Understanding the problems with mortgage-type student loans; the econometrics of repayment burden calculations
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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