Issues in the economics of higher education financing

There is by now an extensive literature documenting the circumstances that have resulted in all governments in the OECD (and often elsewhere) intervening in the financing of higher education.

These interventions relate to the provision of student loans with two possible repayment arrangements, with collections being determined with respect to:

• a set time period, known as ‘mortgage-type’ loans (ML);
• the debtor’s income, known as ‘income-contingent loans’ (ICL).

For the first time the experience of particular countries with respect to student loans will be examined in comparative contexts.

The project addressed the question of what the effects would be of hypothetically juxtaposing the loan scheme and design parameters from one national environment to others. International comparisons will provide lessons for worldwide higher education financing reform.

This project  studied some countries that have not so far been extensively examined in the ML and ICL reform debate, including those debating higher education financing reform (such as Ireland and China).

Project methods

Education economists and others have examined the concept and implications of repayment burdens (RBs) for more than a quarter of a century. Defined simply, a RB is the proportion of a person’s income per period that needs to be allocated to repay a debt.

There are several approaches available for calculations of RBs which capture the fundamental role of graduate income distributions. We will use the parametric approach because it is a standard tool for exercises of this nature.

We employed the unconditional quantile regression (UQR) technique to estimate earnings functions. This provides a disaggregation of income distributions: we are able to learn the effects for the poorest graduates. This approach allows insight into the critical policy question for MLs: are RBs at the bottom of the graduate income distributions such as to suggest that this form of loan has the capacity to severely and negatively impact on the most disadvantaged of debtors.

Our RB technique can be applied to several countries with ICL, such as England and Australia, by addressing the hypothetical question of what the circumstances would be for their graduate debtors if current ICL systems were to be replaced with ML financing approaches. We extended the range of these RB studies to include several interesting additional countries, which include Ireland and China.

• Chapman, B. J., Dearden, L. & Doan, D (2020) The International Revolution in Higher Education Financing: Concepts, research and policy in Callender, C., Locke, W. and Marginson, S. (eds) Changing Higher Education for a Changing World. London: Bloomsbury
• Dearden, L., & Nascimento, P. M. (2019). Modelling alternative student loan schemes for Brazil. Economics of Education Review, 71: 49-64.
• Chapman, B. & Doan, D. (2019). Financing higher education: Concepts, empirical method and international policy reforms. Economics of Education Review 71:1-6
• Dearden, L. (2019). Evaluating and designing student loan systems: an overview of empirical approaches. Economics of Education Review, 71: 49-64
• Britton, J., Dearden, L., Shephard, N., & Vignoles, A. (2019). Is improving access to university enough? Socio-economic gaps in the earnings of English graduates. Oxford Bulletin of Economics and Statistics, 81, (2)0305–9049 doi:10.1111/obes.12261
• Armstrong, S., Dearden, L., Kobayashi, M., & Nagase, N. (2019). Student loans in Japan: Current problems and possible solutions. Economics of Education Review 71: 120-134. doi:10.1016/j.econedurev.2018.10.012
• Barr, N., Chapman, B. J., Dearden, L., & Dynarski, S. M. (2019). The US College Loans System: Lessons from Australia and England. Economics of Education Review 71: 32-48
• Chapman, B., & Doris, A. (2019). Modelling Higher Education Financing Reform for Ireland. Economics of Education Review 71: 109-119
• Yu, C., Chapman, B and Wan, Q. (2018) Repayment Burdens from Mortgage-style Student Loans and Towards an Income Contingent Loan for China’, Economics of Education Review, 71:95-108
• Chapman, B. & Hicks, T. (2018). The political economy of the Higher Education Contribution Scheme. In B. Cantwell, H. Coates, & R. King (Eds.). Handbook of the Politics of Higher Education. Cheltenham, Glos: Edward Elgar Publishing Limited: 248-264.
• Chapman, B. (2018). ‘It Works in Practice, But Would It Work in Theory? Joseph Stiglitz’s Contribution to Our Understanding of Income Contingent Loans’, in Martin Guzman (ed.) Towards a Just Society: Joseph Stiglitz and Twenty-First Century Economics, New York: Columbia University Press, pp. 479-492
• Chapman, B. (2018). “HECS: A Hybrid Model for Higher-Education Financing” in M. Fabian and R. Breunig (eds.), Hybrid Public Policy Innovations: Contemporary Policy Beyond Ideology, London, UK: Routledge: 119
• Chapman, B. ‘The Politics of HECS’, in P. Texiera and J. Shin (eds.) (2018), Encyclopedia of International Higher Education Systems and Institutions, Springer, Dordrecht
• Chapman, B. (2017) Student financing of higher education’ (with D. Flannery and A. Doris), in J. Cullinan and D. Flannery (eds.), Economic Insights on Higher Education Policy in Ireland, Palgrave Macmillan, 247-272
• Chapman, B. J., & Dearden, L. (2017). Conceptual and Empirical Issues for Alternative Student Loan Designs: The Significance of Loan Repayment Burdens for the US. The ANNALS of the American Academy of Political and Social Science, 671(1): 249-268
• Botterill, L. C., Chapman, B., and Kelly. S. (2017) Revisiting revenue contingent loans for drought relief: government as risk manager. Australian Journal of Agriculture and Resource Economics, 61(3): 367-384.