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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.

Suggested Citation

  • Del Rey, Elena & Racionero, María, 2010. "Financing schemes for higher education," European Journal of Political Economy, Elsevier, vol. 26(1), pages 104-113, March.
    • Handle: RePEc:eee:poleco:v:26:y:2010:i:1:p:104-113
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    More about this item

    Keywords

    Efficiency Higher education finance;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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