Means-testing and Parental Responsibility

1. Means-testing andParental Responsibility Prof. Dr. Frank Ziegele

2. content • rationales, starting points, • preconditions for means-testing • „institutional design“ of means-tested • systems • example Germany (GER)

3. Individually targeted subsidies in a broader context different forms of subsidies to individuals (students, parents) in the higher education context means- or need- oriented according to political preferences (gender, region, ...) induce incentive effects (educational savings…) internalize externalities (GER: „Kindergeld“, tax reductions - adverse means-testing!) focus

4. rationales for means-testing • starting point: cost-sharing and financial • crisis of public budgets • shift from institutional to individualsubsidization concentrate subsidies on relevant groups enable cost-sharing without access barriers for socially disadvan- taged efficient (=targeted) method to reach redistributive goals create a precondition for cost-sharing through means-tested variation of cost share

5. possibilities for means-testing in student finance means-testing of subsidies means-testing of loans tuition fee subsidy maintenance subsidies access to loans loan conditions (interest) repayment schemes reduc- tion no pay- ment tax deductibility general maintenance grant specific subsidies (housing, free meals..) income contingent repayment GER

6. some conclusions • variety of possibilities to realize means-testing, • clear concept needed! • income contingent loans (ICL) also include • means-testing, not according to family income • but to lifetime income of academics • ways of means-testing with ICL: debt • forgiveness, lowering net present value • of repayment for low incomes • by longer terms, progressive repayment

7. criteria for choosing out of the possibilities • distributional goal: redistribution between • households of different income levels (e.g. • fee reduction) vs. open access (ICL possible) • normative orientation: student as part of • family (e.g. access to loan according to family • income) vs. student as independent individual • on career path (ICL) • efficient combinations (e.g. students eligible • for maintenance grant get automatically fee • reduction: loan for maintenance purposes • is enhanced by volume of tuition fees)

8. criteria for choosing out of the possibilities • districutive vs. fiscal goals (e.g. ICL with • means-tested access - double means-testing • because of equity + targeting) • special purposes (e.g. solving housing • problems) vs. subsidization without • distortionary effects (e.g. general • maintenance grant)

9. preconditions for means-testing • acceptance for principle of cost-sharing • according to ability to pay • acceptance of government authority to reveal • ability to pay • existence of systems of income/wealth • calculation (tax system, limited „shadow • economy“) • existence of administrative capacities, • agencies (tax authorities, social insurance, • special administration)

10. „institutional design“ of means-testing • criteria for choice • observable? • incentive effects? • manipulations? • efficiency in targeting? • combinations? • ... conflicts, trade-offs find a proper indicator for ability to pay wealth categorial indicators income • gross vs. net income, taxable income • GER Kindergar- ten: gross income • threshold for integration? • excemptions (housing)? • only financial assets? • developing countries: telephone, electricity, car as assets • e.g. children, illness, ethnicity • GER: tuition fees for long term students

11. further design tasks decision makers • federal vs. state systems (GER: federal) • governmental or institutional level parental respon- sibility • limitations (first academic degree-BMS!, age, marriage) • signal for responsibility in case of ICL time structure • one-time calculation (+ reporting duties) • repeated calculations (time horizons?)

12. further design tasks information sources • self estimation • proof with documents • external sources (e.g. banks, GER) incentives • e.g. regular audits • penalties testing scheme • income/wealth calculation • aggregation of income (e.g. divorced parents) • income limits

13. further design tasks • lump sum under certain income threshold • diminishing subsidies with increasing income • volume of reduced cost shere benefit scheme • informations about system (campaigns) • services, assistance in application process (GER: ad- ministration vs. student unions) communi- cation, services • e.g. means-tested access to maintenance grant, but need-oriented calculation of grant (GER: living alone/ with parents) need- testing

14. Example BAföG: means-testing of maintenance grant • criteria: income + wealth (student, parents, spouse) • income: according to taxable income, proof by tax • declaration (parental income: 2 years before), • possibility of lowering on request if current income is • substantially lower (preliminary grant) • wealth: only student, tangible + intangible assets, • free: 5.200 € + 1.800 € (spouse) + • 1.800 € (per child) • comparison between income + wealth (per month • and need (per month), need minus (income + wealth) = • volume of grant

15. Example BAföG: means-testing of maintenance grant

16. Example BAföG: means-testing of maintenance grant

17. Example BAföG: means-testing of maintenance grant

18. Example BAföG: means-testing of maintenance grant • maximum payment period: mormal study time • (mostly 9-10 semesters) • further allowance possible for special hardships • (bureaucracy!) • changes possible every 2 years • independence of students (no parental income • included): more than 30 years old, more than • 5 years of work

19. Conclusions • cost-sharing makes means-testing inevitable • analysis of preconditions necessary • variety of alternatives (incl. ICL) • design tasks, but always trade-offs, • systems must remain imperfect