Contingent Loans Research Articles

Contingent Loan Repayment in the Philippines

Using data from the Philippines, this article seeks to understand how households in the study area apparently manage to avoid falling into a debt trap in spite of frequent borrowing. Findings suggest that this is achieved via three institutional features. First, most informal debt carries no interest. Second, for all debts, repayment is postponed in case of a borrower’s difficulty; this is the only insurance feature of debt repayment. Third, while debt principal is seldom forgiven or reduced, interest‐bearing debt does not carry additional interest if debt repayment is delayed. This prevents interest charges from accumulating and debt from snowballing.

Government Managing Risk: Income Contingent Loans for Social and Economic Progress ‐ by Bruce Chapman

<i>Government Managing Risk: Income Contingent Loans for Social and Economic Progress</i> ‐ by Bruce Chapman

Why are High-Ability Individuals from Poor Backgrounds Under-Represented at University?

We analyse data in which individuals from low socioeconomic status (SES) backgrounds have lower university participation rates than those from higher SES backgrounds. Our focus is on the role played by credit constraints in explaining these different participation rates. We propose a multistage model of education where university participation is contingent on ability to pay and high school academic performance, which depends on family SES and innate student ability. We find no evidence that credit constraints deter high achieving students from attending university in Australia, a country with an income contingent loan scheme for higher education tuition fees. We do, however, find that how students convert their earlier school performance into the scores on which university entrance is based is contingent on their SES. That is, for students of similar ability, those from higher SES backgrounds are more likely to obtain university entrance scores and achieve higher scores if they do. Hence, policy interventions that rectify the credit constraint problem that faces individuals at the time they make university entrance decisions are not sufficient to equalize university participation across social groups.

On Cost-Sharing, Tuition Fees and Income Contingent Loans for Universal Higher Education: A New Contract Between University, Student and State?

In the search for a viable 21st century cost-sharing contract between university, student and state, the issues of rising participation and student demand, functional differentiation, institutional competition and stratification and social inequality are systematically discussed. The argument develops through, firstly, a critical appraisal of the genre of elite, mass and universal higher education; secondly, a discussion of the consequences of US institutional stratification; and, thirdly, an assessment of national tuition fee systems as a way of sponsoring mass and universal participation. The Ivy League and the California Master Plan as well as the tuition fee systems in Australia, New Zealand and England have addressed rising participation and relative declining state funding (per FTE tertiary student) while seeking to preserve and enhance quality by mobilising and concentrating resources. Yet, the accumulated unintended consequences of theses systems are undermining their very foundations, making none of these a suitable candidate for emulation in the 21st century. Moreover, the conceptual distinction between, elite, mass and universal higher education is flawed and not suitable for guiding further reform initiatives. Consequently, it is submitted that the financing of state funded undergraduate degrees (BA) be decoupled from postgraduate degrees (MA, PhD). The rise of the European Higher Education Area with 46 member states, and more expected to join, serves as a vantage point from which to critique the legacy of the 20th century and develop preliminary policy recommendations for the 21st century.

Enseignement supérieur et mobilité, l'interpellation du passager clandestin

In this short paper, we suggest that internationalisation of Higher Education, pushed a.o. by the so called Bologna process, call for rethinking the role of the State. So, it could evolve from a mission of financing education on its territory – according to a principle of school territoriality – to a mission of financing studies by its residents – according to a principle of residential territoriality – through voucher and/or contingent loans, of taking responsibility for the competition between institutions and of signalling quality of those institutions on its own territory and abroad.

Les prêts contingents aux étudiants dans les pays de l'OCDE

Students Income Contingent Loans in OECD Countries. Investment in higher education is important for economic growth. Now, although most of European countries (including France) invest about 1 % of GDP in Higher Education, United State (and Canada) devote to it about 2.5 % of GDP (OCDE [2004]). We also point out that Higher Education spending tend to be more important in countries where a substantial part of the funding is private, originating from students and their families or from donations (alumnies) or enterprises. The difficulties in Higher Education funding that arose in some developed countries during the 90 s, combined with a persistent inequality of opportunities, have conducted some of them to implement reforms. Those reforms have in common some core characteristics that lean on Income Contingent Loans in compensation of the introduction of higher tuition fees. This note presents in details some of theses reforms introduced in United Kingdom, Australia and New Zealand. We also present the case of Sweden, where students loan schemes exist since long although access to Higher Education is totally free in this country.

