Special Issue Higher Education and Financial Market
Income-Contingent Student Loans
The Underlying Principles and Practical Issues
2019 Volume 22 Pages 29-48
Details
2019 Volume 22 Pages 29-48
Capital market imperfection has been seen as one of the causes of underinvestment in higher education. In the 1950s, Milton Friedman proposed a system of Income-Contingent Student Loans to remedy this imperfection in the capital market. And in the 1960s, Alan Prest approved the system as a means of financing higher education from the viewpoint of equity. The system has been put into practice in Australia and Britain. It has a lot of advantage: robustness to response to default, the provision of insurance against adverse outcomes, low administrative costs, etc. However, the system also has some problems: income definition and assessment, difficulty in dealing with various household classifications, an increased interest burden, and so on. Nevertheless, the mechanism of Income-Contingent Loans offers a promising prospects of being of practical use in various areas outside the field of higher education.
