Is College Financial Aid Equitable and Efficient?

Aaron Edlin ()

Journal of Economic Perspectives, 1993, vol. 7, issue 2, 143-158

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.

JEL-codes: I22 (search for similar items in EconPapers)
Date: 1993
Note: DOI: 10.1257/jep.7.2.143
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Citations: View citations in EconPapers (40)

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