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

Giuseppe Migali

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: In a world where graduate incomes are uncertain and higher education is financed through governmental loans, we build a theoretical model to show whether an income contingent loan (ICL) or a mortgage loan (ML) is preferred for higher levels of uncertainty. Assuming a single lifetime shock on graduate incomes, we compare the individual expected utilities under the two loan schemes, for both risk neutral and risk averse individuals. The theoretical model is calibrated using real data on wage uncertainty and considering the features of the UK Higher Education Reform to observe the implications of the switch from a ML to an ICL and the effect of the top-up fees. Different scenarios are simulated according to individual characteristics and family background. We finally extend the initial model to incorporate stochastic changes of income over time.

Keywords: Education Choice; Risk Aversion; Uncertainty (search for similar items in EconPapers)
JEL-codes: D81 H80 I22 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2006
New Economics Papers: this item is included in nep-edu, nep-lab and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Funding higher education and wage uncertainty: Income contingent loan versus mortgage loan (2012)
Working Paper: Funding Higher Education and Wage Uncertainty: Income Contingent Loan versus Mortgage Loan (2011)
Working Paper: Funding Higher Education and Wage Uncertainty: Income Contingent Loan versus Mortgage Loan (2006)
Working Paper: Funding Higher Education and Wage Uncertainty: Income Contingent Loan versus Mortgage Loan (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:775

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