Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

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

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w12227.pdf
Download Restriction: no

Bibliographic Info

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

as in new window
Length:
Date of creation: May 2006
Date of revision:
Publication status: published as Dynarski, Susan M. and Judith E. Scott-Clayton. "The Cost Of Complexity In Federal Student Aid: Lessons From Optimal Tax Theory And Behavioral Economics," National Tax Journal, 2006, v59(2,Jun), 319-356.
Handle: RePEc:nbr:nberwo:12227

Note: ED PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Marianne Bertrand & Erzo F. P. Luttmer & Sendhil Mullainathan, 1999. "Network Effects and Welfare Cultures," Working Papers 9903, Harris School of Public Policy Studies, University of Chicago.
  2. Kaplow, Louis, 1996. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of the Income Tax," National Tax Journal, National Tax Association, vol. 49(1), pages 135-50, March.
  3. Susan Dynarski, 2005. "Building the Stock of College-Educated Labor," NBER Working Papers 11604, National Bureau of Economic Research, Inc.
  4. Aaron S. Edlin, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(2), pages 143-158, Spring.
  5. Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Dynarski, Susan, 2004. "The New Merit Aid," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp04-009, Harvard University, John F. Kennedy School of Government.
    • Susan Dynarski, 2004. "The New Merit Aid," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 63-100 National Bureau of Economic Research, Inc.
  7. Joel Slemrod & Nikki Sorum, 1985. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
  8. Dynarski, Susan, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 629-62, September.
  9. Jeffrey B. Liebman, 1998. "The Impact of the Earned Income Tax Credit on Incentives and Income Distribution," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 83-120 National Bureau of Economic Research, Inc.
  10. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  11. Eric Bettinger, 2004. "How Financial Aid Affects Persistence," NBER Working Papers 10242, National Bureau of Economic Research, Inc.
  12. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, American Economic Association, vol. 72(2), pages 372-77, May.
  13. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, Springer, vol. 1(1), pages 7-59, March.
  14. Bertrand, Marianne & Shafir, Eldar & Mullainathan, Sendhil, 2004. "A Behavioral Economics View of Poverty," Scholarly Articles 2907437, Harvard University Department of Economics.
  15. Christopher Avery & Thomas J. Kane, 2004. "Student Perceptions of College Opportunities. The Boston COACH Program," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 355-394 National Bureau of Economic Research, Inc.
  16. Susan Dynarski, 2000. "Hope for Whom? Financial Aid for the Middle Class and Its Impact on College Attendance," NBER Working Papers 7756, National Bureau of Economic Research, Inc.
  17. Currie, Janet, 2004. "The Take-Up of Social Benefits," IZA Discussion Papers 1103, Institute for the Study of Labor (IZA).
  18. Louis Kaplow, 1995. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax," NBER Working Papers 5391, National Bureau of Economic Research, Inc.
  19. Caroline M. Hoxby, 2004. "College Choices: The Economics of Where to Go, When to Go, and How to Pay For It," NBER Books, National Bureau of Economic Research, Inc, number hoxb04-1, October.
  20. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 1023-35, December.
  21. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 43(2), pages 221-236, November.
  22. Dynarski, Susan, 2001. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp01-034, Harvard University, John F. Kennedy School of Government.
  23. Neil S. Seftor & NSarah E. Turner, 2002. "Back to School: Federal Student Aid Policy and Adult College Enrollment," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 336-352.
  24. Dynarski, Susan, 2004. "Tax Policy and Education Policy: Collision or Coordination? A Case Study of 529 and Coverdell Savings Vehicles," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp04-011, Harvard University, John F. Kennedy School of Government.
  25. Sendhil Mullainathan & Richard H. Thaler, 2000. "Behavioral Economics," NBER Working Papers 7948, National Bureau of Economic Research, Inc.
  26. Thomas J. Kane, 1995. "Rising Public College Tuition and College Entry: How Well Do Public Subsidies Promote Access to College?," NBER Working Papers 5164, National Bureau of Economic Research, Inc.
  27. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, American Economic Association, vol. 84(2), pages 186-92, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Darolia, Rajeev, 2013. "Integrity versus access? The effect of federal financial aid availability on postsecondary enrollment," Journal of Public Economics, Elsevier, Elsevier, vol. 106(C), pages 101-114.
  2. David Deming & Susan Dynarski, 2010. "College Aid," NBER Chapters, in: Targeting Investments in Children: Fighting Poverty When Resources are Limited, pages 283-302 National Bureau of Economic Research, Inc.
  3. Lovenheim, Michael F. & Owens, Emily G., 2014. "Does federal financial aid affect college enrollment? Evidence from drug offenders and the Higher Education Act of 1998," Journal of Urban Economics, Elsevier, vol. 81(C), pages 1-13.
  4. Hemelt, Steven W. & Marcotte, Dave E., 2008. "Rising Tuition and Enrollment in Public Higher Education," IZA Discussion Papers 3827, Institute for the Study of Labor (IZA).
  5. Dynarski, Susan & Scott-Clayton, Judith, 2008. "Complexity and Targeting in Federal Student Aid: A Quantitative Analysis," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-005, Harvard University, John F. Kennedy School of Government.
  6. Eric P. Bettinger & Bridget Terry Long & Philip Oreopoulos & Lisa Sanbonmatsu, 2009. "The Role of Simplification and Information in College Decisions: Results from the H&R Block FAFSA Experiment," NBER Working Papers 15361, National Bureau of Economic Research, Inc.
  7. Chung, Anna S., 2012. "Choice of for-profit college," Economics of Education Review, Elsevier, Elsevier, vol. 31(6), pages 1084-1101.
  8. Christoph Winter, 2009. "Accounting for the changing role of family income in determining college entry," IEW - Working Papers 402, Institute for Empirical Research in Economics - University of Zurich, revised Dec 2011.
  9. David Deming & Susan Dynarski, 2009. "Into College, Out of Poverty? Policies to Increase the Postsecondary Attainment of the Poor," NBER Working Papers 15387, National Bureau of Economic Research, Inc.
  10. Philip Oreopoulos & Ryan Dunn, 2012. "Information and College Access: Evidence from a Randomized Field Experiment," NBER Working Papers 18551, National Bureau of Economic Research, Inc.
  11. Christopher Avery & Sarah Turner, 2012. "Student Loans: Do College Students Borrow Too Much--Or Not Enough?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(1), pages 165-92, Winter.
  12. Philippe Belley & Lance Lochner, 2008. "The Changing Role of Family Income and Ability in Determining Educational Achievement," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers, University of Western Ontario, CIBC Centre for Human Capital and Productivity 20081, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  13. Chung, Anna, 2008. "The Choice of For-Profit College," MPRA Paper 18971, University Library of Munich, Germany, revised Nov 2009.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12227. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.