Choosing the type of income-contingent loan: risk-sharing versus risk-pooling

Maria Racionero and Elena Del Rey

No 671, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: We study the relative preference for risk-sharing or risk-pooling income-contingent loans for higher education of risk-averse individuals who differ in their ability to benefit from education and inherited wealth. We then analyse the outcome of a majority vote between the two income-contingent schemes. We provide examples where the risk-pooling income-contingent loan is preferred by a majority. The implementation of risk-pooling schemes may however face adverse selection problems, which may be particularly relevant in the presence of student mobility. We explore the implications of allowing students to choose whether to have their loan insured in a risk-pooling fashion or not insured. We show that access to risk-pooling income-contingent loans can sometimes be guaranteed without resorting to coercion.

Keywords: voting; higher education finance; income-contingent loans (search for similar items in EconPapers)
JEL-codes: D72 H52 I22 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Choosing the type of income-contingent loan: risk-sharing versus risk-pooling (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:671

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