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The Welfare State as Piggy BankInformation, Risk, Uncertainty, and the Role of the State$
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Nicholas Barr

Print publication date: 2001

Print ISBN-13: 9780199246595

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0199246599.001.0001

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Designing Student Loans

Designing Student Loans

(p.179) Chapter 12 Designing Student Loans
The Welfare State as Piggy Bank

Nicholas Barr (Contributor Webpage)

Oxford University Press

Imperfect information, risk, and uncertainty create capital market imperfections. As a result, conventional loans, i.e. mortgage‐type loans, are both inefficient and inequitable. Income‐contingent loans – i.e. loans with repayments calculated as x % of the borrower's subsequent earnings until he or she has paid off the loan – address these capital market imperfections by reducing the risks facing borrowers and lenders. Though its form and extent may vary, public involvement is necessary to collect income‐contingent loan repayments, and perhaps also to provide the loan capital.

Keywords:   borrowers, capital market imperfections, imperfect information, income‐contingent loans, lenders, mortgage‐type loans, risk, student loans, uncertainty

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