Efficient Funding of Higher Education

Limor Hatsor ()

No 275827, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: I implement a basic tool of financial markets—namely, a portfolio—into student loans. In higher education funding, credit market loans (CMLs) lead to underinvestment, while income-contingent loans (ICLs) produce over-investment. This research introduces a ‘portfolio regime’ (PR), which allows students to combine CMLs and ICLs. The model assumes that agents privately invest in higher education after receiving a noisy signal about their future incomes. The article compares a PR with a ‘competition regime’ (CR), which allows students to choose one type of loan but prohibits a portfolio. The key insight is that implementation of a PR may improve the efficiency of investment in higher education and social welfare. Nevertheless, the PR does not maximize social welfare because of adverse selection into ICL programs.

Keywords: Financial Economics; Public Economics (search for similar items in EconPapers)
Pages: 32
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ageconsearch.umn.edu/record/275827/files/13-14.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275827

DOI: 10.22004/ag.econ.275827

Access Statistics for this paper

More papers in Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().