Do Income Contingent Student Loan Programs Distort Earnings? Evidence from the UK

40 Pages Posted: 13 May 2019 Last revised: 23 Jul 2022

See all articles by Jack Britton

Jack Britton

Institute for Fiscal Studies (IFS)

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2019

Abstract

Government backed income contingent student loans are an increasingly being used to fund higher education. An income contingent repayment plan acts as an incremental marginal tax on labor earnings, which could cause individuals to distort their work effort. This paper uses an administrative dataset from the UK that links student loan borrowers between 1998 and 2008, to their official tax records between 2001/02 and 2013/14. Using a combination of techniques, including bunching and difference-in-difference methodology, our findings strongly reject the hypothesis that the UK’s income-contingent repayment plan distorts labor supply.

Suggested Citation

Britton, Jack and Gruber, Jonathan, Do Income Contingent Student Loan Programs Distort Earnings? Evidence from the UK (May 2019). NBER Working Paper No. w25822, Available at SSRN: https://ssrn.com/abstract=3387179

Jack Britton (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

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Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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