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Choosing the type of income-contingent loan: risk-sharing versus risk-pooling

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  • Maria Racionero
  • Elena Del Rey

Abstract

We study the relative preference for risk-sharing or risk-pooling income-contingent loans for higher education of risk-averse individuals who differ in their ability to benefit from education and inherited wealth. We then analyse the outcome of a majority vote between the two income-contingent schemes. We provide examples where the risk-pooling income-contingent loan is preferred by a majority. The implementation of risk-pooling schemes may however face adverse selection problems, which may be particularly relevant in the presence of student mobility. We explore the implications of allowing students to choose whether to have their loan insured in a risk-pooling fashion or not insured. We show that access to risk-pooling income-contingent loans can sometimes be guaranteed without resorting to coercion.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 671.

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Date of creation: Nov 2012
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Handle: RePEc:auu:dpaper:671

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Keywords: voting; higher education finance; income-contingent loans;

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References

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  1. Kemnitz, Alexander, 2007. "Educational Federalism and the Quality Effects of Tuition Fees," Dresden Discussion Paper Series in Economics 08/07, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  2. Thomas Lange, 2009. "Public Funding of Higher Education when Students and Skilled Workers are Mobile," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 178-199, June.
  3. Poutvaara, Panu, 2001. "Alternative tax constitutions and risky education in a federation," Munich Reprints in Economics 19302, University of Munich, Department of Economics.
  4. Bruce Chapman, 2005. "Income Contingent Loans for Higher Education: International Reform," CEPR Discussion Papers 491, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  5. Maria Racionero & Elena Del Rey, 2006. "Financing schemes for higher education," ANU Working Papers in Economics and Econometrics 2006-460, Australian National University, College of Business and Economics, School of Economics.
  6. Poutvaara, Panu, 2004. "Educating Europe: Should Public Education be Financed with Graduate Taxes or Income-contingent Loans?," Munich Reprints in Economics 19296, University of Munich, Department of Economics.
  7. Dan Anderberg & Alessandro Balestrino, 2008. "The Political Economy of Post-Compulsory Education Policy with Endogenous Credit Constraints," CESifo Working Paper Series 2304, CESifo Group Munich.
  8. 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.
  9. 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.
  10. 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.
  11. Rainald Borck & Martin Wimbersky, 2009. "Political Economics of Higher Education Finance," CESifo Working Paper Series 2829, CESifo Group Munich.
  12. Panu Poutvaara, 2008. "Public and Private Education in an Integrated Europe: Studying to Migrate and Teaching to Stay?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 591-608, 09.
  13. Elena Del Rey, 2011. "Deferring higher education fees without relying on contributions from non-students," Education Economics, Taylor & Francis Journals, vol. 20(5), pages 510-521, May.
  14. De Fraja, Gianni, 2001. "Education Policies: Equity, Efficiency and Voting Equilibrium," Economic Journal, Royal Economic Society, vol. 111(471), pages C104-19, May.
  15. Panu Poutvaara, 2003. "Educating Europe," Public Economics 0302008, EconWPA.
  16. Gabrielle Demange & Robert Fenge & Silke Uebelmesser, 2012. "Financing Higher Education in a Mobile World," CESifo Working Paper Series 3849, CESifo Group Munich.
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Cited by:
  1. Marcel GERARD & Silke UEBELMESSER, 2014. "Financing Higher Education when Students and Graduates are Internationally Mobile," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2014010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Marcel Gérard & Silke Uebelmesser, 2013. "Globalization and Access to Higher Education – Policy Implications," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 11(2), pages 03-10, 07.
  3. Haupt, Alexander & Krieger, Tim & Lange, Thomas, 2013. "Education policy, student migration, and brain gain," Discussion Paper Series 2013-05, University of Freiburg, Wilfried Guth Endowed Chair for Constitutional Political Economy and Competition Policy.

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