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Income Contingent Loans: Background

In: Income Contingent Loans

Author

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  • Bruce Chapman

    (The Australian National University)

Abstract

Income contingent loans (ICL) are generally collected through the income taxation system and are repaid only when future incomes exceed a specified level. ICL were first introduced in Australia in 1989 to help college students finance their tuition costs; since then many countries have followed this policy approach. This background chapter analyses the conceptual and empirical basis of ICL, and explains that compared to ‘normal’ bank loans — which are paid on the basis of time — ICL provide the insurance benefits of consumption smoothing and default protection, and are associated with significant collection transactional efficiencies. We examine the prospect of the application of the basic principles of ICL into many other potential areas of social and economic policy, and highlight the significant ICL design difficulties related to both moral hazard and adverse selection.

Suggested Citation

  • Bruce Chapman, 2014. "Income Contingent Loans: Background," International Economic Association Series, in: Bruce Chapman & Timothy Higgins & Joseph E. Stiglitz (ed.), Income Contingent Loans, chapter 1, pages 12-28, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-41320-8_2
    DOI: 10.1057/9781137413208_2
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    Cited by:

    1. Long, Ngo Van, 2019. "Financing higher education in an imperfect world," Economics of Education Review, Elsevier, vol. 71(C), pages 23-31.
    2. Mueller, Holger & Yannelis, Constantine, 2017. "Students in Distress: Labor Market Shocks, Student Loan Default, and Federal Insurance Programs," CEPR Discussion Papers 11938, C.E.P.R. Discussion Papers.
    3. Botterill, Linda Courtenay & Chapman, Bruce & Kelly, Simon, 2017. "Revisiting revenue contingent loans for drought relief: government as risk manager," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 61(3), July.
    4. 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.

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