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Refinancing Europe’s Higher Education through Deferred and Income-Contingent Fees: An empirical assessment using Belgian, German and UK data

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  • O Debande
  • Vincent Vandenberghe

Abstract

The arguments for refinancing the European Union's (EU) higher education via higher tuition fees largely rest on preserving the profitability of the educational investment and offering deferred and income-contingent payments. Using income survey datasets on Belgium, Germany and the United Kingdom (UK) we first estimate how graduates' private return on educational investment is likely to be affected by higher private contributions. We then evaluate the effect of income-contingent and deferred payment mechanisms on lifetime net income and its capacity to account for graduates' ability to pay, considering numerous ways of financing the cost of introducing income-contingency. Our analysis reveals that increasing individuals' contributions to higher education costs, through income-contingent and deferred instruments, does not significantly affect the private rate of return of heterogeneous graduates, allows for payments to be indexed to ability to pay, and can be implemented in ways that minimize the risk of adverse selection. These findings prove robust to significant variations between countries' unharmonised higher education institutional structures.

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File URL: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper124.pdf
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Bibliographic Info

Paper provided by Centre for Analysis of Social Exclusion, LSE in its series CASE Papers with number /124.

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Date of creation: Jun 2007
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Handle: RePEc:cep:sticas:/124

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Web page: http://sticerd.lse.ac.uk/case/_new/publications/default.asp

Related research

Keywords: Higher Education Finance; income-contingent loans; risk pooling and risk shifting;

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  1. Nicholas Barr, 2004. "Higher Education Funding," Oxford Review of Economic Policy, Oxford University Press, vol. 20(2), pages 264-283, Summer.
  2. Thomas Lemieux, 2006. "Postsecondary Education and Increasing Wage Inequality," American Economic Review, American Economic Association, vol. 96(2), pages 195-199, May.
  3. Stacy Berg Dale & Alan B. Krueger, 1999. "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables," NBER Working Papers 7322, National Bureau of Economic Research, Inc.
  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. 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.
  6. 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.
  7. 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, September.
  8. Van der Linden, Bruno & Dor, Eric, 2001. "Labor Market Policies and Equilibrium Employment : Theory and Application for Belgium," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001005, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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Cited by:
  1. Floreani, Vincent Arthur, 2014. "Fixing Europe's youth unemployment and skills mismatch, can public financial support to SMEs be effective? The case of the European Commission and European Investment Bank joint initiatives," MPRA Paper 55849, University Library of Munich, Germany.
  2. Rong-Gang, Cong & Mark, Brady, 2012. "How to Design a Targeted Agricultural Subsidy System: Efficiency or Equity?," MPRA Paper 42481, University Library of Munich, Germany.

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