Project 2.5

Issues in the economics of higher education financing

The aim of this project was to examine two effects of student loan schemes: the impact of mortgage-type loans on the welfare of students and graduates, and the costs to government of income-contingent loan subsidies.

About this project

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.


Australian National University
Bruce Chapman is Professor of Economics at the Australian National University and was a CGHE Co-Investigator on the former Project 2.5, ‘Issues in the economics of higher education financing’.
Professor Lorraine Dearden
IOE, UCL’s Faculty of Education and Society
Lorraine Dearden is Professor of Economics at IOE, UCL’s Faculty of Education and Society and was a CGHE Co-Investigator on the former Project 2.2, ‘HE choices and post-HE destinations to age 25: parental background and effects of higher education funding reform in the UK’.
Dung Doan
Australian National University
Dung Doan is a Research Fellow at the Australian National University (ANU) and was a CGHE Research Associate on the former Project 2.5, ‘Issues in the economics of higher education financing’.