The system of distributing financial aid dollars using needs analysis formulae implicitly imposes a financial aid tax on assets. Existing studies provide mixed evidence of the influence of this implicit tax on assets on wealth accumulation. This paper attempts to contribute to the literature on this topic by examining the sensitivity of results to various assumptions, specifications, and categories of assets, using more recent data that allows for the incorporation of recent developments in financial aid and college costs. I find much weaker evidence than existing studies that college financial aid has a significant impact on family savings.

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Copyright © 2004 National Tax Association. This article first appeared in NTJ National Tax Journal 57, no. 2, Part 1 (June 2004): 189-207. doi:10.17310/ntj.2004.2.03.

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