Student Loans in Portugal:
Why and How?
Manuel Heitor
Secretary of State for Science, Technology and Higher Education
June 2, 2008
OECD Education at a Glance:
Student support in Portugal: 2004
2008
Source:.
Public subsidies for education to households and other private entities as a percentage of total public expenditure on education, by type of subsidy; OECD (2007). Reference Year: 2004
Expenditure on institutions as a percentage of GDP
(public and private sources, public and private institutions)
Source: EAG, OECD, Last year available.
Student Loans in Portugal
Basic Propositions (Nick Barr, OECD, April 2008): • Students matter!...and we need to enlarge access to HE • The world has changed! • Competition matters!
…Graduates (not students) should contribute to the costs of their degree.
The structure of the lecture: 3 main goals
Why? …which specific context? Opening‐up Tertiary Education: a Reform process How? Student loans with mutual guarantee …and how to evolve? What else do we need to know?
Opening‐up Tertiary Education ‐ 1
Some key measures and results (2006-2007): Access • THE BOLOGNA PROCESS: dynamic and on-going… - 87% of initial educational programs in 2007-2008. …and beyond: • NEW ACCESS REGIME FOR ADULTS - 11.773 new adults entered Tertiary Education in 2007-2008 - 10.850 in 2006-2007 (while, just 900 in 2005-2006) • NEW LEGAL FRAMEWORK FOR SHORT VOCATIONAL CYCLES - (CETs) - More than 4.800 admitted students in 2007 - Around 150 CETs in Tertiary Education Institutions • NEW STUDENT LOANS SYSTEM - 3.000 loans contracted in the period November 2007 – May 2008
Opening‐up Tertiary Education ‐ 2
Some key measures and results (2006-2007): Legal Reform • The New Legal Regime of Higher Education Institutions (RJIES) • • • • • Diversity of governance systems and increased autonomy Setting up Governing Boards with external participation Possibility of independent legal status for public institutions: namely as public foundations) Establishment of consortia among institutions Recognition of research centres as part of University management framework.
• The creation of conditions to foster the national and international mobility of students and graduates • New Regulations on Arrangements for Changes of Study Programmes, Transfers and Return to Higher Education New legal framework for the recognition of foreign degrees, which simplifies the system for recognizing foreign degrees in Portugal.
•
Opening‐up Tertiary Education ‐ 3
Some key measures and results (2006-2007): Commitment to Science • NEW CONTRACTS FOR PhD RESEARCHERS/TEACHERS - 630 new contracts supported in 2007 - At least 1.000 new contracts supported until 2009 • DOCTORATE AND POST-DOCTORATE GRANTS - Around 2.080 new PhD grants in 2007 (a 77% increase from 2005) - Around 900 new Post-Doctorate grants in 2007 (a 41% increase from 2005) • INTERNATIONALIZATION - PARTNERSHIPS FOR THE FUTURE R&D CONSORTIA WITH POST-GRADUATE PROGRAMS - MIT-PORTUGAL: 4 new PhDs in Engineering Systems (Energy, Transports, Advanced Manufacturing and Bioengineering) - CMU-PORTUGAL: 5 new PhDs in ICTs - UTAustin-PORTUGAL: 3 new PhDs in Digital Media, Advanced Computing and Mathematics
Student loans with mutual guarantee
All students; all institutions Universal, but also competitive in the bank sector Does not demand any kind of endorsement or patrimonial guarantee Largest banks distribute this credit line all over Portugal Automatic and fast bank approval in most cases Very low fixed interest rate [Maximum spread of 1%] Interest rate varies negatively according to academic performance
[reduced by 0,80% for students with yearly average classification between 16 out of 20 points and by 0,35% if above 14 points]
Loan between Eur 1.000 and Eur 5.000 per academic year Payments in 12 months Grace period of one year Reimbursement during in a number of years as many as twice the course duration
Why Mutual guarantee ?
Historical Guarantee Triangular Relationship
Bank loan
SMEs
Guarantee commission (fee)
Banks Guarantee Sheme
Guarantee
State
Counter Guarantee Financial Support Legal environment and framework
Source: SPGM, 2008
Student loans with mutual guarantee
Extended Guarantee Triangular Relationship
Bank loan (3)
Students
(both undergraduate and postgraduate)
Banks Guarantee Sheme
Guarantee commission (fee)
State (1)
Guarantee (2)
Counter Guarantee Financial Support Legal environment and framework
(1) Ministry of Science, Technology and Higher Education (2) Portfolio guarantee (covers losses up to 10% of bank loan values) (3) Up to Eur 5000 per academic year
Source: SPGM, 2008
Why succeeding with Mutual guarantee in Portugal?
