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Do Income Contingent Student Loan Programs Distort Earnings? Evidence from the UK

Jack W. Britton, Jonathan Gruber

NBER Working Paper No. 25822
Issued in May 2019
NBER Program(s):Children, Economics of Education, Labor Studies, Public Economics

Government backed income contingent student loans are an increasingly being used to fund higher education. An income contingent repayment plan acts as an incremental marginal tax on labor earnings, which could cause individuals to distort their work effort. This paper uses an administrative dataset from the UK that links student loan borrowers between 1998 and 2008, to their official tax records between 2001/02 and 2013/14. Using a combination of techniques, including bunching and difference-in-difference methodology, our findings strongly reject the hypothesis that the UK’s income-contingent repayment plan distorts labor supply.

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Document Object Identifier (DOI): 10.3386/w25822

 
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