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The implicit taxes from college financial aid

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  • Dick, Andrew W.
  • Edlin, Aaron S.

Abstract

Families who heed the 'experts'' advice and save for their children's college education typically receive less financial aid. The variation in the net price of college functions as a large tax on savings. College financial aid also functions as an income tax. This paper estimates the size and determinants of these income and asset taxes. We find that the marginal income tax typically ranges from 2% to 16% and the marginal asset levy from somewhat under 10% to as high as 25%. If a typical family chooses to accumulate $100,000 in assets rather than consuming these resources, it loses financial aid worth $10,000-$20,000.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 65 (1997)
Issue (Month): 3 (September)
Pages: 295-322

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Handle: RePEc:eee:pubeco:v:65:y:1997:i:3:p:295-322

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. Aaron S. Edlin, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 143-158, Spring.
  2. Ronald G. Ehrenberg & Daniel R. Sherman, 1984. "Optimal Financial Aid Policies for a Selective University," NBER Working Papers 1014, National Bureau of Economic Research, Inc.
  3. Martin Feldstein, 1992. "College Scholarship Rules and Private Saving," NBER Working Papers 4032, National Bureau of Economic Research, Inc.
  4. Michael S. McPherson & Morton Owen Schapiro, 1994. "Merit Aid: Students, Institutions, and Society," Williams Project on the Economics of Higher Education DP-25, Department of Economics, Williams College.
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Citations

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Cited by:
  1. Kane, Thomas J., 1998. "Savings Incentives for Higher Education," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 609-20, September.
  2. William M. Gentry & R. Glenn Hubbard, 2002. "The Effects of Progressive Income Taxation on Job Turnover," NBER Working Papers 9226, National Bureau of Economic Research, Inc.
  3. Steuerle, C. Eugene, 1997. "A Principled Approach to Educational Policy," National Tax Journal, National Tax Association, vol. 50(2), pages 351-65, June.
  4. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
  5. Kane, Thomas J., 1997. "Beyond Tax Relief: Long-Term Challenges in Financing Higher Education," National Tax Journal, National Tax Association, vol. 50(2), pages 335-49, June.
  6. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
  7. Rebecca J. Acosta, 2001. "How Do Colleges Respond to Changes in Federal Student Aid?," UCLA Economics Working Papers 808, UCLA Department of Economics.
  8. Long, Mark, 2004. "The impact of asset-tested college financial aid on household savings," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 63-88, January.
  9. Annamaria Lusardi & Ricardo Daniel Cossa & Erin L. Krupka, 2001. "Savings of Young Parents," JCPR Working Papers 229, Northwestern University/University of Chicago Joint Center for Poverty Research.
  10. Tansel Yilmazer, 2008. "Saving for Children’s College Education: An Empirical Analysis of the Trade-off Between the Quality and Quantity of Children," Journal of Family and Economic Issues, Springer, vol. 29(2), pages 307-324, June.
  11. Thomas J. Kane, 2003. "A Quasi-Experimental Estimate of the Impact of Financial Aid on College-Going," NBER Working Papers 9703, National Bureau of Economic Research, Inc.
  12. Susan M. Dynarski, 2004. "Who Benefits from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell," NBER Working Papers 10470, National Bureau of Economic Research, Inc.
  13. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
  14. Luisa Lambertini, 2001. "Technological Change and Public Financing of Education," Boston College Working Papers in Economics 579, Boston College Department of Economics.
  15. Annamaria Lusardi & Ricardo Cossa & Erin L. Krupka, 2000. "Savings of young parents," Working Paper Series WP-00-23, Federal Reserve Bank of Chicago.

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