Essays on the Provision of HE, Student Loans and Second Chance Policies

In many countries including the UK, the higher education (HE) sector is increasingly being funded by student loans while the level and methods of funding HE continues to be a hotly debated political topic. This thesis includes four theoretical papers on the provision of HE, student loans and Second Chance policies and is divided into two parts. There is evidence of improved labour market performance for mature university students who completed HE and for workers who succeeded in the labour retraining program. It could be beneficial for the government to provide a second chance at HE to those who failed their first chance at HE and to provide a labour retraining program to those who suffered downward labour mobility. The first part explores how to design a student loan system that takes into account foreseeable potential HE and labour market failures by extending the model of Gary-Bobo and Trannoy (2015). Chapter 3 investigates how to optimally provide a HE system that offers a second chance to all failed students and analyses the impact of such an optimally provided second chance on inequality. We found the second chance policy increases the degree of ex-ante inequality and causes the students who failed twice in HE to be worse off than everyone when old. Chapter 4 investigates how to optimally provide HE with a labour retraining program and the effect of this program on inequality. Although the ii labour retraining program has increased the degree of ex-ante inequality we found the degree of ex-post inequality can be decreased but only when the government knows who needs retraining. Our results suggest that if the government wants to use a labour retraining program to reduce inequality, it needs to improve its ability to correctly identify which workers are at risk of downward mobility. Our results in both chapters also support the findings in the related literature on the usefulness of ICL schemes to fund HE and suggest that the government cannot charge a separate ordinary loan for using these Second Chance policies. Part 2 focuses on the political economy of HE, a relatively underexplored field. Chapter 5 investigates the effect of the design of the constitution on the level of HE spending and income inequality between the presidential and parliamentary regimes by modifying the model of Persson, Roland and Tabellini (2000). We show the way the level of HE spending is determined in the two regimes is fundamentally different because the identity of the residual claimant of tax revenue is different and this presents a mechanism on how the constitution of the presidential regimes itself leads to a higher level of income inequality compared to the parliamentary regimes. In the UK and the US, the rising tuition fees and the building up of student loan debt have caused concern over its potential default. Chapter 6 examines whether a government could be motivated to increase the level of student loans and tuition fees when facing political uncertainty and a polarised society in theory by modifying the model of Persson and Svensson (1989). Our results agree with the insights in the related literature on the incentives to use public investment to influence the decision of the future government but we do not predict the incumbent government must increase or decrease the level of investment under uncertain re-election prospects.