The Implicit Taxes from College Financial Aid

38 Pages Posted: 19 Jun 2000 Last revised: 24 Sep 2010

See all articles by Andrew R. Dick

Andrew R. Dick

Government of the United States of America - Economic Analysis Group

Aaron S. Edlin

University of California at Berkeley; National Bureau of Economic Research (NBER)

Date Written: October 1995

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

Dick, Andrew R. and Edlin, Aaron S., The Implicit Taxes from College Financial Aid (October 1995). NBER Working Paper No. w5316. Available at SSRN: https://ssrn.com/abstract=225380

Andrew R. Dick (Contact Author)

Government of the United States of America - Economic Analysis Group ( email )

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Aaron S. Edlin

University of California at Berkeley ( email )

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National Bureau of Economic Research (NBER)

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