Asymmetric Information in Financing Higher Education: Proposal for Banking System

Abstract

Countries must constantly foster their investments in human capital in order not to fall behind the information era, to render economic growth and development sustainable, and to fulfill the requirements of being a state of social welfare in cut-throat competition conditions. Banks provide financing opportunities for students and their parents who have difficulties in covering their education costs through higher education loans. However, the problem of asymmetric information based on the incomplete information issue between the bank and the higher education students as potential clientele render the banks reluctant to allocate educational loans. In that respect, this study proposes “Criteria for Inquiring Morality of Higher Education Students in the Pre-Control Process” comprised of two main processes, one of which is the prerequisite of the other, and “Pre-Control Mechanism of the Allocation Process for Higher Education Loans” aiming to manage the loan allocation process in a profound and controlled manner in order to solve the financing problems of potential and current higher education students, reduce the asymmetric information problem in the banks’ allocation process of higher education loans, encourage the allocation of higher education loans, and consequently, to reduce the burden of public sector on higher education resource allocation.