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The Implicit Taxes from College Financial Aid

  • Andrew W. Dick
  • Aaron S. Edlin

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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File URL: http://www.nber.org/papers/w5316.pdf
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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
Date of revision:
Publication status: published as The Journal of Public Economics, Vol. 65, no. 3 (September 1997): 295-322.
Handle: RePEc:nbr:nberwo:5316
Note: PE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. 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.
  2. Feldstein, Martin, 1995. "College Scholarship Rules and Private Saving," American Economic Review, American Economic Association, vol. 85(3), pages 552-66, June.
  3. 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.
  4. 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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