ERIC Number: ED265783
Record Type: Non-Journal
Publication Date: 1986-Jan
Does Need-Based Student Aid Discourage Saving for College?
Case, Karl E.; McPherson, Michael S.
The question of whether the availability of need-based student financial aid reduces the applicant families' incentives to save and work was assessed. Changes in the need-based aid system are also suggested. Need-based aid systems compute a family's ability to pay for college from information on the family's income and assets at the time a student applies for aid. If a family can arrange to have fewer assets (by saving less during the students' precollege years or working fewer hours) the student will generally qualify for more aid. The two systems analysed in this paper are the Pell system of federal grants and the Uniform Methodology system. It is concluded that perhaps 20% or fewer of all financial aid applicants face substantial incentives to adjust their work or savings behavior in response to the Uniform Methodology's aid incentives. Students from these families are heavily concentrated in higher cost private institutions, since they would generally not qualify for aid at lower cost places. Adverse aid incentives flow primarily from institutionally-awarded aid, but are virtually nonexistent in the largest federal grant program, Pell Grants. The following strategies are suggested: reduce the marginal taxing rates facing families in the aid system, impute assets to parents with inadequate savings, extend the time period over which families are subject to needs analysis, and encourage parental effort through "matching" of parental contributions. (SW)
Descriptors: College Students, Dependents, Eligibility, Family Financial Resources, Family Income, Federal Aid, Financial Aid Applicants, Financial Needs, Higher Education, Incentives, Motivation, Need Analysis (Student Financial Aid), Parent Financial Contribution, Student Costs, Student Financial Aid
College Board Publications, Box 886, New York, NY 10101 ($6.00 per copy; 20% discount for 5 or more copies).
Publication Type: Reports - Research
Education Level: N/A
Authoring Institution: College Entrance Examination Board, New York, NY.