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2. Student Loans Schemes: Criteria for Evaluation
Adrian Ziderman
Bar-Ilan University, Israel
21 September 2019

3. Main topics for discussion
Rationale for student loans: alternative objectives
Evaluating student loans
Financial appraisal
Successful targeting
Issues in financing loans schemes
21 September 2019

4. The logic of loans policy
Education is an investment in human capital
Graduates have higher earnings potential
Loans are repaid out of enhanced earnings
Even with repayment, higher education remains a good investment
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5. Five major loans scheme objectives
Budgetary - no university expansion     
University system expansion
Social
Manpower needs
Student assistance
21 September 2019

6. Higher Education Budget Allocations
Government Budget
Budgetary
Allocations
Students
No Fees
(or minimal fees)
Universities
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7. Loans scheme objectives 1
Budgetary objectives - no university expansion     
Generate income to maintain enrolments and output/quality, in response to rising university unit costs
Funding replacement: response to reduction in overall government spending, including education
Funding replacement: response to reallocation of public educational budgets, from universities to other sub-sectors
21 September 2019

8. Higher Education Budget Allocations, with Cost Sharing
Government Budget
Budgetary
Allocations
Loans scheme
Repayments
Loans
Students
Fees
Universities
21 September 2019

9. Loans scheme objectives 2
University system expansion
Generate additional tuition fee revenues to (partially) finance expansion of the public university sector
21 September 2019

10. Loans scheme objectives 1 & 2
Expectations
Fee increases at public universities
Augmented university funding
Non subsidized loans
No target group
Alternative Policies
Budgetary objectives    
Rising university unit costs
Reduced overall government spending
Reallocation of public education budgets
University system expansion
Finance expansion of public university sector
21 September 2019

11. Loans scheme objectives 3
Social
Loans targeted on needy students
Disadvantaged groups
etc
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12. Loans scheme objectives 4
Manpower needs
Meet specific occupational/regional manpower needs
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13. Loans scheme objectives 3 & 4
Expectations
No fee increases at public universities
No increase in university funding
Loans are subsidized
Target group defined
Alternative Policies
  Social
Assist needy students
Disadvantaged groups
Manpower
Occupational/regional manpower
21 September 2019

14. Loans scheme objective 5
Expectations
No fee increases at public universities
No increase in university funding
Non subsidized loans
No target group
Alternative Policies
  Student Assistance
Ease financial burden during
study
Financial independence for students
21 September 2019

15. Loans scheme evaluation
Scheme to be evaluated in context of major objective
Objectives 1 and 2 (budgetary): financial appraisal
Objective 3 (social): success in reaching target groups
Objective 4 (manpower): increased enrollment/employment in priority areas
Objective 5 (student assistance): survey methods
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16. Loans scheme evaluation
Particular attention to:
Objectives 1 & 2:
financial evaluation
Objectives 3:
reaching target groups
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17. Measuring financial performance
Loan Repayment:
How much of a loan is a borrower required to repay?
Loans Recovery:
How much of loans scheme total outlays are recovered?
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18. Focus: the Individual borrower
Low repayment ratio stems from:
Below-market rates of interest
Interest-free study and grace periods
Repayment in nominal terms
(not taking account of inflation)
Built-in subsidies
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19. Focus: the Loans Scheme
Reasons for Low Recovery Ratio
Subsidized Loans (built-in)
Non-Repayment (“default”)
Administration Costs
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20. The Loans Scheme The Individual
Loans recovery with default and administration costs
Loans recovery will 20% default
Loan repayment
Loan Size
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21. Loan Recovery Ratio, Selected Countries (1992 estimates)
Country With default and administrative costs
Country With default and administrative costs
Kenya -3
Venezuela -8
Chile 18
Honduras 27
Indonesia 29
Brazil 29
Equador 30
Jamaica 30
Bolivia 30
Denmark 38
Mexico 39
Japan 40
Peru 40
Australia 43
United States (GSL) 47
Finland 48
Guatemala 50
Norway 52
Colombia 53
Hong Kong 53
Dominican Republic 57
Canada (Quebec) 63
Barbados 67
Sweden 67
21 September 2019

22. Substantial subsidy justified?
Justification for Subsidized Loans
Substantial subsidy justified?
Loan Scheme Objective No
Budgetary objectives
University system expansion
Yes
Social objectives (equity/access for the needy)
Yes (?)
Manpower needs
Student assistance
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23. C B A D Targeting the Poor Poor Non Poor Income Ceiling Students -
Loan Recipients
Students –
Non Recipients
Non School
Population A D
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24. Loans subsidies Do they achieve equity objectives?
Do loans reach target groups?
Are the very poor excluded?
Do the non-poor receive loans?
Is loan size large enough to cover costs?
Do loans encourage access
Do they compromise the financial viability of the loans scheme
Would focused grants make more sense?
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25. Financing loans schemes
Capital provision
Interest rate subsidies
Risk-bearing
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26. Provision of loan capital
No additional capital required with burden shifting
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27. Higher Education Budget Allocations, with Cost Sharing
Government Budget
Budgetary
Allocations
Loans scheme
Repayments
Loans
Students
Fees
Universities
21 September 2019

28. Provision of loan capital
No additional capital required with burden shifting
Loans funding usually required – from government
Continuing financing burden, reduced overtime with loan repayments
Other funding sources: banks financial institutions (existing funds)
21 September 2019

29. Interest rate subsidies
Interest rate in virtually all student loans schemes are below commercial interest rates
Judgement: non-subsidized loans impose too heavy a repayment burden
Interest subsidy borne by government
Where loans capital is provided by banks, government subsidizes the interest rate
Some non-subsidized bank loans not in receipt of interest subsidies – only for the better off
21 September 2019

30. Who bears the risk?
Inability of most students to provide loan collateral
Dubious value of parental guarantors
Government usually acts as guarantor, both in state and commercial bank loans schemes
S.E Asia exceptions: Chinese commercial scheme Hong Kong non-subsidized scheme
21 September 2019

31. Financing Loans Schemes – Functions and Agents
Financing Functions
Country
(loans scheme)
Risk-bearing
Loan subsidies
Capital provision
Banks,
Government
State-owned commercial banks
China (subsidized)
Parental assets
None
Commercial banks
China (commercial)
Government, Parents
Hong Kong (subsidized)
Hong Kong (non-subsidized)
Banks
Korea (MOE)
Government**
Korea (Government employees)
The Philippines (SNPL)
The Philippines (Region V)
University,
Co-signatory
The Philippines
(Centres of Excellence)
Thailand
21 September 2019

32. End of presentation
21 September 2019