Financing Higher Education with Students Loans - The crucial role of income-contingency and risk pooling

There are many economic and philosophical arguments supporting the introduction of student loans as a way to complement public financing and secure adequate resources for higher education, particularly in Europe. These arguments are briefly reviewed in this paper. But the case in favour of student loans largely rests on the capability to provide loans that are income-contingent. Indeed, income-contingent repayments are critical to both efficiendy (students and lenders should not be deterred due to excessive risk) and equity (contributions should be tailored to ex post ability to pay). But income-contingency comes at a cost that can be expressed as a risk premium that should be supported and shared between graduates and/or taxpayers. The central aim of this paper is to produce realistic estiamtes of such a risk, identifying the conditions for the implementation of an income-contingent loan scheme in order to channel additional private funding to higher education systems. How does low lifetime income and/or unemployment spells among higher education graduates translates into risk premia ? Results, derived from the analysis of Belgian earnings data, suggest that the risk premium ranges from 13% for university (ISCED 6-7) graduates to 26% for non-university (ISCED 5) ones. The paper further investigates the various ways of pooling and shifting this risk, while addressing the danger of public debt classification (ie, student loans classified as public) and adverse selection (ie, unsustainable pooling of high and low risk loans).Higher Education Finance; Income-contingent Loans; Risk premium; Risk poolong

Private financing of infrastructure. An application to public transport infrastructure

Institute of Transport and Logistics Studies. Faculty of Economics and Business. The University of Sydne

Deferred and Income-Contingent Higher Education Fees. An empirical assessment using Belgian data

Vandenberghe, V. & Debande, O. (2005). Deferred and Income-Contingent Higher Education Fees. An empirical assessment using Belgian data. Les Cahiers de Recherche du Girsef, 41.There are many arguments for shifting at least part of the higher educational cost burden from governments (or taxpayers) to individuals, particularly in Europe. But this case largely rests on the capability to offer deferred and incomecontingent payments. The two first features are critical to efficiency - students and lenders should not be deterred by excessive risk - and justice - contributions should be tailored to ex post ability to pay. Examples of instruments satisfying these criteria are income-contingent loans and human capital contracts. The central aim of this paper is to produce realistic estimates of how graduates' and nongraduates' lifetime income is likely to be affected by the generalisation of these instruments. Using data on Belgian income, we evaluate their effect on the distribution of lifetime net income, using higher income tax as a benchmark. The paper then considers the different ways of financing the cost of income-contingency, with a particular focus on the risk of adverse selection inherent to pooling the cost among graduates. But it shows that investing less on students opting for less profitable programs is a simple way to mitigate its severity

Financing technology transfer

Global policy discussions increasingly focus on innovation and the knowledge economy as a driver of long-term growth. In parallel new forms of innovation processes are emerging, notably open innovation and innovation networks stressing the importance of connections between various stakeholders. Links between universities and the business sector are of particular importance as many inventions come out of universities but have to be further developed to become economically relevant innovations. New financing instruments and attracting private investors to technology transfer (TT) are necessary but difficult as the patterns of risk and information in this “in-between area” is complex: Technology is not basic anymore and it requires large amounts of capital to be scaled up – with uncertain market prospects. This paper addresses new financial instruments for TT, building on European Investment Fund’s experience in this field.Technology Transfer; Financing; Innovation; Commercialisation; Funding gap; Patents; Licensing; Intellectual Property

Privatization and Managerial Efficiency

We investigate the privatization decision of a government whose objectives are to preserve jobs and to stabilize its budget. The firm considered needs restructuring, i.e. some funds must be provided and the manager must undertake an effort to reorganize the firm. If the productivity of the manager is unknown to the government, privatization involves a trade-off between better managerial incentives and a loss of control: productive managers restructure since they receive the profits of the firm, but unproductive managers shirk and deviate the funds to unproductive uses. This gives rise to a soft budget constraint, and the preservation of employment may become more expensive to the government than in state ownership.

Privatization and Managerial Efficiency

We investigate the privatization decision of a government whose objectives are to preserve jobs and to stabilize its budget. The firm considered needs restructuring, i.e. some funds must be provided and the manager must undertake an effort to reorganize the firm. If the productivity of the manager is unknown to the government, privatization involves a trade-off between better managerial incentives and a loss of control: productive managers restructure since they receive the profits of the firm, but unproductive managers shirk and deviate the funds to unproductive uses. This gives rise to a soft budget constraint, and the preservation of employment may become more expensive to the government than in state ownership.http://deepblue.lib.umich.edu/bitstream/2027.42/39429/3/wp39.pd

Report on Innovative Financial Instruments for the Implementation of the SET Plan, First-Of-A-Kind projects

This report responds to the request of Commissioner Oettinger and the Cabinet of Commissioner Geoghegan-Quinn end of 2012, for an expert assessment and recommendations regarding the financing of first-of-a-kind commercial demonstration projects as prioritised in the roadmaps of the Strategic Energy Technology (SET) Plan. The expert group comprised representatives of financial organisations, i.e. the European Investment Bank, the European Venture Capital Association, the European Insurance and Re-insurance federation, the World Bank, and the Climate Change Capital. Six hearings with key stakeholders representing the SET Plan European Industrial Initiatives (EIIs), as well as the Fuel Cells and Hydrogen Joint Undertaking were held. These hearings provided information regarding their main barriers for implementation and the gaps as regards access to finance. Existing EU financial were evaluated too. The report concludes that a new financial instrument at EU level is not needed since existing financial instruments already provide equity, loans, or guarantees. However, until now, those instruments have not provided the financing required. As a response to this problem a set of changes to existing financial instruments and their utilisation were recommended.JRC.F.6-Energy systems evaluatio