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Funding Higher Education and Wage Uncertainty: Income Contingent Loan versus Mortgage Loan

Migali, Giuseppe (2012) Funding Higher Education and Wage Uncertainty: Income Contingent Loan versus Mortgage Loan. Economics of Education Review, 31 (6). pp. 871-889. ISSN 0272-7757

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Abstract

We propose a simple theoretical model which shows how the combined effect of wage uncertainty and risk aversion can modify the individual willingness to pay for a HE system financed by an ICL or a ML. We calibrate our model using real data from the 1970 British Cohort Survey together with the features of the English HE financing system. We allow for individual heterogeneity by considering different family backgrounds and occupations. We find that graduates from poor families, males and graduates working in the private sector are more willing to pay to switch to an ICL. Using the UK Labour Force Survey we evaluate the distributive effects of our model. We compute the repayment burdens and taxpayer subsidies for average, low and high earnings graduates. The results confirm the important insurance benefits of an ICL compared to a ML, with lower burdens and higher subsidies for poorer graduates.

Item Type: Article
Journal or Publication Title: Economics of Education Review
Uncontrolled Keywords: Education choice ; Risk aversion ; Uncertainty
Subjects: H Social Sciences > HB Economic Theory
Departments: Lancaster University Management School > Economics
ID Code: 55730
Deposited By: ep_importer_pure
Deposited On: 12 Jul 2012 16:20
Refereed?: Yes
Published?: Published
Last Modified: 31 Oct 2014 00:04
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/55730

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