1 - Higher Education Finance and Accessibility: Tuition Fees and Student Loans in Sub-Saharan Africa*

* An earlier version of this paper was presented to a conference, “Improving Tertiary Education in Sub-Saharan Africa: Things that Work!” sponsored by the Association of African Universities and the World Bank, in Accra, Ghana, September 23–25, 2003.“Revenue supplementation” in higher education refers to shifting higher education costs away from relying mainly (sometimes virtually exclusively) on government, or the taxpayer, and toward parents, students, philanthropists, businesses, and other sources. “Cost-sharing” refers more specifically to requiring that parents and stu- dents pay all or most of tuition, lodging, and food costs, and other fees, as well as lessening the value of grants or raising the effective interest rate on student loans. This article identifies some of the historic resistance to cost sharing as well as its rationales—the most compelling of which is the sheer need for revenue, coupled with the increasing unlikelihood that African governments can raise enough rev- enue by taxation to meet currently underfunded social needs and simultaneously provide substantially more to meet the rising costs of higher education. The article identifies some limitations to the “dual-track” tuition policies in East Africa and some reasons for the many failures African countries have experienced with stu- dent loan programs. It cautions against the prevailing fascination with income- contingent loans and makes recommendations, drawn both from theory and from the few empirical examples of “things that work.”

A Simulation of an Income Contingent Tuition Scheme in a Transition Economy

The paper takes advantage of exceptionally rich longitudinal data on the universe of labor force participants in Slovenia and simulates the working of an income contingent loan scheme to partly recover tuition costs. The simulations show that under the base variant (where the target cost recovery rate is 20 percent and the contribution rate is 2 percent), 55 percent of individuals would have repaid their entire debt within 20 years; 19 percent of individuals still would not have repaid any of their debt after 20 years; and the leakage of the scheme due to uncollected debt would have been 13.5 percent of total lending. By piggybacking on existing administrative systems, implementation costs would be minimal, amounting to less than 0.5 percent of collected debt.

Funding Higher Education in the UK: The Role of Fees and Loans

Higher education has undergone considerable expansion in recent decades in a number of OECD countries. Expansion has been especially dramatic in the UK where aggregate student numbers have doubled in 20 years. However, over the same period, funding per student has halved in real terms. In the UK as well as in other countries, most notably Australia, innovation to diversify the funding base has taken place. This has included a limited role for fee contributions. This paper makes the case for much greater reliance on fee contributions from students, accompanied by a greater availability of income contingent loans.

Income-contingent Financing of Student Charges for Higher Education: Assessing the Australian Innovation

In Australia in 1989, for the first time in the world, a broadly-based, income-contingent loan policy for the repayment of higher education charges was adopted. In this article Bruce Chapman and Chris Ryan argue that compared to all possible alternatives, income contingent loans are preferable for both economic and social reasons, so long as the administrative context allows efficient collection of the debt.

Efficiency and equity effects of subsidies to higher education

We compare the efficiency and equity effects of three financing systems for higher education: the traditional tax-subsidy system, where education subsidies are financed from general taxation; loan schemes; and a graduate tax. We find that efficiency and equity targets cannot be simultaneously achieved by the traditional tax-subsidy system, and that both loan schemes and a graduate tax fare better. When education outcomes are uncertain, the graduate tax is to be preferred to a pure loan scheme because of the greater insurance provided by the former and because it tends to be preferable to an income contingent loan system. Copyright 2000 by Oxford University Press.

10.3917/rfsen.532.0210

French students often have difficulty paying for their education, the real cost of which greatly exceeds tuition fees alone. A comparative analysis of student funding in France, England and Sweden indicates that income contingent loan (ICL) systems are relatively efficient and equitable. It would, therefore, seem socially just and legitimate to import such systems into France. However, in addition to the question of how to integrate an arrangement of this sort into the French student funding system, the equity of such arrangements depends on a set of specific social conditions, conditions that are found in England and Sweden. Taking into account these conditions, analysis of two simulations of “French-style ICLs” reveals that adapting the arrangements to the French social context would be at the cost of uncertainty as to the impact on social inequalities.

