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The Implicit Taxes from College Financial Aid

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Author Info
Andrew W. Dick
Aaron S. Edlin

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5316.

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Date of creation: Oct 1995
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Publication status: published as The Journal of Public Economics, Vol. 65, no. 3 (September 1997): 295-322.
Handle: RePEc:nbr:nberwo:5316

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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.:
  1. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June. [Downloadable!] (restricted)
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  2. Edlin, Aaron S, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 143-58, Spring. [Downloadable!] (restricted)
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(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. Rebecca J. Acosta, 2001. "How Do Colleges Respond to Changes in Federal Student Aid?," UCLA Economics Working Papers 808, UCLA Department of Economics. [Downloadable!]
  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. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!]
  4. Annamaria Lusardi & Ricardo Cossa & Erin L. Krupka, 2000. "Savings of young parents," Working Paper Series WP-00-23, Federal Reserve Bank of Chicago. [Downloadable!]
  5. Andrew Dick & Aaron Edlin & Eric Emch, 2003. "The Savings Impact of College Financial Aid," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 2(1), pages 1044-1044. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. David Lang, 2007. "Financial Aid and Student Bargaining Power," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1), pages 1605-1605. [Downloadable!] (restricted)
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