In today's seminar Angus Holford, from ISER, discusses his paper on Student preferences over fees, grants and loans
Income contingent loans are used to finance tuition fees and living costs of Higher Education students in several countries. These carry no possibility of default and limit repayments to a fraction of graduates’ annual incomes, but the implications of these features for students’ willingness to borrow and tolerance of their debt and repayment obligations has not been studied.
Using data from a cohort of undergraduates at one English university, we estimate students’ willingness to pay (WTP) for changes to different features of the current system in England, and document heterogeneity by demographic and non-cognitive characteristics both in initial WTP and the effect on WTP of an information treatment showing repayment implications.
Individual risk preferences make very little difference, suggesting that the insurance components of income-contingent repayment system are working effectively. However, we find very high WTP for features of the system that have no financial implications, suggesting that the language of the current system could promote financially illiterate decisions.
This is joint work with Emilia Del Bono, ISER, and Adeline Delavande, formerly ISER and now University of Technology, Sydney.