In 1989 Australia introduced the first national income contingent loan (ICL) for university tuition. The Australian ICL has successfully facilitated the growth in higher education participation and graduate outcomes that motivated its development. The policy has broad public and political support, and still endures thirty years after implementation. Similar schemes have since been introduced in New Zealand, the UK, Hungary, and many other countries are also considering adoption. Costs to taxpayers can arise from an ICL if a borrower’s income is insufficient to repay their loan in full, and if the loan interest charged is less than the Government cost of borrowing. Because repayments and costs depend on future income, accurately modelling lifetime income and employment allowing for variability in individual income over time is critical. Methods used include variance components models where unobserved variation is decomposed into temporary and persistent shocks. An approach that is gaining popularity for modelling income dynamics, and which can be particularly useful in the absence of detailed panel data, is to use copula functions. In this presentation I will briefly discuss the history of development and experience of the Australian ICL, methods for modelling lifetime income and costs of ICL, and some of the key results and lessons from recent modelling.
About the Speaker:
Dr Tim Higgins is Associate Professor in Actuarial Studies, and Deputy Head of School of the Research School of Finance, Actuarial Studies and Statistics at the Australian National University. Prior to academia Tim worked as an actuary in the Australian Government Department of Treasury. Tim’s primary field of research is income contingent loan (ICL) policy analysis and development. His involvement with ICL has included econometric model development and costing of the Australian ICL scheme, and his work has included research on topics including paid parental leave, mature-aged training, community attitudes, overseas debt collection, income support, and options for tertiary education reform. Dr Higgins is co-editor and author of a recent book Income Contingent Loans: Theory, Practice and Prospects with Professor Bruce Chapman from ANU and Nobel Laureate, Joseph Stiglitz. He is an active commentator and contributor to the Australian policy debate on higher education financing, has participated in Government Hearings into student income support and finance reform, and was an advisor to the Australian Higher Education Legislation and Finance Working Group. He has recently returned from Brazil where he was part of a delegation advising the Brazilian government on design and implementation of income contingent loans.