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The Impact of College Financial Aid Rules on Household Portfolio Choice

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  • Babiarz, Patryk
  • Yilmazer, Tansel

Abstract

Using the 2001 Survey of Consumer Finances, this study investigates the effect of the college financial aid rules on household portfolio choices. The federal algorithm used to compute financial aid does not take into consideration assets accumulated in retirement accounts or as home equity, and households can reduce their implicit marginal financial aid tax rates by moving funds into retirement accounts or by increasing their home equity. Our results show that households who have higher marginal financial aid tax rates have a larger fraction of their portfolios invested in retirement assets and home equity, relative to taxable assets.

Suggested Citation

  • Babiarz, Patryk & Yilmazer, Tansel, 2009. "The Impact of College Financial Aid Rules on Household Portfolio Choice," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(4), pages 635-655, December.
  • Handle: RePEc:ntj:journl:v:62:y:2009:i:4:p:635-55
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    Cited by:

    1. 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.

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