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Student Loan Reforms for German Higher Education: Financing Tuition Fees

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  • Bruce Chapman
  • Mathias Sinning

Abstract

Due to the unknown future economic situation of students, private banks are unwilling to provide student loans in the absence of collateral. This market failure requires government intervention to prevent socially sub-optimal and regressive outcomes. Income contingent loans, whose repayment depends on the borrowers' future capacity to pay, can offer a possible solution to this problem. In this paper, we compare alternative income contingent loans for financing tuition fees at German universities. Several German states have introduced tuition fees at their universities since summer 2007 and publicly owned banks have started to offer student loans to cover these fees. Our empirical findings highlight the benefits of income contingent loans and demonstrate that tuition fees at German universities could increase considerably if an income contingent loan system would be implemented to provide students with the financial resources they need to pay these fees.

Suggested Citation

  • Bruce Chapman & Mathias Sinning, 2010. "Student Loan Reforms for German Higher Education: Financing Tuition Fees," CEPR Discussion Papers 646, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:dpaper:646
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    File URL: https://www.cbe.anu.edu.au/researchpapers/CEPR/DP646.pdf
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    References listed on IDEAS

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    1. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 149-163, February.
    2. Barr, Nicholas, 2001. "The Welfare State as Piggy Bank: Information, Risk, Uncertainty, and the Role of the State," OUP Catalogue, Oxford University Press, number 9780199246595.
    3. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-751, May.
    4. Dynarski, Mark, 1994. "Who defaults on student loans? Findings from the National Postsecondary Student Aid Study," Economics of Education Review, Elsevier, vol. 13(1), pages 55-68, March.
    5. Bruce Chapman & Andrew Leigh, 2009. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income Contingent Loan Schemes," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 276-289, September.
    6. Chapman, Bruce & Lounkaew, Kiatanantha & Polsiri, Piruna & Sarachitti, Rangsit & Sitthipongpanich, Thitima, 2010. "Thailand's Student Loans Fund: Interest rate subsidies and repayment burdens," Economics of Education Review, Elsevier, vol. 29(5), pages 685-694, October.
    7. 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.
    8. Bruce Chapman & Kiatanantha Lounkaewa, 2010. "Repayment Burdens with US College Loans," CEPR Discussion Papers 647, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    9. Sergio Firpo & Nicole M. Fortin & Thomas Lemieux, 2009. "Unconditional Quantile Regressions," Econometrica, Econometric Society, vol. 77(3), pages 953-973, May.
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    Citations

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    Cited by:

    1. Bruce Chapman & Lorraine Dearden, 2022. "Income-contingent loans in higher education financing," IZA World of Labor, Institute of Labor Economics (IZA), pages 227-227, October.
    2. Elza Elmira & Daniel Suryadarma, "undated". "Pembiayaan Pendidikan Tinggi di Indonesia: Menilai Fisibilitas Sistem Pinjaman Berbasis Potensi Pendapatan," Working Papers 3786, Communications Section.
    3. Hügle, Dominik, 2020. "Higher education funding in Germany: A distributional lifetime perspective," Discussion Papers 2021/1, Free University Berlin, School of Business & Economics.
    4. Stephan Thomsen & Friederike von Haaren-Giebel, 2016. "Did tuition fees in Germany constrain students’ budgets? New evidence from a natural experiment," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-25, December.
    5. Tom McKenzie & Dirk Sliwka, 2011. "Universities as Stakeholders in their Students' Careers: On the Benefits of Graduate Taxes to Finance Higher Education," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 726-742, December.
    6. Elza Elmira & Daniel Suryadarma, "undated". "Financing Higher Education in Indonesia: Assessing the Feasibility of an Income-Contingent Loan System," Working Papers 1882, Communications Section.
    7. Alecke, Björn & Burgard, Claudia & Mitze, Timo, 2013. "The Effect of Tuition Fees on Student Enrollment and Location Choice – Interregional Migration, Border Effects and Gender Differences," Ruhr Economic Papers 404, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. repec:got:cegedp:137 is not listed on IDEAS
    9. Jan Kluge & Michael Weber, 2015. "Decomposing the German East-West wage gap," ifo Working Paper Series 205, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Fels, Katja & Schmidt, Christoph M. & Sinning, Mathias, 2015. "BAföG Plus: Deutschlands Hochschulfinanzierung neu. Nachgelagerte Studiengebühren können die soziale Schieflage in der Bildungsfinanzierung auflösen," RWI Positionen 66, RWI - Leibniz-Institut für Wirtschaftsforschung.
    11. Abbas Bazargan & Mohammad Eftekhar Ardebili & Mohammad Zarei & Rohollah Ghasemi, 2017. "The Relationship Between ‘Higher Education and Training’ and ‘Business Sophistication’," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(2), pages 319-341, Spring.
    12. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," University of Göttingen Working Papers in Economics 137, University of Goettingen, Department of Economics.
    13. Aurora Ortiz-Nuñez, 2014. "Attitudes Toward Risk And Socioeconomic Factors Related To Educational Loans," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 710-718, October.

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    More about this item

    Keywords

    Educational Finance; Student Financial Aid; State and Federal Aid; Government Expenditures on Education;
    All these keywords.

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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