Jesús Villero (Penn Wharton; Google Scholar) presents Tuition Effects of IDR Plans: Evidence from the Introduction of the PAYE Repayment Plan (with Junlei Chen (Penn Wharton) & Kent A. Smetters (Penn Wharton, NBER)) at Georgetown today as part of its Tax Law and Public Finance Workshop hosted by Brian Galle:
We study the effects of an increase in the generosity of income-driven repayment (IDR) plans on net tuition (tuition less school-provided financial aid) using policy-induced variation from the introduction of the Pay As You Earn (PAYE) repayment plan in 2012. We estimate future wages, student loan borrowing, and the present value of loan repayment savings from opting into PAYE at the student level based on the student’s SAT score, college attended, field of study, gender, race, parental income, and other attributes. Using a triple difference framework, we find that elite colleges (all private non-profit universities and highly selective public universities) increase their annual net tuition by $3,324 to capture about $21 for every $100 in potential loan repayment savings; this effect is statistically insignificant and negligible for non-elite, non-selective colleges. Our estimates are robust to accounting for the potential endogeneity of applying for federal student aid post-PAYE, alternative definitions of elite and non-elite institutions, and variations in the nature of our treatment variable (discrete/continuous). As an application, we estimate that President Biden’s proposed SAVE plan would effectively transfer about $12 billion to selective colleges over the next 10-year budget window.
Ari Glogower (Northwestern; Google Scholar) & Andrew Granato (J.D.-Ph.D. Candidate, Yale; Google Scholar) present Reforming The Taxation Of Life Insurance, 44 Va. Tax Rev. __ (2025), at Missouri today as part of its Tax Policy Colloquium hosted by David Gamage:
The purpose of life insurance was once to provide financial protection to “widows and orphans” upon an untimely death. Now, wealthy investors also use it to avoid paying taxes. Thanks to federal tax benefits for life insurance, insurers now market policies designed explicitly as vehicles for tax avoidance, with insurance protection as an afterthought.
Well-advised taxpayers accomplish this disappearing tax trick through a “cash value” policy. These policies contain an internal savings balance, which over time can transform the policy from an insurance product into an investment account that can still qualify for insurance tax exemptions. No other investment form—even explicitly tax-preferred savings vehicles like IRAs—offers the same combination of tax benefits with minimal restrictions. In the new market for life insurance, the current rules increasingly operate as a subsidy to the rich, invite abusive planning, and can obstruct broader capital income tax reforms.
“Private placement life insurance” (PPLI) policies, a variation of cash value life insurance, now allow rich investors to avoid taxation on an even wider range of boutique investments, such as hedge funds and private equity. These market innovations have brought new attention to the taxation of life insurance, and motivated current legislative reforms targeting PPLI strategies.
This Article provides a comprehensive study of the taxation of life insurance. It presents new empirical analysis of trends in life insurance ownership, finding that policies issued today are larger and more concentrated among the richest taxpayers. It then presents a framework for evaluating reforms that can be implemented by Congress, the IRS, and the judiciary, and considers the tradeoffs of different reform directions. The Article ultimately proposes a relatively simple yet powerful reform: capping the size of tax-preferred policies. This approach could address the new market for life insurance and realign its tax benefits with their original policy justifications.
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