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Simplifying Tax Incentives and Aid for College: Progress and Prospects

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  • Susan Dynarski
  • Judith Scott-Clayton
  • Mark Wiederspan

Abstract

The application for federal student aid is longer than the tax returns filled out by the majority of US households. Research suggests that complexity in the aid process undermines its effectiveness in inducing more students into college. In 2008, an article in this journal showed that most of the data items in the aid application did not affect the distribution of aid, and that the much shorter set of variables available in IRS data could be used to closely replicate the existing distribution of aid. This added momentum to a period of discussion and activity around simplification in Congress and the US Department of Education. In this article, we provide a five-year retrospective of what's changed in the aid application process, what hasn't, and the possibilities for future reform. While there has been some streamlining in the process of applying for aid, it has fallen far short of its goals. Two dozen questions were removed from the aid application and a dozen added, reducing the number of questions from 127 to 116. Funding for college has also been complicated by the growth of a parallel system for aid: the tax system. A massive expansion in federal tax incentives for college, in particular the American Opportunity Tax Credit, has led to millions of households completing paperwork for both the IRS and the US Department of Education in order to qualify for college funding.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18707.

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Date of creation: Jan 2013
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Publication status: published as Simplifying Tax Incentives and Aid for College: Progress and Prospects , Susan Dynarski, Judith Scott-Clayton, Mark Wiederspan. in Tax Policy and the Economy, Volume 27 , Brown. 2013
Handle: RePEc:nbr:nberwo:18707

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  1. 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.
  2. 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.
  3. Turner, Sarah & Bound, John, 2003. "Closing the Gap or Widening the Divide: The Effects of the G.I. Bill and World War II on the Educational Outcomes of Black Americans," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 145-177, March.
  4. John Bound & Sarah E. Turner, 1999. "Going to War and Going to College: Did World War II and the G.I. Bill Increase Educational Attainment for Returning Veterans?," NBER Working Papers 7452, National Bureau of Economic Research, Inc.
  5. Bridget Terry Long, 2003. "The Impact of Federal Tax Credits for Higher Education Expenses," NBER Working Papers 9553, National Bureau of Economic Research, Inc.
  6. Christopher Cornwell & David B. Mustard & Deepa J. Sridhar, 2006. "The Enrollment Effects of Merit-Based Financial Aid: Evidence from Georgia's HOPE Program," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 761-786, October.
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Cited by:
  1. Casey B. Mulligan, 2012. "Recent Marginal Labor Income Tax Rate Changes by Skill and Marital Status," NBER Working Papers 18426, National Bureau of Economic Research, Inc.
  2. Christine Neill, 2013. "What You Don't Know Can't Help You: Lessons of Behavioural Economics for Tax-Based Student Aid," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 393, November.

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