MULTIPLIER OF PUBLIC INVESTMENT in the PORTUGUESE MUTUAL GUARANTEE SCHEME
(accumulated December 2007 - million euros)
Public Investment (SPGM + Counterguarantee)
Total Investment (public + private at MGS) Counterguarantees issued
131
150 612 966 1 721 2 348
Guarantees Issued
Nr. guarantees issued: > 8000
Loans and other financing to SME
Mutual SME: +- 3000
Investment made by the SME
Source: SPGM, 2008
Jobs created or sustained: > 57 000
Mutual Guarantee and other financial instruments
Strategic view and coordination
- Counter Guarantee Fund Management - Portuguese Mutual Guarantee Scheme development and marketing ( “umbrella ”) - Several Back -Office services to Mutual Guarantee Societies - First level control of the Scheme - Minority Participations in the MGS share capital
Under EU MAP
SPGM
Scheme “holding ” COUNTER GUARANTEE FUND (MCGF)
Automatic Counter Guarantee
Mutual Guarantee Societies (MGS)
Guarantees
-NORGARANTE - LISGARANTE
Interest
Banks and other guarantee beneficiaries
Guaranteed loans
Counter Guarantee fees
and loan repayments Guarantee fees
- GARVAL - AGROGARANTE
MGS shares
Counter Guarantee held by public entities
-
SME and Students
- mutualism
Mutual Guarantee Societies mainly privately held
-
All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme
Source: SPGM, 2008
Student loans with mutual guarantee
November 2007 – May 2008 • Student loans contracted: ≈ 3.000 • Total amount of contracted loans: 33,7 M Euros • Amount of contracted loans for 2007-2008: 14 M Euros • Students in public institutions / Private institutions ratio: 60/40
Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008.
Student loans with mutual guarantee
November 2007 – May 2008
External Assessment: OECD Review Panel, March 2008
… The model of providing student loans by way of a line of credit via the banking system, using the vehicle of the mutual guarantee scheme, is a pace-setting international innovation. The Portuguese initiative satisfies the key policy criteria: it is a horizontally equitable scheme; it represents good value for students; it is financially sustainable at higher volumes of student take-up; it is low risk for government and financial institutions; it avoids the need for additional administrative infrastructure. …
In: Notes on the reform of the Portuguese higher education system
Michael Gallagher, 7 March 2008
…and how to evolve? What else do we need to know?
1. Who are the students with loans ?
2. Beyond mutual guarantee ?
• • • Income contingent loans vs conventional sheme ? Which best scheme: hybrid ? When ?
3. Which economics of tertiary education ?
What needs to be payed? … who is paying?
Who are the students with loans?
Degree Program
Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008.
Who are the students with loans?
Geographical distribution
Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008
Who are the students with loans?
What else do we need to know ? • socio-economic
characterization
• relation with public support system • what can we learn from other systems and countries?
Loans beyond mutual guarantee ?
1. How far can we extend the current mutual guarantee system? • Increased dependence on academic performance ? • Loans larger than Eur 5.000 per academic year ? • Grace period larger than one year ? • Reimbursement period larger than twice the course duration ? 2. How far can we complement the system with other schemes? • How does it depend on the fiscal system and performance ? • Income contingent loans vs conventional sheme ? • Which best scheme: hybrid ?
Which economics of tertiary education?
Eurostudent 2005
Relative share of student income in Europe
(only students away from their parents home)
9 13 27 44 52 51 34 45 11 Alemanha Áustria Espanha Finlândia França Holanda Irlanda Letónia Portugal 38 28 28 42 13 9 8 45 33 43 57 7 30 29 27 4 11 10 4 44 8 21 52 4
70
17 26 Reino Unido
Família
Trabalho
Estado
Outras
Source: CIES-ISCTE, Eurostudent 2005.
Student support in Portugal: 2008 and beyond…
Support to students (public and private institutions)
Forecast ?
Forecast: Social Support annual increase: 2,5% New loans per year annual increase: 25% From 3.000 new loans per year.
Source: Public Budget 2008; GPEARI/MCTES. Approximate figures.
Which economics of tertiary education?
Budget - 2008
M Euros
Source: Public Budget 2008. Approximate figures.
Student Loans in Portugal
What else do we need to know?