Colleges’ stealth tax on family savings

Kylie Lacey's picture

Believe it or not, Americans used to save about one-tenth of their after-tax income. By the 1990s, that percentage had dropped to less than 5 percent, and from 2003 to 2012 the average savings rate had fallen even further.

We can point to many reasons for this decline. An important unrecognized culprit is the American university -- and not just because the costs of higher education have far exceeded inflation. Colleges impose a very high private penalty on savings, giving people incentive to consume rather than save. Moreover, this penalty -- call it a tax -- has grown substantially over time in a stealth fashion with rising college attendance, soaring tuition charges and more aggressive tuition discounting by colleges.

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