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The Savings Impact of College Financial Aid

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Author Info
Andrew Dick (University of Rochester School of Medicine)
Aaron Edlin (UC Berkeley)
Eric Emch (U.S. Dept. of Justice Antitrust Division)

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Abstract

When parents save money for their children's college education, a portion of their savings is later taken away in the form of reduced eligibility for college financial aid. We estimate the long-run impact of this implicit asset tax by estimating family preferences over life-cycle consumption, savings and college choices and then simulating family choices over these variables under various hypothetical financial aid systems with different asset treatments. Our simulations suggest that the implicit taxes in the current college financial aid system may in the long run reduce economy-wide asset holdings in the U.S. by $186 billion versus aid systems with no implicit asset taxes. This figure is less than 1% of total U.S. wealth during the years of our data. It, however, reflects a 10.2% reduction is asset holdings for affected families.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Economic Analysis & Policy.

Volume (Year): 2 (2003)
Issue (Month): 1 ()
Pages: 1044-1044
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Handle: RePEc:bep:eapcon:v:2:y:2003:i:1:p:1044-1044

Note: oai:bepress:bejeap-1044
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Related research
Keywords: Assets Savings College financial Aid taxes

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Find related papers by JEL classification:
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

References listed on IDEAS
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  1. Evans, Owen J, 1983. "Tax Policy, the Interest Elasticity of Saving, and Capital Accumulation: Numerical Analysis of Theoretical Models," American Economic Review, American Economic Association, vol. 73(3), pages 398-410, June.
  2. Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983. "The Efficiency Gains from Dynamic Tax Reform," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February. [Downloadable!] (restricted)
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  3. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April. [Downloadable!] (restricted)
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  4. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June. [Downloadable!] (restricted)
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  5. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April. [Downloadable!] (restricted)
  6. repec:fth:harver:1435 is not listed on IDEAS
  7. Edlin, Aaron S, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 143-58, Spring. [Downloadable!] (restricted)
  8. Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October. [Downloadable!] (restricted)
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  9. Summers, Lawrence H, 1981. "Capital Taxation and Accumulation in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 71(4), pages 533-44, September. [Downloadable!] (restricted)
  10. Dick, Andrew W. & Edlin, Aaron S., 1997. "The implicit taxes from college financial aid," Journal of Public Economics, Elsevier, vol. 65(3), pages 295-322, September. [Downloadable!] (restricted)
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  11. Beaudry, Paul & van Wincoop, Eric, 1996. "The Intertemporal Elasticity of Substitution: An Exploration Using a US Panel of State Data," Economica, London School of Economics and Political Science, vol. 63(251), pages 495-512, August. [Downloadable!] (restricted)
  12. Blinder, Alan S, 1975. "Distribution Effects and the Aggregate Consumption Function," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 447-75, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lance J. Lochner & Alexander Monge-Naranjo, 2008. "The Nature of Credit Constraints and Human Capital," NBER Working Papers 13912, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Guillermo Cruces & Paul Makdissi & Quentin Wodon, 2004. "Poverty Measurement Under Risk Aversion Using Panel Data," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(1), pages 1194-1194. [Downloadable!] (restricted)
    Other versions:
  3. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," NBER Working Papers 13527, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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