Do Income Contingent Student Loan Programs Distort Earnings? Evidence from the UK
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.
Corresponding author, Jack Britton (email@example.com). Britton would like to thank the British Academy for funding this work, grant PF150081 and the Economic and Social Research Council (ESRC)’s Centre for the Microeconomic Analysis of Public Policy at IFS (grant reference ES/M010147.1) for financial support. This work contains statistical data from Her Majesty’s Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information. The data creators, depositors, copyright holders and funders bear no responsibility for the analysis, inferences, conclusions or interpretation of the data presented here. Responsibility for interpretation of the data, as well as for any errors, is the authors’ alone. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.