Education Investigate

Voting On Income-Contingent Loans For Higher Education

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Executive Summary

The authors consider risk-averse individuals who differ in two characteristics - ability to benefit from education and inherited wealth - and analyze higher education participation under two alternative financing schemes - tax subsidy and (risk-sharing) income-contingent loans. With decreasing absolute risk aversion, wealthier individuals are more likely to undertake higher education despite the fact that, according to the stylized financing schemes they consider, individuals do not pay any up-front financial cost of education. They then determine which financing scheme arises when individuals are allowed to vote between schemes.

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