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Complexity and Targeting in Federal Student Aid: A Quantitative Analysis


Susan M. Dynarski


National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan at Ann Arbor - School of Education

Judith Scott Clayton


Harvard University - Harvard Kennedy School (HKS)

February 2008

NBER Working Paper No. w13801

Abstract:     
A growing body of empirical evidence shows that some financial aid programs increase college enrollment. Puzzlingly, there is little compelling evidence that Pell Grants and Stafford Loans, the primary federal student aid programs, are effective in achieving this goal. In this paper, we provide an in-depth review of this evidence, which taken as a whole suggests that complexity and uncertainty in the federal aid system undermine its efficacy. We document complexity in the aid system, comparing it in particular to complexity in the tax system. We build on our previous work by showing that complexity in the aid process does little to improve the targeting of both student loans and grants, for both dependent and independent students. We conclude that the current targeting of aid can be reproduced with a much simpler aid process. While we show that the targeting benefits of complexity are small, we further document that the costs are large. We offer new estimates of the compliance costs faced by applicants and the administrative costs borne by the government and colleges. These costs total at least $4 billion per year. The perspective of behavioral economics suggests that the true cost is even higher, since complexity and uncertainty may discourage the target population from applying for student aid.

Number of Pages in PDF File: 45

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Date posted: February 13, 2008  

Suggested Citation

Dynarski , Susan M. and Scott Clayton, Judith, Complexity and Targeting in Federal Student Aid: A Quantitative Analysis (February 2008). NBER Working Paper No. w13801. Available at SSRN: http://ssrn.com/abstract=1092851

Contact Information

Susan M. Dynarski (Contact Author)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )
735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States
University of Michigan at Ann Arbor - School of Education ( email )
610 East University Avenue
Ann Arbor, MI 48109-1259
United States
Judith E. Scott-Clayton
Harvard University - Harvard Kennedy School (HKS) ( email )
79 John F. Kennedy Street
Cambridge, MA 02138
United States
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