Why Don’t We Just Give Them the Money? Financing Living Expenses of Students in Germany

Abstract

This chapter assesses the subsidies of the German student loan scheme for financing living expenses, establishes hypothetical repayment burdens in the absence of subsidies, and discusses the costs and benefits of conventional and alternative income contingent loans (ICLs). We find that the underlying subsidies of the German student loan scheme range from 57 to 80 per cent, indicating that the current scheme could be replaced by student grants if the administrative costs of collecting the debt are sufficiently high. We further demonstrate that the current scheme would either entail very high repayment burdens or very long repayment durations in the absence of loan subsidies and explain why an ICL may be viewed as a reasonable alternative to the current student loan scheme.