Refinancing Europe’s Higher Education through Deferred and Income-Contingent Fees: An empirical assessment using Belgian, German and UK data

O Debande and Vincent Vandenberghe ()

CASE Papers from Centre for Analysis of Social Exclusion, LSE

Abstract: The arguments for refinancing the European Union's (EU) higher education via higher tuition fees largely rest on preserving the profitability of the educational investment and offering deferred and income-contingent payments. Using income survey datasets on Belgium, Germany and the United Kingdom (UK) we first estimate how graduates' private return on educational investment is likely to be affected by higher private contributions. We then evaluate the effect of income-contingent and deferred payment mechanisms on lifetime net income and its capacity to account for graduates' ability to pay, considering numerous ways of financing the cost of introducing income-contingency. Our analysis reveals that increasing individuals' contributions to higher education costs, through income-contingent and deferred instruments, does not significantly affect the private rate of return of heterogeneous graduates, allows for payments to be indexed to ability to pay, and can be implemented in ways that minimize the risk of adverse selection. These findings prove robust to significant variations between countries' unharmonised higher education institutional structures.

Keywords: Higher Education Finance; income-contingent loans; risk pooling and risk shifting (search for similar items in EconPapers)
JEL-codes: I28 H52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu, nep-eec, nep-hrm, nep-lab and nep-sog
Date: 2007-06
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Persistent link: http://EconPapers.repec.org/RePEc:cep:sticas:/124

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