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Evaluating and designing student loan systems: an overview of empirical approaches

Dearden, L; (2017) Evaluating and designing student loan systems: an overview of empirical approaches. In: Asian and Australasian Society of Labour Economics (AASLE) Inaugural Conference 2017 Proceedings. AASLE: Australian National University, Canberra. Green open access

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Abstract

To understand and design student loan systems, it is important to have appropriate earnings and/or income projections for current and future graduates. In this paper, we use Current Population Survey (CPS) data from the US to demonstrate empirical approaches that can be used to simulate lifetime income and earnings profiles that are needed to both understand and design effective and sustainable student loan systems. The crucial element in getting this analysis right, is having reliable simulations of the whole distribution of current and/or future graduate earnings or income. We show that the traditional way of using unconditional quantile regression (UQR) is not always correct for evaluating student loans and conditional quantile regression (CQR) with appropriate age smoothing is a more reliable approach. We show that this approach can be used even in countries where income is censored and recorded in income groups. We then show a simple way of introducing dynamics into income projections even when individuals only have access to very short panel data. This involves using copula functions drawing on earlier work by Dearden et. al (2009) and Bonhomme and Robin (2009). Having reliable dynamic estimates turns out to be important in assessing not only the taxpayer costs of designing an ICL (as has already been shown in Dearden et. al (2009) and Higgins and Sinning (2013)) but for correctly assessing the extent of loan repayment hardship for individuals.

Type: Proceedings paper
Title: Evaluating and designing student loan systems: an overview of empirical approaches
Event: Asian and Australasian Society of Labour Economics (AASLE) Inaugural Conference 2017
Location: Financing Human Capital, CEPR conference, Paris June 2018
Dates: 08 June 2018 - 09 July 2018
Open access status: An open access version is available from UCL Discovery
Publisher version: https://aasle.conference-services.net/programme.as...
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > School of Education
UCL > Provost and Vice Provost Offices > School of Education > UCL Institute of Education
UCL > Provost and Vice Provost Offices > School of Education > UCL Institute of Education > IOE - Social Research Institute
URI: https://discovery.ucl.ac.uk/id/eprint/10052894
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