Working Paper: NBER ID: w12227
Authors: Susan M. Dynarski; Judith E. Scott-Clayton
Abstract: 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.
Keywords: No keywords provided
JEL Codes: D0; H0; I0; J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Complexity of the FAFSA application (I23) | Significant compliance costs (Q52) |
| Significant compliance costs (Q52) | Deter low-income families from applying for aid (I38) |
| Deter low-income families from applying for aid (I38) | Affects college attendance (I24) |
| Complexity of the FAFSA application (I23) | Blunts the impact of financial aid on college attendance (I22) |
| Simplifying the aid process (F35) | Reduces the burden on applicants (I23) |
| Complexity fails to improve targeting (D79) | Majority of aid variation accounted for by few variables (F35) |
| Reducing complexity (C60) | Enhances efficiency and equity in the student aid system (I24) |