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OECD Economic Surveys: United States 2007

image of OECD Economic Surveys: United States 2007
This edition of OECD's periodic survey of the US economy assesses recent economic developments and examines challenges the US faces including employment limits that are slowing economic growth, fiscal sustainability, household debt, improving primary and secondary education, and financing higher education. This book includes StatLinks, URLs under tables and graphs linking to Excel® spreadsheet files containing the underlying data.

"Has an international bureaucracy ever made so much sense in so few words? If so, I missed it."-Greg Mankiw

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Financing higher education

America’s higher education system is among the best in the world but there are, nevertheless, areas 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 fiscally costly, they have unattractive efficiency and equity implications and research does not show them to be effective. 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 riskaverse 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.

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