This paper analyzes the impact of different education policy regimes on efficiency and inequality assuming stochastic skilled-biased technological change. Wage dispersion is determined by the heterogeneity of skills by allowing for productivity differences due to education, ability and age. The model performs reasonably well in reproducing a set of stylised facts. We evaluate the efficiency and distribution implications of different types of education policies. Tuition subsidies generally improve individual and aggregate welfare and decrease inequality in the long run, however agents with different levels of ability and age would disagree on which policy regime should be chosen. Moreover, in the short run, they may increase inequality and reduce the welfare of generations entering the labour market before the policy reform.