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The Mobility of Students and the Highly SkilledImplications for Education Financing and Economic Policy$
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Marcel Gérard and Silke Uebelmesser

Print publication date: 2015

Print ISBN-13: 9780262028172

Published to MIT Press Scholarship Online: May 2015

DOI: 10.7551/mitpress/9780262028172.001.0001

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PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 29 June 2022

Choosing the Type of Income-Contingent Loan:

Choosing the Type of Income-Contingent Loan:

Risk-Sharing versus Risk-Pooling

(p.228) (p.229) 8 Choosing the Type of Income-Contingent Loan
The Mobility of Students and the Highly Skilled

Elena Del Rey

María Racionero

The MIT Press

This chapter provides a formal model that complements the discussion conducted in Chapter 7. It analyzes the choice between risk-sharing and risk-pooling income-contingent loans for higher education of risk-averse individuals who differ in their ability to benefit from education and in their inherited wealth. The chapter derives the possible outcomes of a majority vote between the two income-contingent loan schemes and identifies cases where the risk-pooling income-contingent loan is preferred. It then discusses the implications of mobile graduates for participation and voting outcomes. Risk-pooling schemes can however be prone to adverse selection problems, particularly if students are mobile. The chapter explores the implications of allowing students to opt out of the risk-pooling income-contingent loan for a pure loan. It shows that risk-pooling income-contingent loans can be sustained even when some students opt out.

Keywords:   higher education, income-contingent loans, risk sharing, risk pooling, mobility, vote, adverse selection, opting-out

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