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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.

Suggested Citation

  • Andrew W. Dick & Aaron S. Edlin, 1995. "The Implicit Taxes from College Financial Aid," NBER Working Papers 5316, National Bureau of Economic Research, Inc.
    • 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 DP-25, Department of Economics, Williams College.
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    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. Kane, Thomas J & Rouse, Cecilia Elena, 1995. "Labor-Market Returns to Two- and Four-Year College," American Economic Review, American Economic Association, vol. 85(3), pages 600-614, June.
    5. 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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