Tax refunds coming for Colorado in-state students
The new Colorado Promise program has flown under the radar for some, but it could mean a significant tax rebate for the 2024-25 school year coming in 2026. Enacted by House Bill 24-1340 this last May, resident students who attend public institutions and have family incomes of less than $90,000 are eligible for a reimbursement of tuition and fees paid for their education.
A latent tax credit may strike some as a roundabout way to fund higher education. Why not give more financial aid or grants?
"We are and have been for quite some time really constrained with what we can spend because of the Taxpayer Bill of Rights," notes Dr. Andrea Kuwik, Director of Policy & Research at the Bell Policy Center. Because of TABOR, passed in 1992, there is a limit on how much revenue the state can raise in taxes. The state of Colorado has to give back tax revenue if they go over a set threshold. The state legislature does have discretion over how they give back that money, but they can't use it for government services.
The Colorado Promise program will pay back students (or their benefactors) through a portion of the surplus funds that would otherwise be refunded to Colorado taxpayers. "TABOR shapes what this looks like. You're using the tax system to provide individuals funding, which is a distortion in ways that are not necessarily desirable," says University of Colorado at Boulder Law Professor Sloan G. Speck. The state has to be running a surplus, for example, to even use those funds to pay back students–a fact which is not guaranteed. Without a surplus, there would be even bigger budget problems.
Funding in-state students with this scheme has another drawback, which is that the student has to pay for tuition up front in either savings or loans. Prof. Speck says this kind of liquidity is usually only available to higher income individuals. Looking at the example of the federal Earned Income Tax Credit, which has been studied extensively, Prof. Speck says that not only does a tax credit "depress uptake–fewer people take advantage" because they will have to fill out forms and file taxes, but it also "exposes them to audit risk," an outcome that has historically overburdened low-income individuals.
This new tax credit comes as Colorado has struggled to keep pace with the rest of the United States in terms of funding their public higher education institutions.
The burden of public education increasingly falls on the individual in Colorado, which is what the Colorado Promise is trying to mitigate. While surrounding states have reduced the amount of money that students have to pay for college, Colorado has gone in the opposite direction. They currently rank 49th out of 51 in post-secondary education spending according to State Higher Education Finance. At the same time, the state faces a large gap in college attainment that will be required for an economy that produces more and more jobs that require a degree, according to a Georgetown University study. A number of advocacy groups have been ringing the alarm bells as a result.
In order to fund its well-regarded state universities, Colorado has resorted to enrolling more students from out of state and charging them higher prices. This has had the perhaps unintended effect of reducing the amount of in-state students, the exact population that the state is supposed to prioritize.
"For in-state tuition students, especially from families who aren't able to bear the full cost of higher education–it harms them; there's a big equity component to this," says Dr. Kuwik.
Colorado already struggles with getting qualified high school students into its affordable colleges and universities. As of last tally, the state had a FAFSA completion rate (a metric of likelihood of going to college) of 45.5%, below the national average but a significant rebound from 2023's 36%. Whether the Colorado Promise program will increase low- and middle-income college hopefuls has yet to be seen. The bill also commissions a study of the program, already in progress, but will not start notifying students of their eligibility until 2026.
Using the state's TABOR fund to pay individuals for college seems like a last resort for Colorado lawmakers. "There were a lot of folks within the state legislature who felt as though higher education has been underfunded for a long time," notes Dr Kuwik. "There really were very few options… if we think that higher education is important for people and we think that it is an important investment for our state and our economy and for people's well-being, then there should be a better way to do this."