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The implicit taxes from college financial aid

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  • Dick, Andrew W.
  • Edlin, Aaron S.

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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Suggested Citation

  • Dick, Andrew W. & Edlin, Aaron S., 1997. "The implicit taxes from college financial aid," Journal of Public Economics, Elsevier, vol. 65(3), pages 295-322, September.
  • Handle: RePEc:eee:pubeco:v:65:y:1997:i:3:p:295-322
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    References listed on IDEAS

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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 DP-25, Department of Economics, Williams College.
    2. Ronald G. Ehrenberg & Daniel R. Sherman, 1984. "Optimal Financial Aid Policies for a Selective University," Journal of Human Resources, University of Wisconsin Press, vol. 19(2), pages 202-230.
    3. Aaron S. Edlin, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 143-158, Spring.
    4. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-566, June.
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    Cited by:

    1. Caroline M. Hoxby, 1998. "Tax Incentives for Higher Education," NBER Chapters,in: Tax Policy and the Economy, Volume 12, pages 49-82 National Bureau of Economic Research, Inc.
    2. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2011. "Implicit Taxes on Work from Social Security and Medicare," Tax Policy and the Economy, University of Chicago Press, vol. 25(1), pages 69-88.
    3. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
    4. Luisa Lambertini, 2001. "Technological Change and Public Financing of Education," Boston College Working Papers in Economics 579, Boston College Department of Economics.
    5. Rebecca J. Acosta, 2001. "How Do Colleges Respond to Changes in Federal Student Aid?," UCLA Economics Working Papers 808, UCLA Department of Economics.
    6. Annamaria Lusardi & Ricardo Cossa & Erin L. Krupka, 2001. "Savings of Young Parents," Journal of Human Resources, University of Wisconsin Press, vol. 36(4), pages 762-794.
    7. Dynarski, Susan, 2004. "Who Benefits From the Education Saving Incentives? Income, Educational Expectations and the Value of the 529 and Coverdell," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 359-383, June.
    8. Steuerle, C. Eugene, 1997. "A Principled Approach to Educational Policy," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(2), pages 351-365, June.
    9. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
    10. 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.
    11. 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.
    12. Steuerle, C. Eugene, 1997. "A Principled Approach to Educational Policy," National Tax Journal, National Tax Association, vol. 50(2), pages 351-65, June.
    13. 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, vol. 29(2), pages 307-324, June.
    14. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
    15. Kane, Thomas J., 1998. "Savings Incentives for Higher Education," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 609-20, September.
    16. Gentry, William M. & Hubbard, R. Glenn, 2004. "The effects of progressive income taxation on job turnover," Journal of Public Economics, Elsevier, vol. 88(11), pages 2301-2322, September.
    17. Kane, Thomas J., 1998. "Savings Incentives for Higher Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(3), pages 609-620, September.
    18. Long, Mark, 2004. "The impact of asset-tested college financial aid on household savings," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 63-88, January.
    19. Kane, Thomas J., 1997. "Beyond Tax Relief: Long-Term Challenges in Financing Higher Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(2), pages 335-349, June.
    20. Rajeev Darolia, 2015. "Income-Tested College Financial Aid and Labor Disincentives," Upjohn Working Papers and Journal Articles 15-248, W.E. Upjohn Institute for Employment Research.

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