Template-Type: ReDIF-Paper 1.0
Author-Name: G Migali
Author-Name-First: G
Author-Name-Last: Migali
Title: Funding Higher Education and Wage Uncertainty:
Income Contingent Loan versus Mortgage Loan
Abstract: Individual risk aversion and riskiness of investment in higher education are combined
with two alternative loan-based financing systems, income contingent loans (ICL) and
mortgage loans (ML), to investigate the effects on graduate lifetime expected utilities.
We deal explicitly with the presence of hidden subsidies due to discounting, which is one
of the main drawbacks of an ICL. The theoretical model has been calibrated using real
data on graduate earnings and their volatility, together with the features of the English
HE financing system, which has recently switched from a ML to an ICL system. Higher
uncertainty in earnings in general makes an ICL the preferred system for risk averse
individuals, while risk neutral individuals prefer mortgage loans.
Creation-Date: 2011
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/FundingHigherEducation.pdf
File-Format: application/pdf
Number: 609506
Classification-JEL: 
Keywords: Education Choice, Risk Aversion, Uncertainty
Handle: RePEc:lan:wpaper:609506