Understanding the problems with mortgage-type student loans; the econometrics of repayment burden calculations
- Bruce Chapman, Australian National University
Overview
There are critical differences between mortgage-type and income contingent student loan policies. This seminar explains that the major issue relates to the fact that the former are paid on the basis of time, while the latter depend on a borrower?s capacity to pay.
This raises the important role of repayment burdens, the proportions of a debtor?s income that is needed to repay a student loan. Econometric techniques show that repayment burdens with mortgage loans for low income graduates in all countries examined are typically very high ? as much as 80 per cent for those in the lowest parts of the income distribution.
The implications for loan choice are stark, highlighting the benefits of income contingent loans so long as they can be made administratively feasible.
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Bruce Chapman is a Professor of Economics in the Research School of Social Sciences at the Australian National University. He is a labour and education economist and has published widely in the areas of training, wage determination, higher education financing, unemployment, labour market programme evaluation, the economics of crime and schooling. He has had extensive direct policy experience, including the motivation and design of the Higher Education Contribution Scheme in 1988, as a senior economic adviser to Prime Minister Paul Keating from 1994-96, and as a consultant to the OECD, the World Bank, and a number of governments (mostly in the area of university financing).
