Migali, Giuseppe (2006) Funding higher education and wage uncertainty: income contingent loan versus mortgage loan. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

In a world where graduate incomes are uncertain and higher education is financed through governmental loans, we build a theoretical model to show whether an income contingent loan (ICL) or a mortgage loan (ML) is preferred for higher levels of uncertainty. Assuming a single lifetime shock on graduate incomes, we compare the individual expected utilities under the two loan schemes, for both risk neutral and risk averse individuals. The theoretical model is calibrated using real data on wage uncertainty and considering the features of the UK Higher Education Reform to observe the implications of the switch from a ML to an ICL and the effect of the top-up fees. Different scenarios are simulated according to individual characteristics and family background. We finally extend the initial model to incorporate stochastic changes of income over time.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance L Education > LB Theory and practice of education > LB2300 Higher Education
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Education, Higher -- Finance, Mortgages, Income-contingent loans, Wages -- Effect of education on, Risk assessment
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	7 November 2006
Number:	No.775
Number of Pages:	43
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Version or Related Resource:	Updates: Migali, G. (2006). Funding higher education and wage uncertainty: income contingent loan versus mortgage loan. [Coventry] : University of Warwick, Economics Department. (Warwick economic research papers, no.740).
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URI:	http://wrap.warwick.ac.uk/id/eprint/1424

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