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The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics

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Author Info
Susan M. Dynarski
Judith E. Scott-Clayton

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Abstract

The federal system for distributing student financial aid rivals the tax code in its complexity. Both have been a source of frustration and a focus of reform efforts for decades, yet the complexity of the student aid system has received comparatively little attention from economists. We describe the complexity of the aid system, and apply lessons from optimal tax theory and behavioral economics to show that complexity is a serious obstacle to both efficiency and equity in the distribution of student aid. We show that complexity disproportionately burdens those with the least ability to pay and undermines redistributive goals. We use detailed data from federal student aid applications to show that a radically simplified aid process can reproduce the current distribution of aid using a fraction of the information now collected.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12227.

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Date of creation: May 2006
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Handle: RePEc:nbr:nberwo:12227

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Find related papers by JEL classification:
D0 - Microeconomics - - General
H0 - Public Economics - - General
I0 - Health, Education, and Welfare - - General
J0 - Labor and Demographic Economics - - General

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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.:
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  4. Janet Currie, 2004. "The Take Up of Social Benefits," NBER Working Papers 10488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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  18. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November. [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. Dynarski, Susan & Scott-Clayton, Judith, 2008. "Complexity and Targeting in Federal Student Aid: A Quantitative Analysis," Working Paper Series rwp08-005, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  2. Christoph Winter, 2007. "Accounting for the Changing Role of Family Income in Determining College Entry," Economics Working Papers ECO2007/49, European University Institute. [Downloadable!]
  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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