Surprisingly little academic work has been done on this form of taxation, perhaps because college professors indirectly benefit from this policy. While colleges have raised their sticker prices a lot because of the availability of relatively low-cost federally subsidized loans, they have increased actual fees paid by high-saving families through stealth means, exploiting family-financial information uniquely given to them and not to other sellers of goods and services.
In the interest of promoting higher savings (with all sorts of positive macroeconomic implications, such as lower interest rates and greater capital formation), why doesn’t the federal government abolish the Free Application for Federal Student Aid form and make it a criminal offense to solicit private family-financial information? At the minimum, all information on family finances, other than overall income (which could be provided to colleges by the Internal Revenue Service), would be excluded.
In sum, let’s abolish the stealth tax on savings.
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