Efficient Ways to Finance Human Capital Investments

Standard theory predicts that if wages are determined by bargaining workers underinvest in human capital, as they bear all the investment costs yet receive only a share less than one of the return. I show that this result depends on the way the investments are financed. I introduce contingent loans, which do not accumulate interest if the borrower is unemployed. When the investments are financed by such loans, the interest payments are regarded as a (negative) part of the surplus the agents bargain over. As a result, a worker pays the same share of the interest as he receives of the return.

The role of income tax in student loan repayments

West keeps score of the continuing and growing inadequacies of the British student loan scheme to 1998 and shows how an income‐contingent loan could better satisfy its aims. He explores a common objection to any form of student loan scheme, that students pay for their university education through progressive income taxes. West shows how this argument falls short, and hence that some form of income contingent loan is required if equity and efficiency are to be satisfied.

Shareholders and Stakeholders: Human Capital and Industry Equilibrium

Producing high technology output and supplying sophisticated services often involves costly investment in industry-specific skills. But the threat of poaching means that it is the individual 'stakeholder', not the firm, who must bear the cost. We investigate various mechanisms for funding human capital investment in an industry equilibrium framework where capital market imperfections would (in the absence of intervention) result in underinvestment. The main result is that government provision of loan guarantees (conditional on no-bankruptcy) leads to wage hikes which raises profits in a socially inefficient manner: income contingent loans and levy subsidy schemes, meanwhile, can result in a socially efficient outcome. Recent analysis of investment under uncertainty has stressed the irreversible commitment that this may involve - and the value of waiting before committing or withdrawing resources, Dixit and Pindyck (1994). The investment considered is usually in physical capital - oil rigs, for example - and the decision makers are the shareholders who own equity capital, or their delegates. But in many high technology and service industries investments of a less tangible nature are also required - those in human skills. If they are costly to acquire and are not transferable outside the industry, then this will also involve irreversible decisions under uncertainty.

Using Income Contingent Loans for the Financing of the Next Million Australian Solar Rooftops

Rooftop solar systems have two major benefits: a reduction of carbon emissions (a public good) and future energy bill savings for consumers. However, the availability of solar energy systems to low-income households is constrained by access to finance for the initial investment cost, an issue which could potentially be addressed with the use of income contingent loans (ICLs). By applying unconditional quantile econometric methods to HILDA income data we illustrate that for a $10,000 loan for home owners ICLs can be used with little or no cost to government to help finance the next one million solar energy devices.

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

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.

Financing Tertiary Education: An Examination of the Issues

The subsidies provided to the tertiary sector in Australia are more generous than those offered in most other advanced countries and most other industries. Evaluated using the criteria of economic efficiency, equity and consistency with the stated aims for the tertiary sector, these subsidies do not appear to be given for the right reasons. It can therefore be argued that there is justification for the imposition of tuition fees and for consideration of loans as a method of student finance. Overseas experience with loan finance is reasonably encouraging. Income contingent loans have been advanced as a viable means of perfecting the market for investment in human capital and as a form of profit sharing in which taxpayers share in both the costs and benefits of the educational investments of a nation's youth. Many standard arguments against loan finance, such as their disadvantaging lowincome groups and their constituting a negative dowry for female students, do not stand up to close scrutiny of the empirical evidence. The gradual introduction of a student loans scheme characterised by a high degree of income contingency, lengthy repayment periods, decreasing marginal tax rates per unit of debt, and moderate interest rate subsidies, appears to have considerable merit as a means of passing on to graduates part of the cost of the expensive service they now receive largely for free.

Income Contingent Loans

Income Contingent Loans

The Autocorrelation of Earnings, Human Wealth Inequality, and Income Contingent Loans

I. Introduction, 551. — II. The autocorrelation of earnings and the variance of human capital, 553. — III. Applications of the variance of present values, 559. — IV. Conclusions, 564.