Financing Higher Education in a Constrained Economic Environment: The Argument Against Income Contingent Loans in Ireland

30 Pages Posted: 8 Apr 2017

See all articles by Shaen Corbet

Shaen Corbet

Dublin City University Business School

Charles James Larkin

Trinity College Dublin

Date Written: April 7, 2017

Abstract

As student numbers in the Irish higher education system continue to grow, the escalating funding crisis within the system needs to be urgently addressed. This conversation must also consider the dynamic relationships and funding limitations possessed by a range of system stakeholders including universities, students, tax-payers and employers alike. Provision of benefits to one cohort results in a point-in-time loss of welfare to the other groups. Within this delicate relationship, we must somehow find an equitable financing alternative. This paper presents analysis and stress-testing of the proposed income contingent loan (ICL) system for the Irish higher education system. Our results suggest that an ICL providing for every student within the Irish education system will generate system-wide burdens in excess of €10 billion within the most reasonable assumptions of Irish educational growth and behavioural characteristics. Further, the ICL-system’s exposure to moderate levels of default and required interest rates to be repaid indicate that this choice of funding model is beyond the spectrum of a reasonable welfare-generating option. Considering the model’s susceptibility to emigration combined with downside risks associated with international financial conditions, it poses too great a risk to the Irish exchequer to be considered either reasonable or prudent. Further funding options and ICL alternative structures are explored.

Keywords: University Funding, Income Contingent Loans, Stress Test, Ireland

JEL Classification: A2, A23, C53, H52, H75, I00, I21, I22, I23, I24, I25, I26

Suggested Citation

Corbet, Shaen and Larkin, Charles James, Financing Higher Education in a Constrained Economic Environment: The Argument Against Income Contingent Loans in Ireland (April 7, 2017). Available at SSRN: https://ssrn.com/abstract=2948563 or http://dx.doi.org/10.2139/ssrn.2948563

Shaen Corbet (Contact Author)

Dublin City University Business School ( email )

Dublin 9
Ireland

Charles James Larkin

Trinity College Dublin ( email )

AAP College Green
Dublin 2
Ireland

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