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The Implicit Taxes from College Financial Aid

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  • Andrew W. Dick
  • Aaron S. Edlin

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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Bibliographic Info

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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  1. Michael S. McPherson & Morton Owen Schapiro, 1994. "Merit Aid: Students, Institutions, and Society," Williams Project on the Economics of Higher Education, Department of Economics, Williams College DP-25, Department of Economics, Williams College.
  2. Ronald G. Ehrenberg & Daniel R. Sherman, 1984. "Optimal Financial Aid Policies for a Selective University," NBER Working Papers 1014, National Bureau of Economic Research, Inc.
  3. 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.
  4. Martin Feldstein, 1992. "College Scholarship Rules and Private Saving," NBER Working Papers 4032, National Bureau of Economic Research, Inc.
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Cited by:
  1. Annamaria Lusardi & Ricardo Daniel Cossa & Erin L. Krupka, 2001. "Savings of Young Parents," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 229, Northwestern University/University of Chicago Joint Center for Poverty Research.
  2. Rebecca J. Acosta, 2001. "How Do Colleges Respond to Changes in Federal Student Aid?," UCLA Economics Working Papers, UCLA Department of Economics 808, UCLA Department of Economics.
  3. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, Elsevier, vol. 77(2), pages 185-207, August.
  4. 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.
  5. Annamaria Lusardi & Ricardo Cossa & Erin L. Krupka, 2000. "Savings of young parents," Working Paper Series, Federal Reserve Bank of Chicago WP-00-23, Federal Reserve Bank of Chicago.
  6. Thomas J. Kane, 2003. "A Quasi-Experimental Estimate of the Impact of Financial Aid on College-Going," NBER Working Papers 9703, National Bureau of Economic Research, Inc.
  7. Steuerle, C. Eugene, 1997. "A Principled Approach to Educational Policy," National Tax Journal, National Tax Association, vol. 50(2), pages 351-65, June.
  8. Tansel Yilmazer, 2008. "Saving for Children’s College Education: An Empirical Analysis of the Trade-off Between the Quality and Quantity of Children," Journal of Family and Economic Issues, Springer, Springer, vol. 29(2), pages 307-324, June.
  9. Luisa Lambertini, 2001. "Technological Change and Public Financing of Education," Boston College Working Papers in Economics, Boston College Department of Economics 579, Boston College Department of Economics.
  10. Gentry, William M. & Hubbard, R. Glenn, 2004. "The effects of progressive income taxation on job turnover," Journal of Public Economics, Elsevier, Elsevier, vol. 88(11), pages 2301-2322, September.
  11. Kane, Thomas J., 1998. "Savings Incentives for Higher Education," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 609-20, September.
  12. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
  13. Kane, Thomas J., 1997. "Beyond Tax Relief: Long-Term Challenges in Financing Higher Education," National Tax Journal, National Tax Association, vol. 50(2), pages 335-49, June.
  14. Long, Mark, 2004. "The impact of asset-tested college financial aid on household savings," Journal of Public Economics, Elsevier, Elsevier, vol. 88(1-2), pages 63-88, January.
  15. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.

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