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Complexity and Targeting in Federal Student Aid: A Quantitative Analysis

In: Tax Policy and the Economy, Volume 22

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  • Susan M. Dynarski
  • Judith E. Scott-Clayton

Abstract

A growing body of empirical evidence shows that some financial aid programs increase college enrollment. Puzzlingly, there is little compelling evidence that Pell Grants and Stafford Loans, the primary federal student aid programs, are effective in achieving this goal. In this paper, we provide an in-depth review of this evidence, which taken as a whole suggests that complexity and uncertainty in the federal aid system undermine its efficacy. We document complexity in the aid system, comparing it in particular to complexity in the tax system. We build on our previous work by showing that complexity in the aid process does little to improve the targeting of both student loans and grants, for both dependent and independent students. We conclude that the current targeting of aid can be reproduced with a much simpler aid process. While we show that the targeting benefits of complexity are small, we further document that the costs are large. We offer new estimates of the compliance costs faced by applicants and the administrative costs borne by the government and colleges. These costs total at least $4 billion per year. The perspective of behavioral economics suggests that the true cost is even higher, since complexity and uncertainty may discourage the target population from applying for student aid.

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This chapter was published in:

  • James M. Poterba, 2008. "Tax Policy and the Economy, Volume 22," NBER Books, National Bureau of Economic Research, Inc, number pote08-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 2362.

    Handle: RePEc:nbr:nberch:2362

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    Cited by:
    1. Gabrielle Fack & Julien Grenet, 2013. "Improving College Access and Success for Low-Income Students: Evidence from a Large Need-based Grant Program," PSE Working Papers halshs-00870546, HAL.
    2. Booij, Adam S. & Leuven, Edwin & Oosterbeek, Hessel, 2012. "The role of information in the take-up of student loans," Economics of Education Review, Elsevier, vol. 31(1), pages 33-44.
    3. Fack, Gabrielle & Grenet, Julien, 2013. "Improving College Access and Success for Low-Income Students: Evidence from a Large Need-based Grant Program," CEPR Discussion Papers 9699, C.E.P.R. Discussion Papers.
    4. Turner, Nicholas, 2010. "The Effect of Tax-Based Federal Student Aid on College Enrollment," University of California at San Diego, Economics Working Paper Series qt6758069g, Department of Economics, UC San Diego.
    5. Turner, Nicholas, 2011. "The Effect Of Tax-Based Federal Student Aid On College Enrollment," National Tax Journal, National Tax Association, vol. 64(3), pages 839-61, September.
    6. repec:hal:wpaper:halshs-00870546 is not listed on IDEAS
    7. Toke Reinholt Fosgaard & Lars Gårn Hansen & Erik Wengström, 2011. "Framing and Misperceptions in a Public Good Experiment," IFRO Working Paper 2011/11, University of Copenhagen, Department of Food and Resource Economics, revised Oct 2012.

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