Income-contingent loans in higher education financing

Abstract

ICLs possess considerable benefits (when compared to TBRLs), providing insurance to borrowers against both future loan repayment hardships and default. In contradistinction, TBRLs can be very costly to some borrowers who experience periods of low future income. In general, the public sector administration costs of an ICL scheme are very small for countries that have a comprehensive income tax or social security payment administration in place. This, in combination with the additional borrowers’ insurance benefits, suggests strongly that ICL policies are preferable to the standard TBRL model. This appears to be particularly true in weak graduate labor markets, such as those experienced during the economic stagnation associated with Covid-19. ELEVATOR PITCH