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Risk-sharing and student loan policy: Consequences for students and institutions

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  • Webber, Douglas A.

Abstract

This paper examines the potential costs and benefits associated with a risk-sharing policy imposed on all higher education institutions. Under such a program, institutions would be required to pay for a portion of the student loans among which their students defaulted. I examine the predicted institutional responses under a variety of possible penalties and institutional characteristics using a straightforward model of institutional behavior based on monopolistic competition. I also examine the impact of a risk-sharing program on overall economic efficiency by estimating the returns to scale for undergraduate enrollment (as well as other outputs) among each of ten educational sectors. My estimates suggest that a risk-sharing program would induce only a modest tuition increase, with considerable heterogeneity across sectors. Two different penalty structures are analyzed in the context of the model, and alternative institutional responses such as tuition discounting and credit rating students are discussed.

Suggested Citation

  • Webber, Douglas A., 2017. "Risk-sharing and student loan policy: Consequences for students and institutions," Economics of Education Review, Elsevier, vol. 57(C), pages 1-9.
    • Handle: RePEc:eee:ecoedu:v:57:y:2017:i:c:p:1-9
    DOI: 10.1016/j.econedurev.2016.12.007
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    Cited by:

    1. Didier, Nicolás, 2021. "Does the expansion of higher education reduce gender gaps in the labor market? Evidence from a natural experiment," International Journal of Educational Development, Elsevier, vol. 86(C).
    2. Jason Jabbari & Mathieu Despard & Olga Kondratjeva & Brinda Gupta & Michal Grinstein-Weiss, 2023. "Nothing to show for it: Financial Distress and Re-Enrollment Aspirations for those with non-degreed debt," Research in Higher Education, Springer;Association for Institutional Research, vol. 64(1), pages 1-32, February.
    3. Webber, Douglas A., 2018. "Risk-Sharing in Higher Education: A Policy Proposal," IZA Policy Papers 141, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Student loans; Default; Risk-sharing; Higher education policy;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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