Researchers at the University of Missouri-Columbia have published a study that examines the effect of asset exclusions from the Federal Methodology for computing financial aid eligibility on household investment portfolios.

The study, The Impact of College Financial Aid Rules on Household Portfolio Choice, found that families may escape implicit financial aid taxation by reducing their liquid savings and maximizing their contributions to retirement assets and increasing home equity. It also found that values of retirement assets and home equity, which are exempt from financial aid taxation, are significantly correlated with marginal financial aid "tax" rates.

The authors argue that their findings validate concerns that the Federal Methodology for computing financial aid eligibility is at odds with incentives offered to households to maintain high levels of savings, and produces inequitable distribution of need-based student aid.

The study will be published in the December issue of the National Tax Journal.

Posted 10/05/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web site questions or comments to Web@NASFAA.org.