Template-type: ReDIF-Paper 1.0
Author-Name: Neil Shephard
Author-Workplace-Name: Nuffield College, Oxford and Economics Department, University of Oxford
Author-Email: neil.shephard@nuffield.ox.ac.uk
Title: Inference and forecasting in the age-period-cohort model with unknown exposure with an application to mesothelioma mortality
Abstract: Background: There has been extensive discussion of the workings of the English system of higher education income contingent
student loans. Major focuses have been on what former students are likely to pay and when, distributional characteristics and how much 
the Government guarantees made to students about having their loans forgiven after 30 years are likely to cost the budget of the Department 
of Business, Innovations and Skills (BIS) in the longer term. Leading contributions to this work includes Barr(2004), Goodman et al (2008), 
BIS Ready Reckoner (2012) and Chowdry et al (2012).  Here we look at a vital but entirely unstudied area, the actual cost the Government faces 
in financing these loans through borrowing in the gilts market1. We use a financially conventional “liabilities matching” approach, just as 
we would if we were trying to match or value pension obligations. To do this we identify financial instruments which proxy the behaviour of 
the time series of former student expected repayments. This allows us to estimate each year the direct cost to the state of providing these 
student loans. The results are remarkably different from the conventional calculations used by H. M. Treasury to charge BIS in their Departmental 
account2. The reason for this is very simple to explain, it relies entirely on the next observation. Once that is accepted all of the other 
arguments are conventional economics and the conclusions follow immediately.
X-Classification-JEL: 
X-Keywords: 
Length: 11 pages
Creation-Date: 2013-05-08
Number: 2013-W06
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2013/FundingCosts20130508.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:1306