Higher education funding reforms in England: the distributional effects and the shifting balance of costs



Note that to calculate net present values of debt repayments and the value of taxpayer
subsidies, we assume a real discount rate of 2.2% per year (this follows the
government’s present convention for discounting, see DfES, 2007).
20

We also assume that no graduates avail of the option to take a five-year holiday from
loan repayments (announced in July 2007). Although it would be in the financial
interest of all graduates to take this option (assuming the zero real interest rate on
loans is maintained), it is difficult to predict when graduates would choose to take this
holiday, and just how extensive it will be when it comes into force. However, it should
be noted that we estimate that a graduate who takes it in the first five years of being
eligible for repayments stands to gain an additional £850 in subsidies from the
government, regardless of their position in the lifetime earnings distribution. Further
details are available from the authors on request.

a) Distributional effects of the new system

The first exercise we perform using our estimated graduate lifetime earnings profiles
is to assess the net present value of debt repayments that graduates will be expected to
make (i.e. net of any subsidies they gain from the zero real interest rate and debt
write-off), the number of years that graduates can be expected to repay their loans,
and the taxpayer subsidy (expressed as a proportion of the original loan) that they can
expect to receive under the new system. In all cases, we show how these outcomes
vary across the distribution of graduate lifetime earnings.

Figures 4a though 4c, and Table show the combined distributional effect of the
interest subsidy and the debt write-off provision. Each panel shows the whole
population of graduates, though this masks substantial heterogeneity across males and
females, which are also shown. For a given level of debt on graduation, lower
lifetime-earning graduates will eventually repay less of their debt, whilst higher
earners will repay more (Figure 4a and Table , column a). This is not a surprising

20 Note that our previous simulations in working versions of this paper, and others, used a 2.5%
discount rate. By using a that higher discount rate, we in general projected a greater cost to the taxpayer
in loan subsidies, and a lower cost to the individual than we do here; the length of time we simulated
that it would take graduates to repay their loans was also generally longer than with our current
earnings simulations.

14



More intriguing information

1. Macro-regional evaluation of the Structural Funds using the HERMIN modelling framework
2. Announcement effects of convertible bond loans versus warrant-bond loans: An empirical analysis for the Dutch market
3. Campanile Orchestra
4. Improvement of Access to Data Sets from the Official Statistics
5. Biologically inspired distributed machine cognition: a new formal approach to hyperparallel computation
6. SOME ISSUES IN LAND TENURE, OWNERSHIP AND CONTROL IN DISPERSED VS. CONCENTRATED AGRICULTURE
7. AN ECONOMIC EVALUATION OF COTTON AND PEANUT RESEARCH IN SOUTHEASTERN UNITED STATES
8. Running head: CHILDREN'S ATTRIBUTIONS OF BELIEFS
9. The Structure Performance Hypothesis and The Efficient Structure Performance Hypothesis-Revisited: The Case of Agribusiness Commodity and Food Products Truck Carriers in the South
10. APPLICATIONS OF DUALITY THEORY TO AGRICULTURE
11. Banking Supervision in Integrated Financial Markets: Implications for the EU
12. The WTO and the Cartagena Protocol: International Policy Coordination or Conflict?
13. FISCAL CONSOLIDATION AND DECENTRALISATION: A TALE OF TWO TIERS
14. Conservation Payments, Liquidity Constraints and Off-Farm Labor: Impact of the Grain for Green Program on Rural Households in China
15. Estimation of marginal abatement costs for undesirable outputs in India's power generation sector: An output distance function approach.
16. Perceived Market Risks and Strategic Risk Management of Food Manufactures: Empirical Results from the German Brewing Industry
17. The urban sprawl dynamics: does a neural network understand the spatial logic better than a cellular automata?
18. The name is absent
19. Sex differences in the structure and stability of children’s playground social networks and their overlap with friendship relations
20. Olive Tree Farming in Jaen: Situation With the New Cap and Comparison With the Province Income Per Capita.