April 2012 Simplifying Student Aid: What It Would Mean for States

National Tax Journal, 2009

Households who save in anticipation of their child's college expenses reduce their child's eligibility for financial aid. The penalty of reduced financial aid eligibility acts as an implicit tax on household assets. However, retirement assets and home equity are excluded from computations of financial aid, thus are exempt from financial aid tax. Households can diminish the marginal financial aid tax rate by moving funds into retirement plans or by increasing their home equity. Using the 2001 Survey of Consumer Finances, our purpose is to investigate the effect of the college financial aid rules on household portfolio choice. Our results show that households who have higher marginal tax rates have higher retirement assets and home equity compared to taxable financial assets. However, the marginal financial aid tax rate does not have a significant adverse effect on the total amount of taxable financial assets. The results are robust across different model specifications.

The Assets and Education Initiative (AEDI) is an office at the University of Kansas’s School of Social Welfare (http://aedi.ku.edu/). AEDI’s mission is to create and study innovations related to assets and economic well-being, with a focus on the relationship between children’s savings and the educational outcomes of low-income and minority children as a way to achieve the American dream. In today’s financial aid landscape, advancing this mission requires attending not only to the role of assets in shaping educational attainment and equity, but also understanding the effects of high levels of student borrowing on the long-term financial health of households. It is our hope that our research on these matters adds to the national conversation about the relative impacts of different approaches to college financing. We believe in higher education as a path to economic mobility and an essential means of sustaining the American dream. We look forward to imagining, together, how asset-base...

Higher Education Extension Service Review, 1993

This newsletter issue focuses on the roles played by higher education finance and student financial aid in ensuring broad access to higher education. Specifically, the report discusses trends in family income and college costs that affect the need for student aid. The report finds that income remains a primary determinant of students' educational opportunities. Students from higher income families enroll in college at rates three to four times greater than students from lower income families. Government student aid programs have not successfully overcome financial barriers to college and significantly increased the college enrollment rates of students from lower income families. Colleges themselves, through institutionally funded grants, provide an important part of the access currently available to low-income students. College is becoming less and less affordable for lower income and middle income families. Because a high and increasing proportion of all American children are in lower income families, their access to college is likely to erode unless action is taken. Overcoming the financial barriers to college will require increasing amounts of student aid and guidelines that carefully target aid to the neediest students. Seventeen graphs present college-going rates by family income, percent of young adults enrolled in college, and trends in college costs. (JDD)

2003

Highlights supplement family and student payments over the decade from 2002-03 to 2012-13, making higher education financially accessible. Increases in total funds are important indicators of the resources being devoted to student assistance. But these figures may create an overly optimistic view of the benefits available to individual students because they do not account for increases in the number of students enrolled in postsecondary education.

As background to the National Dialogue on Student Financial Aid, this essay discusses the fundamental assumptions and aims that underlie the principles and policies of federal financial aid to students. These eight assumptions and aims are explored: (1) higher education is the province of states, and not of the federal government; (2) the costs of higher education are appropriately shared by taxpayers, parents, students, and philanthropists; (3) the role of the federal government has been to make up what low- and middle-income families cannot afford or can not borrow to bring at least state-sponsored public higher education within reach of any student who also will contribute through earnings and loans; (4) the role of the federal government is also to make student loans widely available; (5) the extent of state support is a policy decision appropriately made at the state level; (6) federal student aid is given without regard to academic promise or potential and with only minimal re...

Change: The Magazine of Higher Learning, 2007

It is time to consider serious reform of the complex system of federal, state, and institutional subsidies that has evolved to support postsecondary students. A rational long-term planning process never would have generated the array of programs that today's students face, with complicated application processes, inconsistent rules and regulations, and problematic interactions when students seek aid from multiple programs. Given the billions we spend on student aid and the critical role of these subsidies both in opening opportunities and in developing a skilled and flexible workforce, we can no longer ignore the system's inequities and inefficiencies.

National Bureau of Economic Research, 2008

is grateful for financial support from the National Science Foundation. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

2006

The federal system for distributing student financial aid rivals the tax code in its complexity. Both have been a source of frustration and a focus of reform efforts for decades, yet the complexity of the student aid system has received comparatively little attention from economists. We describe the complexity of the aid system, and apply lessons from optimal tax theory and behavioral economics to show that complexity is a serious obstacle to both efficiency and equity in the distribution of student aid. We show that complexity disproportionately burdens those with the least ability to pay and undermines redistributive goals. We use detailed data from federal student aid applications to show that a radically simplified aid process can reproduce the current distribution of aid using a fraction of the information now collected.