Income Contingent Loans Theory, Practice and Prospects

by Stiglitz, Joseph E.; Higgins, Timothy; Chapman, Bruce

• ISBN13: 9781137413185
• ISBN10: 1137413182
• Format: Hardcover
• Copyright: 2014-05-28
• Publisher: Palgrave Macmillan

Summary

As an income contingent loans bill is considered by the US Congress, income contingent loans (ICL) have risen to the forefront of economic discourse. ICLs are collected through the income taxation system and are repaid only when future incomes exceed a specified level. ICLs were first introduced in Australia in 1989 to help college students finance their tuition costs, and since then many countries have followed this policy approach. Bruce Chapman, Timothy Higgins and Joseph E. Stiglitz along with a host of internationally recognised experts who have been instrumental in impacting national policy in this field, explore the theory of ICLs, and the prospect of applying the basic principles to many other potential areas of social and economic policy such as paid parental leave; recompensing poor countries for skilled migrant emigration; legal aid for civil disputes; business innovation for small and medium enterprises; out-of-pocket health care expenditure needs; and for periods of unemployment.

The text describes an alternative approach to ICLs, which takes the form of human capital contracts or graduate taxes, as well as examining hybrid schemes that combine the attractive aspects of both arrangements. Case studies are used to examine the prospects for ICLs for higher education in Malaysia, Germany, Thailand, Chile and Colombia, and there is discussion of the barriers for adoption of ICLs in countries that lack efficient institutions for debt collection.

A key message from the contributions is that in countries with appropriate institutions for taxation administration, there are considerable transactional efficiencies associated with ICLs. These efficiencies, combined with the improvements in risk and incentives that well-designed ICL programs can provide, suggest that such programs can play an important role in a modern welfare state.

Author Biography

Joseph E. Stiglitz is University Professor at Columbia University, USA. In 2001, he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information. He is currently the President of the International Economic Association (2011-2014).
 
Bruce Chapman is Professor of Economics and Director, Policy Impact at the Crawford School of Public Policy at the Australian National University. He has extensive experience in public policy, including: as a senior economic advisor to Prime Minister Paul Keating, 1994-96; as a higher education financing consultant to the World Bank and the governments of Thailand, Papua New Guinea, Mexico, Canada, the UK, Ethiopia, Rwanda, Malaysia, Colombia, the US, Chile and China, 1996-2013; as a consultant to the Bradley Review of Australian Higher Education on student income support, 2008; and as a consultant to the Australian Government's Base Funding Review, 2011.
 
Timothy Hiiggins is a Senior Lecturer and researcher in Actuarial Studies at the Australian National University. Prior to academia Tim was with the Australian Government Actuary in the Commonwealth Treasury. He is a Fellow of the Institute of Actuaries of Australia and consults in both an actuarial and statistical capacity to private and public sector clients. His main area of research interest is income contingent loan (ICL) theory and applications, and the development of stochastic costing models for ICLs. Other research interests include retiree behaviour and expenditure patterns, understanding and modelling financial means, needs, and products for the ageing population, and financial well-being more generally.

Table of Contents

1 Income Contingent Loans as Risk Management: Background; Bruce Chapman
PART I TOWARDS A THEORY FOR INCOME CONTINGENT LOANS
2 Remarks on Income Contingent Loans: How Effective Can They be Mitigating Risk?; Joseph Stiglitz
3 Income Contingent Loans as a Risk Management Device; John Quiggin
4 Income Contingent Loans: Toward a Piecewise Linear Scheme; Ngo Van Long
PART II PRACTICE IN HIGHER EDUCATION
5 Income Contingent Loans and Higher Education Financing: Theory and Practice; Nicholas Barr
6 The Challenge of Sustaining Student Loans Systems: Lessons from Chile and Colombia; Jamil Salmi
7 The Implications of Graduate Labor Market Performance in Designing a Student Loan Scheme for Malaysia; Lim Hock-Eam, Russayani Ismail and Yusnidah Ibrahim
8 Modeling Aggregate Loans Recovery of the Student Loans Fund in Thailand; Kiatanantha Lounkaew
9 Why don't we just give them the Money? Financing Living Expenses of Students in Germany; Barbara Grave and Mathias Sinning
PART III SPECULATIONS ON APPLICATIONS
10 Improving Paid Parental Leave through Income Contingent Loans; Timothy Higgins
11 Internationalisation of ICLs to Deal with Human Capital Trade Imbalances; Philip Clarke and Bruce Chapman
12 The Role of Contingent Loans in Providing Equitable Access to Legal Aid; Richard Denniss
13 Income Contingent Loans for Business Innovation; Glenn Withers and Nitin Gupta
14 Using Income Contingent Loans to Pay for Health Care; Rhema Vaithianathan
15 Elderly Support Policies as Resource Contingent Loans; Rafal Chomik and John Piggott
16 Optimal Provision of Loans and Subsidies for the Unemployed; Joseph Stiglitz and Jungyoll Yun
PART IV COMMENTARY
17 Overemphasized Costs and Underemphasized Benefits of Income Contingent Financing; Miguel Palacios
18 Aid Programs for Higher Education; Jungyoll Yun
19 Income Contingent Loans for Higher Education and Beyond; María Racionero
20 Why don't we see more use of Income Contingent Loans?; John Quiggin
21 Future Directions for Income Contingent Loan Theory; Glenn Withers
22 Utilising the Low Transaction Costs of Contingent Loans - A General Framework for Policy Application; Richard Denniss