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Financing schemes for higher education

  • DEL REY, Elena
  • RACIONERO, Maria

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 2181.

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Handle: RePEc:cor:louvrp:2181
Note: In : European Journal of Political Economy, 26(1), 104-113, 2010
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  1. 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.
  2. 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.
  3. Dionne, Georges & Eeckhoudt, Louis, 1985. "Self-insurance, self-protection and increased risk aversion," Economics Letters, Elsevier, vol. 17(1-2), pages 39-42.
  4. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  5. 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.
  6. Jacobs, Bas & van der Ploeg, Frederick, 2005. "Guide to Reform of Higher Education: A European Perspective," CEPR Discussion Papers 5327, C.E.P.R. Discussion Papers.
  7. Alessandro Cigno & Annalisa Luporini, 2009. "Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 55-87, 02.
  8. Bruce Chapman & Andrew Leigh, 2006. "Do Very High Tax Rates Induce Bunching? Implications for the Design of Income-Contingent Loan Schemes," CEPR Discussion Papers 521, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  9. 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.
  10. Nicholas Barr & Iain Crawford, 1998. "Funding Higher Education in an Age of Expansion," Education Economics, Taylor & Francis Journals, vol. 6(1), pages 45-70.
  11. 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.
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