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Financing schemes for higher education

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  • Del Rey, Elena
  • Racionero, María

Abstract

Most industrial countries have traditionally subsidized the provision of higher education. Alternative financing schemes, which rely on larger contributions from students, are being increasingly adopted. Those based on income-contingent loans provide insurance against uncertain educational outcomes. We consider a unified framework where we analyze the following schemes: 1) the traditional tax-subsidy, 2) pure loans, 3) income-contingent loans with risk-sharing, and 4) income-contingent loans with risk-pooling. We focus on their insurance role and their effect on higher education participation. We show that an income-contingent loan with risk-pooling can induce the optimal level of participation provided that it covers both financial costs of education and forgone earnings.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 26 (2010)
Issue (Month): 1 (March)
Pages: 104-113

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Handle: RePEc:eee:poleco:v:26:y:2010:i:1:p:104-113

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Efficiency Higher education finance;

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References

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  1. Nerlove, Marc L, 1975. "Some Problems in the Use of Income-contingent Loans for the Finance of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 157-83, February.
  2. Bruce Chapman & Andrew Leigh, 2006. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income-Contingent Loan Schemes," CEPR Discussion Papers 521, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. 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, 02.
  4. Del Rey, Elena & Racionero, María, 2010. "Financing schemes for higher education," European Journal of Political Economy, Elsevier, vol. 26(1), pages 104-113, March.
  5. Garcia-Penalosa, Cecilia & Walde, Klaus, 2000. "Efficiency and Equity Effects of Subsidies to Higher Education," Oxford Economic Papers, Oxford University Press, vol. 52(4), pages 702-22, October.
  6. Dionne, G. & Eeckhoudt, L., 1984. "Self-Insurance, Self-Protection and Increased Risk Aversion," Cahiers de recherche 8424, Universite de Montreal, Departement de sciences economiques.
  7. Nicholas Barr & Iain Crawford, 1998. "Funding Higher Education in an Age of Expansion," Education Economics, Taylor & Francis Journals, vol. 6(1), pages 45-70.
  8. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  9. Chapman, Bruce, 2006. "Income Contingent Loans for Higher Education: International Reforms," Handbook of the Economics of Education, Elsevier.
  10. Bas Jacobs & Frederick van der Ploeg, 2006. "Guide to reform of higher education: a European perspective," Economic Policy, CEPR & CES & MSH, vol. 21(47), pages 535-592, 07.
  11. 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.
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Citations

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Cited by:
  1. Rainald Borck & Martin Wimbersky, 2009. "Political Economics of Higher Education Finance," CESifo Working Paper Series 2829, CESifo Group Munich.
  2. Alexander Kemnitz, 2007. "University Funding Reform, Competition, and Teaching Quality," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 356-378, June.
  3. Maria Racionero & Elena Del Rey, 2012. "Choosing the type of income-contingent loan: risk-sharing versus risk-pooling," CEPR Discussion Papers 671, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. Elena Del Rey & María Racionero, 2012. "Voting On Income‐Contingent Loans For Higher Education," The Economic Record, The Economic Society of Australia, vol. 88(s1), pages 38-50, 06.
  5. DEL REY, Elena & RACIONERO, Maria, . "Financing schemes for higher education," CORE Discussion Papers RP -2181, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Rainald Borck & Silke Uebelmesser & Martin Wimbersky, 2012. "The Political Economics of Higher Education Finance for Mobile Individuals," CESifo Working Paper Series 3877, CESifo Group Munich.
  7. 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.

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