OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Financing Higher Education in the United States
America’s higher education system is among the best in the world. Nevertheless, there is scope for
improvement. In particular, there appear to be substantial financial barriers to higher education despite
large government expenditures aimed at promoting access. Policy makers have proposed addressing these
barriers by increasing student grants. However, grants are costly, inefficient, inequitable and ineffective.
Income tax concessions and state government subsidies suffer from similar problems. In contrast,
international best practice seems to be converging on student loans with repayments that vary according to
income. Income-contingent loans facilitate access to college at low fiscal cost and without the inefficiency
and inequities that accompany grants, subsidies or tax concessions. At the same time, they do not
discourage risk-averse or uninformed students in the way that conventional loans do. The United States has
an income-contingent loan programme that should be expanded. While the design of repayments could be
improved, the main problem with this programme is that lending limits are too low. Higher limits,
especially for unsubsidised direct loans, would benefit students and promote access at little cost to the
government. Were a good system of loans in place, then less cost-effective means of promoting access,
such as grants and tax concessions, should be cut back.
Keywords: income-contingent loans, United States, education, pell grants
JEL:
I22: Health, Education, and Welfare / Education and Research Institutions / Educational Finance; Financial Aid;
H52: Public Economics / National Government Expenditures and Related Policies / Government Expenditures and Education
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