Dearden, Lorraine; Valdes Aspillaga, Natalia; Rios-Jara, Hector; (2025) Evaluating the design of income-contingent contribution schemes for financing higher education in Chile. : London, United Kingdom.

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Abstract

This paper develops a micro-simulation framework that estimates the future financial and distributional outcomes of the proposed new Chilean student loan instrument, FES. It employs the best available administrative data on enrolment, tuition fees, and earnings in order to simulate future graduate earnings paths using state-of-the art simulation techniques. It compares this with a more traditional income-contingent loan with similar repayment parameters. Importantly, the analysis focuses on average individual as well as overall (state) recovery rates, the implicit subsidy and cost per student, repayment burdens across the income distribution (deciles and ventiles of graduate earnings), gender, degree type, and completion status, and the sensitivity of results to key policy parameters such as repayment caps, contribution rates, repayment duration, and grace periods. In summary, this paper provides an ex-ante assessment of the internal consistency, distributional impacts (progressivity) and fiscal sustainability of the FES under alternative design scenarios and compares this to a traditional stylised income-contingent loan.

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