Modelling higher education financing reform for Ireland

Abstract

This paper examines the feasibility of various alternative potential student loan schemes for Ireland. Using National Employment Survey data for 2006, we model the life-cycle earnings distribution for Irish graduates. We then use these estimates to simulate the effects of alternative types of student loans, including mortgage-type (government guaranteed bank) loans and income-contingent loans of various designs, incorporating participation and migration patterns into the simulations. The results show that mortgage-type loans entail unsustainably high repayment rates for low income graduates. Through the specification of several alternative income-contingent loan schemes, it is demonstrated that this approach to higher education financing is feasible in terms of affordability for graduates and with respect to implied government subsidies. There are some important policy design issues to be addressed and we conclude with some recommendations for a future Irish scheme.