Modeling income dynamics for public policy design: an application to income contingent student loans

Higgins, Tim and Sinning, Mathias (2013) Modeling income dynamics for public policy design: an application to income contingent student loans. Economics of Education Review, 37 273-285. doi:10.1016/j.econedurev.2013.08.009


Author Higgins, Tim
Sinning, Mathias
Title Modeling income dynamics for public policy design: an application to income contingent student loans
Journal name Economics of Education Review   Check publisher's open access policy
ISSN 0272-7757
1873-7382
Publication date 2013-12-01
Year available 2013
Sub-type Article (original research)
DOI 10.1016/j.econedurev.2013.08.009
Volume 37
Start page 273
End page 285
Total pages 13
Place of publication Oxford, United Kingdom
Publisher Pergamon
Language eng
Abstract This paper studies the importance of dynamic earnings modeling for the design of income contingent student loans (ICLs). ICLs have been shown to be theoretically optimal in terms of efficiency in the presence of risk aversion, adverse selection and moral hazard, and have attractive equity properties. Recognition of their benefits has led to their adoption for tertiary education tuition fees in countries including Australia, New Zealand, and the UK. Since the design of ICLs relies on the prediction of the underlying costs, we explore the extent to which the complexity of earnings modeling affects the estimation of loan subsidies. The use of Australian data allows us to compare our simulated debt repayments to actual repayments under the Australian Higher Education Contribution Scheme (HECS). Our findings reveal that the complexity of earnings modeling has considerable implications for the calculation of loan subsidies.
Keyword Educational finance
Dynamic stochastic modeling
Panel data
Income contingent loans
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Non HERDC
School of Economics Publications
 
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Created: Wed, 15 Jan 2014, 21:09:57 EST by Alys Hohnen on behalf of School of Economics