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Income Contingent Loans for Higher Education: International Reform

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Author Info
Bruce Chapman

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Abstract

It is well known that higher education financing involves uncertainty and risk with respect to students’ future economic fortunes, and an unwillingness of banks to provide loans because of the absence of collateral. It follows that without government intervention there will be both socially sub-optimal and regressive outcomes with respect to the provision of higher education. The historically most common response to this market failure — a government guarantee to repay student loans to banks in the event of default — is associated with significant problems. Income contingent loans offer a possible solution. Since the late 1980s ICLs have been adopted in, or recommended for, a significant and growing number of countries, and it is this important international policy reform that has motivated the Chapter. An ICL provides students with finance for tuition and/or income support, its critical and defining characteristic being that the collection of the debt depends on the borrowers’ future capacity to pay. ICL have two major insurance advantages for borrowers over more typical arrangements: default protection and consumption smoothing. With reference to countries with both successful and unsuccessful ICL, the paper illustrates that the operational and design features of such schemes are of fundamental importance with respect to their potential efficacy. It also seems to be the case that in many institutional and political environments there is not yet the administrative sophistication to make ICLs viable, although for reasons documented this is unlikely to be the case for the vast majority of OECD countries. For one country, Australia, there is now a significant amount of research into the consequences of an ICL, and the evidence is explored in some detail. The investigation into the Australian experience helps in the development of a research agenda.

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Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, Australian National University in its series CEPR Discussion Papers with number 491.

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Length: 89 pages
Date of creation: Jun 2005
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Handle: RePEc:auu:dpaper:491

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Web page: http://econrsss.anu.edu.au/
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Related research
Keywords: income contingent loans; student loans; higher education financing; HECS;

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Find related papers by JEL classification:
I00 - Health, Education, and Welfare - - General - - - General
I20 - Health, Education, and Welfare - - Education - - - General
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
I22 - Health, Education, and Welfare - - Education - - - Educational Finance
I28 - Health, Education, and Welfare - - Education - - - Government Policy
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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. [Downloadable!] (restricted)
  2. Alan Krueger & Mikael Lindahl, 2000. "Education for Growth: Why and For Whom?," Working Papers 808, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  3. Moen, Espen R, 1998. "Efficient Ways to Finance Human Capital Investments," Economica, London School of Economics and Political Science, vol. 65(260), pages 491-505, November. [Downloadable!] (restricted)
    Other versions:
  4. David Greenaway & Michelle Haynes, 2003. "Funding Higher Education in The UK: The Role of Fees and Loans," Economic Journal, Royal Economic Society, vol. 113(485), pages F150-F166, February. [Downloadable!] (restricted)
  5. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October. [Downloadable!] (restricted)
    Other versions:
  6. Gemmell, Norman, 1996. "Evaluating the Impacts of Human Capital Stocks and Accumulation on Economic Growth: Some New Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 9-28, February.
    Other versions:
  7. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September. [Downloadable!] (restricted)
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  8. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December. [Downloadable!] (restricted)
  9. Fane, George, 1975. "Education and the Managerial Efficiency of Farmers," The Review of Economics and Statistics, MIT Press, vol. 57(4), pages 452-61, November. [Downloadable!] (restricted)
  10. Bruce Chapman & Thomas F. Crossley & Taejong Kim, 2003. "Credit Constraints And Training After Job Loss," CEPR Discussion Papers 466, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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  11. de Meulemeester, Jean-Luc & Rochat, Denis, 1995. "A causality analysis of the link between higher education and economic development," Economics of Education Review, Elsevier, vol. 14(4), pages 351-361, December. [Downloadable!] (restricted)
  12. Eric A. Hanushek & Dennis D. Kimko, 2000. "Schooling, Labor-Force Quality, and the Growth of Nations," American Economic Review, American Economic Association, vol. 90(5), pages 1184-1208, December. [Downloadable!] (restricted)
  13. Alan Krueger & Mikael Lindahl, 1998. "Education for Growth in Sweden and the World," Working Papers 790, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  14. Weale, Martin, 1992. "Education, externalities, fertility, and economic growth," Policy Research Working Paper Series 1039, The World Bank. [Downloadable!]
  15. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February. [Downloadable!] (restricted)
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  18. Bruce Chapman & Chris Ryan, 2003. "The Access Implications of Income Contingent Charges for Higher Education: Lessons from Australia," CEPR Discussion Papers 463, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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  19. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-51, May. [Downloadable!] (restricted)
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  20. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer. [Downloadable!] (restricted)
    Other versions:
  21. Paroush, Jacob, 1976. "The risk effect and investment in human capital," European Economic Review, Elsevier, vol. 8(4), pages 339-347, December. [Downloadable!] (restricted)
  22. Dynarski, Mark, 1994. "Who defaults on student loans? Findings from the National Postsecondary Student Aid Study," Economics of Education Review, Elsevier, vol. 13(1), pages 55-68, March. [Downloadable!] (restricted)
  23. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July. [Downloadable!] (restricted)
  24. Eric A. Hanushek & Charles Ka Yui Leung & Kuzey Yilmaz, 2004. "Borrowing Constraints, College Aid, and Intergenerational Mobility," NBER Working Papers 10711, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  25. Romer, Paul M, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruce Chapman & Chris Ryan, 2003. "The Access Implications of Income Contingent Charges for Higher Education: Lessons from Australia," CEPR Discussion Papers 463, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  2. Shen, Hua & Ziderman, Adrian, 2008. "Student Loans Repayment and Recovery: International Comparisons," IZA Discussion Papers 3588, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Vodopivec, Milan, 2004. "A Simulation of an Income Contingent Tuition Scheme in a Transition Economy," IZA Discussion Papers 1247, Institute for the Study of Labor (IZA). [Downloadable!]
  4. O Debande & Vincent Vandenberghe, 2007. "Refinancing Europe’s Higher Education through Deferred and Income-Contingent Fees: An empirical assessment using Belgian, German and UK data," CASE Papers /124, Centre for Analysis of Social Exclusion, LSE. [Downloadable!]
  5. Rita Asplund & Oussama Ben-Abdelkarim & Ali Skalli, 2007. "An Equity Perspective on Access to, Enrolment in and Finance of Tertiary Education," Discussion Papers 1098, The Research Institute of the Finnish Economy. [Downloadable!]
    Other versions:
  6. Lorraine Dearden & Emla Fitzsimons & Alissa Goodman & Greg Kaplan, 2007. "Higher education funding reforms in England: the distributional effects and the shifting balance of costs," IFS Working Papers W07/18, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  7. Pierre Courtioux & Stéphane Gregoir & Dede Houeto, 2009. "The Simulation of the Educational Output over the Life Course: The GAMEO Model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00391393_v1, HAL. [Downloadable!]
  8. Andersson, Christian & Johansson, Per, 2009. "Social stratification and out-of-school learning," Working Paper Series 2009:17, IFAU - Institute for Labour Market Policy Evaluation. [Downloadable!]
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