not qualify for tax credits, even though housing and meal plans at many colleges and universities now cost more than tuition. Nearly two-thirds of the families that researchers say are ineligible for tax credits had tuition and fees covered by grants and scholarships. Many students in this case attended community colleges, where tuition and fees are low enough to be covered by Pell Grants for needy students, according to the report.

But that money may not stretch far enough to cover living expenses. What’s more, scholarships used to pay for housing and food counts as taxable income that could affect a student’s eligibility for need-based financial aid.

“These tax benefits for tuition and fees is a limiting feature when you consider what the other sources of student aid are doing,” said Jason Delisle, director of the federal education budget project at New America, who co-authored the report. “It speaks to the very sloppy, uncoordinated federal student aid policy where the left hand doesn’t know what the right hand is doing.”

[Freshman residency rules sometimes force students to pay prohibitive costs]

Another reason many college students are not receiving tax benefits is because their families did not file federal income taxes. A majority of these students come from household earning less than $30,000 a year.

The Obama administration in 2009 tried to reach more needy students by offering a wider pool of families credit worth up to $2,500 per student. Some families earning less than $30,000 received a larger share of the total benefits, according to researchers at New America. But many low-income households still wind up with few benefits because they don’t owe enough in federal taxes to get the full credit.

Instead, most of the benefits of education tax credits go to families making at least $100,000, according to the Tax Policy Center. Researchers at New America found that tax filers earning over $106,000 were eligible for an average $1,900, while those earning less than $30,000 were on average eligible for nearly $800 less.

Critics of tax credits say they are complicated to claim and poorly timed. Fourteen percent of eligible families failed to claim any of the tax benefits, while 27 percent of families who claimed one tax benefit would have been better off claiming another, according to the Government Accountability Office.

[Tax credits are a bad way to help families pay for college. Here’s why.]

Authors of a National Bureau of Economic Research study said the timing of tax credits undercuts their effectiveness. Families typically have to pay tuition nine to 10 months before they receive money from the credits, so the upfront costs can remain a hurdle.

Most experts agree that taxpayer funds are better spent providing more money upfront to families rather than offering complicated tax credits. But the administration has contended that simplifying, not ending, higher education tax breaks would improve college access and affordability.

Last year, Obama proposed folding the jumble of education tax credits into one expanded program—in part to address the criticism that higher education credits have become too complex. The president’s plan would have opened the benefit to people attending college less than half the time, offering them up to $1,250 and extending the credit for five years instead of four for all students.

But his plan failed to gain much support, especially after the president included a proposal to end a major tax benefit of a popular college savings account, known as 529 plans to help pay for the expansion.

Want to read more about paying for college? Check out these stories:

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Middle-class families are fed up with their financial aid options