Archived Information
Reauthorization of the Higher Education Act
Changing the Treatment of Assets Does Not Change the Distribution of Financial Aid
- While the current system of financial aid can greatly penalize savers, there are alternatives that can provide the same distribution of financial aid without discouraging savings. One such alternative is asset estimation.
- To examine the impact of asset estimation, we used the best available data on asset holdings in the U.S., the Survey of Consumer Finances.
- We first computed in this data the expected family contribution (EFC) towards financial aid under the current
- We then recomputed the EFC under an alternative system, where assets are estimated based on family income, parent's age, and parent's education. This estimation provides a very good approximation to the holdings of assets by families, since these holdings are so highly correlated with income.
- Our results, which are shown in the table below, demonstrate the feasibility of estimating assets in a manner that does not substantially alter the distribution of financial aid.
Median Expected Family Contributions by Income Quintiles
Asset
Scenario* |
Quintile 1
( < 18,975) |
Quintile 2
( < 34,710) |
Quintile 3
( < 51,256) |
Quintile 4
( < 76,248) |
Quintile 5
(> 76,248) |
|
Reported |
0 |
1,254 |
3,363 |
8,214 |
17,903 |
|
Estimated |
0 |
1,207 |
3,316 |
8,526 |
18,433 |
- For example, in the lower three income quintiles, the median Expected Family Contribution (EFC) is actually slightly lower with estimated assets, meaning the family will be eligible for more aid.
- In the top two quintiles, the EFC is a bit higher, but only by 3-4 percent.
- This suggests that the distribution of financial aid is similar when EFCs are computed with either estimated or reported assets.
Department of Treasury
Office of Economic Policy
March 12, 1998
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