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

  • O Debande
  • Vincent Vandenberghe

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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Paper provided by Centre for Analysis of Social Exclusion, LSE in its series CASE Papers with number case124.

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Date of creation: Jun 2007
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Handle: RePEc:cep:sticas:case124
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  1. Nicholas Barr, 2004. "Higher education funding," LSE Research Online Documents on Economics 288, London School of Economics and Political Science, LSE Library.
  2. 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.
  3. 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.
  4. 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, July.
  5. Nicholas Barr, 2004. "Higher Education Funding," Oxford Review of Economic Policy, Oxford University Press, vol. 20(2), pages 264-283, Summer.
  6. Thomas Lemieux, 2006. "Postsecondary Education and Increasing Wage Inequality," American Economic Review, American Economic Association, vol. 96(2), pages 195-199, May.
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