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Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard

Author

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  • Alessandro Cigno
  • Annalisa Luporini

Abstract

Student loans, even income-contingent ones, are not optimal. Potential university students with the appropriate characteristics should be offered a scholarship, dependent on both need and merit. The award of the scholarship should be conditional on the choice of university degree, but students with a natural aptitude for studies that do not hold the prospect of a well paid job should not be pushed towards potentially more lucrative ones. The scheme should be financed by a graduate tax that re-distributes from the better paid to the academically more successful.

Suggested Citation

  • Alessandro Cigno & Annalisa Luporini, 2003. "Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard," CESifo Working Paper Series 973, CESifo.
    • Handle: RePEc:ces:ceswps:_973
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    2. Joan Rosselló, 2007. "Does a public university system avoid the stratification of public universities and the segregation of students?," DEA Working Papers 26, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    3. Alessandro Cigno & Annalisa Luporini, 2011. "Optimal Family Policy in the Presence of Moral Hazard when the Quantity and Quality of Children are Stochastic," CESifo Economic Studies, CESifo Group, vol. 57(2), pages 349-364, June.
    4. repec:lan:wpaper:2434 is not listed on IDEAS
    5. Migali, Giuseppe, 2012. "Funding higher education and wage uncertainty: Income contingent loan versus mortgage loan," Economics of Education Review, Elsevier, vol. 31(6), pages 871-889.
    6. Getachew, Yoseph, 2024. "Effects of higher education subsidies on equity and efficiency across developmental stages," Economic Modelling, Elsevier, vol. 136(C).
    7. Wenhua Di & Kelly D. Edmiston, 2017. "Student Loan Relief Programs: Implications for Borrowers and the Federal Government," The ANNALS of the American Academy of Political and Social Science, , vol. 671(1), pages 224-248, May.
    8. Pierre Salmon, 2003. "The assignment of powers in an open-ended European Union," Post-Print hal-00445601, HAL.
    9. Alexander Haupt & Tim Krieger & Thomas Lange, 2016. "Competition for the international pool of talent," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(4), pages 1113-1154, October.
    10. Robert J. Gary-Bobo & Alain Trannoy, 2015. "Optimal student loans and graduate tax under moral hazard and adverse selection," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 546-576, September.
    11. Del Rey, Elena & Racionero, María, 2010. "Financing schemes for higher education," European Journal of Political Economy, Elsevier, vol. 26(1), pages 104-113, March.
    12. Huai-Te Huang & Hao-En Chueh, 2023. "Sustained Improvement of Educational Information Asymmetry: Intentions to Use School Social Media," Sustainability, MDPI, vol. 15(3), pages 1-15, February.
    13. Elena Del Rey, 2011. "Deferring higher education fees without relying on contributions from non-students," Education Economics, Taylor & Francis Journals, vol. 20(5), pages 510-521, May.
    14. Alessandro Cigno & Annalisa Luporini, 2019. "Student loans and the allocation of graduate jobs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(1), pages 339-378, February.
    15. Ben Heijdra & Fabian Kindermann & Laurie Reijnders, 2017. "Life in shakles? The quantitative implications of reforming the educational financing system," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 37-57, April.
    16. Ben J. Heijdra & Fabian Kindermann & Laurie S. M. Reijnders, 2014. "Life in Shackles? The Quantitative Implications of Reforming the Educational Loan System," CESifo Working Paper Series 5013, CESifo.
    17. repec:lan:wpaper:2516 is not listed on IDEAS
    18. Rosemary Walker & Liviu Florea, 2014. "Easy-Come-Easy-Go: Moral Hazard in the Context of Return to Education," Journal of Business Ethics, Springer, vol. 120(2), pages 201-217, March.
    19. repec:lan:wpaper:2436 is not listed on IDEAS

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    More about this item

    Keywords

    scholarships; student loans; graduate tax; principal-agent; moral hazard;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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