Abstract: The present article discusses the question of how to share the cost of higher education between the benefitting individual and the public optimally when labour income is taxed. Building on some previous work on the efficiency effects that income taxation has on human capital investment, the article demonstrates that in the presence of progressive income taxation a strong case can be made for the public to assume a fair share in the cost of higher education. The mix of private and public financing is shown to be efficient when the public share just neutralizes the negative effect that income taxation has upon the willingness to invest in higher education. The article then examines the efficient pattern of cost sharing in more detail. The article argues in favour of a two-part cost sharing scheme. The first part requires that the public subsidizes the cost of higher education to such an extent that the disincentive effect of progressive income taxation is neutralized. The second part requires that all remaining private expenditures are granted tax deduction against the income earned after studying. A particular virtue of the proposed two-part cost sharing scheme is that it gives individuals proper incentives to deploy effectively the stock of human capital acquired by studying.