Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Is College Financial Aid Equitable and Efficient?
Journal of Economic Perspectives
vol. 7,
no. 2, Spring 1993
(pp. 143–158)
(Complimentary)
Abstract
Two families with identical earnings paths pay dramatically different amounts for college if one saves more than the other. Because saving leads to receiving less financial aid, a family's return to saving is substantially below the social return. This may lead to families making inefficient intertemporal choices and correspondingly to an inefficient loss of capital formation. This paper first explores the size of the implicit tax on savings, pointing out its potential effects, and its accompanying problems of inefficiency and unfairness. To cure these ills, I will argue that financial aid for dependent students should be based upon the best available measure of parents' permanent income from long streams of wage data. This would require Congress to change the Congressional Methodology, the federal formula for determining a family's financial need.Citation
Edlin, Aaron S. 1993. "Is College Financial Aid Equitable and Efficient?" Journal of Economic Perspectives, 7 (2): 143–158. DOI: 10.1257/jep.7.2.143JEL Classification
- I22 Educational Finance
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