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Funding higher education and wage uncertainty: Income contingent loan versus mortgage loan

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  • Migali, Giuseppe

Abstract

We propose a simple theoretical model which shows how the combined effect of wage uncertainty and risk aversion can modify the individual willingness to pay for a HE system financed by an ICL or a ML. We calibrate our model using real data from the 1970 British Cohort Survey together with the features of the English HE financing system. We allow for individual heterogeneity by considering different family backgrounds and occupations. We find that graduates from poor families, males and graduates working in the private sector are more willing to pay to switch to an ICL. Using the UK Labour Force Survey we evaluate the distributive effects of our model. We compute the repayment burdens and taxpayer subsidies for average, low and high earnings graduates. The results confirm the important insurance benefits of an ICL compared to a ML, with lower burdens and higher subsidies for poorer graduates.

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Bibliographic Info

Article provided by Elsevier in its journal Economics of Education Review.

Volume (Year): 31 (2012)
Issue (Month): 6 ()
Pages: 871-889

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Handle: RePEc:eee:ecoedu:v:31:y:2012:i:6:p:871-889

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Web page: http://www.elsevier.com/locate/econedurev

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Keywords: Education choice; Risk aversion; Uncertainty;

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References

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Cited by:
  1. Ali Ait Si Mhamed & Rita Kaša & Zane Cunska, 2012. "Student debt levels and income of University of Latvia graduates: Prospects for income-contingent loan repayment by the field of studies and gender," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 73-88, December.
  2. Darragh Flannery & Cathal O’Donoghue, 2011. "The Life-cycle Impact of Alternative Higher Education Finance Systems in Ireland," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 42(3), pages 237–270.
  3. Asplund, Rita & Ben-Abdelkarim, Oussama & Skalli, Ali, 2007. "An Equity Perspective on Access to, Enrolment in and Finance of Tertiary Education," Discussion Papers, The Research Institute of the Finnish Economy 1098, The Research Institute of the Finnish Economy.
  4. Higgins, Tim & Sinning, Mathias, 2013. "Modeling income dynamics for public policy design: An application to income contingent student loans," Economics of Education Review, Elsevier, Elsevier, vol. 37(C), pages 273-285.
  5. 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.

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