<p>Thank you for all your responses. I guess the original question was whether it made sense to think of the reduction in financial aid as a tax, not whether it made sense for my friend to put off working, but all of your answers were enlightening on both counts!</p>
<p>The comments on whether working makes sense financially for my friend were interesting. Delamer’s comment above makes it clear that if the FA is loans it is really almost useless as a benefit, much better to lose the “aid” and pay off the cost now than putting it off for the future. I’m pretty sure the aid must be grants, or my friend wouldn’t be agonizing over the decision - she’s pretty smart. The posters who brought up the issues of building up seniority and insuring against change in family structure (divorce, disability, death of spouse) have very good points; these things, of course, should be taken into account in any calculation of the present value of working. </p>
<p>One thing I was very surprised that nobody brought up in an explicit way (although this was hinted at) is that my friend also loses the value of her time if she works. This time certainly has positive value to her, and to others if she spends the time volunteering. In fact, if the value of this time is taken into account, working may actually result in a net loss to her (and the community if she volunteers).</p>
<p>As for whether the reduction in financial aid can be considered a tax, I think your responses indicate the answer is a resounding Yes! Nearly everyone considers the tuition to be something that is “owed” if you can pay it, and to be a contribution to the common good. That’s what I’d call a tax. </p>
<p>My original point was that the structure of this tax is wacky. On top of other income taxes it starts off at 80% (my original 100% was off, thank you for the corrections) and then it REDUCES as tuition is paid off down to the regular marginal rate of ~50%. In short, it is an incredibly regressive tax on middle income earners. And depending on the spacing of your children, you could fall under this regressive tax structure for many years.</p>
<p>The community can (and apparently does!) heap scorn on those who respond rationally to this inverted incentive system. But I can’t help think that this poorly structured tax has the effect of skewing the decision making of tens and maybe hundreds of thousands of families.</p>