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

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  • ALESSANDRO CIGNO
  • ANNALISA LUPORINI

Abstract

An income‐contingent loan scheme can at best replicate the allocation brought about by a scholarship scheme financed by a graduate tax, and only on condition that there is nothing to stop the policy maker from using tuition fees as if they were taxes. If that is not possible, even the best loan scheme will exclude some well‐qualified school leaver from university. Even if individual study effort is observable, but more so if it is not, it is not socially desirable that all students should specialize in the subjects that promise the highest graduate earnings.

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  • Alessandro Cigno & Annalisa Luporini, 2009. "Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 55-87, February.
    • Handle: RePEc:bla:jpbect:v:11:y:2009:i:1:p:55-87
    DOI: 10.1111/j.1467-9779.2008.01397.x
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    Cited by:

    1. 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.
    2. 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.
    3. Del Rey, Elena & Racionero, María, 2010. "Financing schemes for higher education," European Journal of Political Economy, Elsevier, vol. 26(1), pages 104-113, March.
    4. Pierre Salmon, 2003. "The assignment of powers in an open-ended European Union," Post-Print hal-00445601, HAL.
    5. repec:lan:wpaper:2660 is not listed on IDEAS
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. repec:lan:wpaper:2516 is not listed on IDEAS
    12. 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, vol. 57(2), pages 349-364, June.
    13. 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.
    14. 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.
    15. 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.
    16. repec:lan:wpaper:2436 is not listed on IDEAS
    17. repec:lan:wpaper:2434 is not listed on IDEAS
    18. 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.

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    More about this item

    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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