Financing Higher Education: An Assessment of Income-contingent Loan Options and Repayment Patterns Over the Life Cycle

Abstract

There has been growing worldwide interest in income contingent loans (ICLs) for tertiary students in recent years. This paper lists the design issues which have to be tackled when introducing an ICL and describes the solutions adopted by the Australian and New Zealand governments. Although there is keen interest in the likely repayment patterns for ICLs after graduation, it is very difficult to model such repayments using standard economic cohort techniques. This study uses dynamic micro-simulation to simulate the likely future repayment profiles for the two Australian ICL schemes and assesses the proportion of total debt repaid.