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Deferred and Income-contingent Tuition Fees: An Empirical Assessment using Belgian, German and UK Data

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  • V. Vandenberghe
  • O. Debande

Abstract

This paper is a numerical exploration of the following. Assume, in the European Union context, that decision-makers want to spend more on higher education via higher tuition fees, but also want payments to be deferred and income-contingent. There are several possible ways to achieve this. First, ask graduates to repay a fixed amount each year if their current net income is above a certain threshold—income-contingent loans (ICL). Second, ask former students to repay a fixed proportion of their income—human capital contracts (HCC). What are the respective distributional properties of these policies, and how do they compare with traditional financing through income taxation? This paper shows that, irrespective of major variations between countries with different higher education, labour market and fiscal structures, with income taxation non-graduates pay more that 50% of the increased higher-education costs. It also shows that the HCC and ICL have vertical equity properties because non-graduates do not pay, but also because the income contingency principle on which they are based redistributes income among heterogeneous graduates. Finally, the paper shows that HCC are the best way to take account of graduates' ability to pay. It also reveals, however, that the ICL can be made to be almost as equitable.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Education Economics.

Volume (Year): 15 (2007)
Issue (Month): 4 ()
Pages: 421-440

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Handle: RePEc:taf:edecon:v:15:y:2007:i:4:p:421-440

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Related research

Keywords: Higher education finance; income-contingent loans; risk pooling;

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Cited by:
  1. repec:hal:wpaper:hal-00369986 is not listed on IDEAS
  2. Vincent Vandenberghe, 2007. "Family income and tertiary education attendance across the EU: an empirical assessment using sibling data," LSE Research Online Documents on Economics 6214, London School of Economics and Political Science, LSE Library.
  3. Vincent Vandenberghe, 2007. "Family Income and Tertiary Education Attendance across the EU: An empirical assessment using sibling data," CASE Papers /123, Centre for Analysis of Social Exclusion, LSE.
  4. Pierre Courtioux, 2008. "How Income Contingent Loans could affect Return to Higher Education: a microsimulation of the French Case," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00369986, HAL.
  5. 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, vol. 42(3), pages 237–270.
  6. Lozano Rojas, Felipe Andres, 2011. "HUMAN Capital Contracts in Chile : An excercise based on Income data on Chilean HE graduates," MPRA Paper 42982, University Library of Munich, Germany, revised 29 Nov 2012.
  7. Marcel Gérard, 2008. "Financing Bologna, the Internationally Mobile Students in European Higher Education," CESifo Working Paper Series 2391, CESifo Group Munich.

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