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Income contingent student loan design: Lessons from around the world

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  • Britton, Jack
  • van der Erve, Laura
  • Higgins, Tim

Abstract

The use of income contingent loans (ICLs) for Higher Education (HE) students is becoming increasingly prevalent around the world. Using a model of simulated lifetime earnings for graduates, in this paper we show that the impact of the design of ICLs on the magnitude and distribution of government subsidies is highly dependent on the institutional setting. In particular, the average debt level as a share of average earnings is a key determinant of the impact of various policy parameters. The variance of earnings within the graduate population is also shown to be a determinant of ICL taxpayer costs. This paper is the first comparative exercise of impact of the design of ICLs in different settings, and the findings are highly relevant to countries looking to implement or reform their student loan systems.

Suggested Citation

  • Britton, Jack & van der Erve, Laura & Higgins, Tim, 2019. "Income contingent student loan design: Lessons from around the world," Economics of Education Review, Elsevier, vol. 71(C), pages 65-82.
    • Handle: RePEc:eee:ecoedu:v:71:y:2019:i:c:p:65-82
    DOI: 10.1016/j.econedurev.2018.06.001
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    References listed on IDEAS

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    1. Nicholas Barr & Bruce Chapman & Lorraine Dearden & Susan Dynarski, 2018. "Reflections on the US college loans system: Lessons from Australia and England," CAMA Working Papers 2018-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Higgins, Tim & Sinning, Mathias, 2013. "Modeling income dynamics for public policy design: An application to income contingent student loans," Economics of Education Review, Elsevier, vol. 37(C), pages 273-285.
    3. Lorraine Dearden & Emla Fitzsimons & Alissa Goodman & Greg Kaplan, 2008. "Higher Education Funding Reforms in England: The Distributional Effects and the Shifting Balance of Costs," Economic Journal, Royal Economic Society, vol. 118(526), pages 100-125, February.
    4. Chapman, Bruce & Lounkaew, Kiatanantha, 2010. "Income contingent student loans for Thailand: Alternatives compared," Economics of Education Review, Elsevier, vol. 29(5), pages 695-709, October.
    5. Barr, Nicholas & Chapman, Bruce & Dearden, Lorraine & Dynarski, Susan, 2019. "The US college loans system: Lessons from Australia and England," Economics of Education Review, Elsevier, vol. 71(C), pages 32-48.
    6. Bruce Chapman & Timothy Higgins & Joseph E. Stiglitz (ed.), 2014. "Income Contingent Loans," International Economic Association Series, Palgrave Macmillan, number 978-1-137-41320-8, December.
    7. Haroon Chowdry & Lorraine Dearden & Alissa Goodman & Wenchao Jin, 2012. "The Distributional Impact of the 2012–13 Higher Education Funding Reforms in England," Fiscal Studies, Institute for Fiscal Studies, vol. 33(2), pages 211-235, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bolhaar, Jonneke & Kuijpers, Sonny & Webbink, Dinand & Zumbuehl, Maria, 2024. "Does replacing grants by income-contingent loans harm enrolment? New evidence from a reform in Dutch higher education," Economics of Education Review, Elsevier, vol. 101(C).
    2. Lergetporer, P & Woessmann, L, 2022. "Income Contingency and the Electorates Support for Tuition," CAGE Online Working Paper Series 606, Competitive Advantage in the Global Economy (CAGE).
    3. Chu, Yu-Wei Luke & Cuffe, Harold E, 2020. "Do Struggling Students Benefit From Continued Student Loan Access? Evidence From University and Beyond," Working Paper Series 21067, Victoria University of Wellington, School of Economics and Finance.
    4. Dearden, Lorraine & Nascimento, Paulo Meyer, 2019. "Modelling alternative student loan schemes for Brazil," Economics of Education Review, Elsevier, vol. 71(C), pages 83-94.
    5. Britton, Jack & Gruber, Jonathan, 2020. "Do income contingent student loans reduce labor supply?," Economics of Education Review, Elsevier, vol. 79(C).
    6. Baran Siyahhan & Hamed Ghoddusi, 2022. "Optimal investment in human capital under migration uncertainty," Review of International Economics, Wiley Blackwell, vol. 30(2), pages 422-449, May.
    7. Hügle, Dominik, 2020. "Higher education funding in Germany: A distributional lifetime perspective," Discussion Papers 2021/1, Free University Berlin, School of Business & Economics.
    8. Gustavo Pereira Serra, 2023. "Household debt, student loan forgiveness, and human capital investment: a neo-Kaleckian approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 46(1), pages 173-206, January.
    9. Barr, Nicholas & Chapman, Bruce & Dearden, Lorraine & Dynarski, Susan, 2019. "The US college loans system: Lessons from Australia and England," Economics of Education Review, Elsevier, vol. 71(C), pages 32-48.
    10. Hassani-Nezhad, Lena & Anderberg, Dan & Chevalier, Arnaud & Lührmann, Melanie & Pavan, Ronni, 2021. "Higher education financing and the educational aspirations of teenagers and their parents," Economics of Education Review, Elsevier, vol. 85(C).
    11. Alessandra Casarico & Elena Del Rey & Jose I. Silva, 2023. "Child care costs, household liquidity constraints, and gender inequality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(3), pages 1461-1487, July.
    12. Dearden, Lorraine, 2019. "Evaluating and designing student loan systems: An overview of empirical approaches," Economics of Education Review, Elsevier, vol. 71(C), pages 49-64.
    13. Armstrong, Shiro & Dearden, Lorraine & Kobayashi, Masayuki & Nagase, Nobuko, 2019. "Student loans in Japan: Current problems and possible solutions," Economics of Education Review, Elsevier, vol. 71(C), pages 120-134.

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    More about this item

    Keywords

    Higher education funding; Educational finance; Tuition fees; Income contingent loans;
    All these keywords.

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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