The Financial Aid Tax and Student Work Incentives

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Abstract/Contents

Abstract: This paper investigates whether students account for the financial aid tax when making their decisions to work, and how much four-year university students know about how their financial aid is determined. This paper is divided into two parts. In the first part, I use the NPSAS:2000 data to determine if students respond to the financial aid tax structure by bunching below the point where the tax comes into effect. I find that they do not. In the second part, I survey Stanford undergraduate students on how the financial aid tax has influenced their decisions to work and save. Difference in differences analysis suggests that removing the tax would increase the probability that a student would earn in the tax paying range by 22 percent with a standard error of 12.6 percent. Finally, I suggest reforms that universities could make to improve the financial aid system. These reforms include educating students on how their financial aid is determined, replacing the single 50 percent marginal tax rate on student earnings with a progressive structure similar to that on parent earnings, and allowing low-income students a larger tax exemption.

Type of resource	text
Date created	May 2009

Author	Shao, Ling
Primary advisor	Shoven, John B.
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	Financial Aid
Subject	Higher Education
Subject	Tax Salience
Genre	Thesis

Related item	Title 2009 Anna Laura Myers Prize for an Outstanding Thesis
Location	https://purl.stanford.edu/nk433dc5762

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Preferred Citation: Shao, Ling. (2009). The Financial Aid Tax and Student Work Incentives. Stanford Digital Repository. Available at: https://purl.stanford.edu/nk433dc5762

Stanford University, Department of Economics, Honors Theses

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