Student Loans: When is Risk Sharing Desirable?

Bernhard Eckwert and Itzhak Zilcha

No 5718, CESifo Working Paper Series from CESifo

Abstract: In higher education, pure credit market funding leads to underinvestment due to insufficient risk pooling, while pure income-contingent loan funding leads to overinvestment. We analyze whether funding diversity – a market structure in which credit markets coexist alongside income-contingent loan funding – might restore efficiency of the educational investment process. In the absence of government intervention, we find that funding diversity improves pooling of individual income risks and, under some condition, leads to higher social welfare than pure credit market funding. If combined with a policy that restricts access to higher education, funding diversity even achieves full investment efficiency and strictly dominates credit market funding.

Keywords: higher education; funding diversity; human capital formation (search for similar items in EconPapers)
JEL-codes: D31 H31 I22 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp5718.pdf (application/pdf)

Related works:
Journal Article: Student loans: When is risk sharing desirable? (2017)
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:ces:ceswps:_5718

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().