The Implicit Taxes from College Financial Aid
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.
|Date of creation:||Oct 1995|
|Date of revision:|
|Publication status:||published as The Journal of Public Economics, Vol. 65, no. 3 (September 1997): 295-322.|
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- Ronald G. Ehrenberg & Daniel R. Sherman, 1982.
"Optimal Financial Aid Policies for a Selective University,"
NBER Working Papers
1014, National Bureau of Economic Research, Inc.
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"College Scholarship Rules and Private Saving,"
American Economic Review,
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- 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.
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