 The student funding dilemmaThe Journal of Economic Asymmetries, 2024, vol. 30, issue C Abstract: Access to higher education in several countries still has many barriers, mainly represented by the high cost of tuition fees. Given the importance of higher education for innovation and economic growth, this paper analyzes the best financing scheme for needy students. Using an asymmetric information model, the paper shows that student loans involve a moral hazard problem with sub-optimal levels of effort and quality of education, and are socially inefficient and inequitable. On the other hand, merit-based scholarships and need-based grants pose no moral hazard, are socially efficient, and are no more expensive than alternative financing schemes. In particular, while scholarships may be more cost-effective than grants, the latter allow to achieve directly the first best. The paper also examines loan forgiveness policies and talent funding. The results of the model are supported by a large strand of empirical literature. Keywords: Economics of education; Human capital; Information economics; Information asymmetry; Student loans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:30:y:2024:i:c:s1703494924000185 DOI: 10.1016/j.jeca.2024.e00369 Access Statistics for this article The Journal of Economic Asymmetries is currently edited by A.G. Malliaris More articles in The Journal of Economic Asymmetries from Elsevier |
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