In the U.S., need-based college financial aid imposes an implicit financial-aid tax on asset accumulation, but some assets are not taxed. This paper examines the effects of the implicit tax on a family's level of total assets and portfolio composition. We exploit the tax-rate changes on assets...

We model a higher education system that admits students according to their admission signal (e.g., matriculation GPA, SAT), which is, in turn, affected by their cognitive ability and socioeconomic background. We show that subsidizing education loans increases neither human capital stock nor...