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					          EIB Conference: Student Loan Schemes:
What Works, What Does not Work, and What Could Work Better?



                     Student Loans:
What May Work in East-Central Europe?
                   Handout for a panel discussion

                            Petr Matějů
                           Daniel Münich
                        Simona Weidnerová
    Ministry of Education, Youth and Sports of the Czech Republic




Specific conditions for the implementation of student loans
     schemes in East Central Europe (ECE countries)
•    Attainment gap
•    Participation gap (inequality)
•    Funding gap ...
•    ... but high private returns to HE ...
•    ... and low private investments to HE
•    What to do to narrow the gaps?
•    What student loan scheme would fit best the
     situation?


                                                                    2




                                                                        1
            Attainment gap



                                                      3




Population that has attained tertiary education (2006)




                                                      4
                                                  EaG (2008)




                                                               2
       Population 18 to 35 year-old attending or attaining
                   tertiary education (2005)

50,0

45,0             43
            42
40,0                                                38
                                          37
                                                                   36                                                               35
35,0                                                                                             34
                           32                                                     32   33
                                               30                                                     30
                                28                       29                                                                              29
30,0
                                                                                            27             27
                                                                             25                                           26   25
                                     24                                                                              24
25,0                                                          23                                                22
       22

20,0                  18
                                                                        16
15,0

10,0

 5,0

 0,0
       AT   BE   CY   CZ   DE   DK   EE   ES   FI   FR   GR HU     IE   IS   IT   LT   LU   LV   NL   NO   PL   PT   SE   SI   SK   UK   EU




                                                                                                                EU SILC (2005)           5




                                Participation gap



                                                                                                                                         6




                                                                                                                                              3
             Population 18 to 35 year-olds attending or attaining
               tertiary education by father’s education (2005)
90,0%

80,0%


70,0%

60,0%


50,0%

40,0%


30,0%

20,0%

10,0%

 0,0%
             AT   BE   CY    CZ   DE   DK   EE   ES   FI     FR   GR     HU   IE    IS   IT    LT     LU   LV   NL   NO   PL    PT    SE    SI   SK   UK

                                                           FEDUC Lower    FEDUC Medium        FEDUC Higher




                                                                                                                           EU SILC (2005)             7




              Inequality in participation on tertiary education,
                        population 18 to 35 year-old
                    (by father’s education, ratio higher/lower)
                                                                    ratio higher/lower


UK
SK
 SI
SE
PT
PL
NO
NL
LV
LU
 LT
  IT
 IS
 IE
HU
GR
FR
 FI
ES
EE
DK
DE
CZ
CY
BE
AT
       0,0             2,0              4,0                 6,0               8,0              10,0              12,0                14,0             16,0




                                                                                                                               EU SILC (2005) 8




                                                                                                                                                             4
           Funding gap ....



                                                     9




Annual expenditure on educational institutions per
student in primary through tertiary education 2005




                                                 10




                                                         5
  Annual expenditure on institutions of tertiary
         education per student in 2005




                                                   11




Annual expenditure on educational institutions per
   student relative to GDP per capita (2005)




                                                   12




                                                        6
Public subsidies in tertiary education (2005)




                                                13




   ... but high private returns
        to higher education



                                                14




                                                     7
  Private internal rates of return (IRR) for an individual
obtaining upper secondary education and for an individual
          obtaining university-level degree (2004)

                                           tertiary

                                            secondary




                                                             15




... and low private investments
       to higher education



                                                             16




                                                                  8
Expenditure on tertiary education from public and private
         sources as a percentage of GDP (2005)




                                                                                                                            17




                              Private sources and financial subsidy to students
                                         in OECD countries (2004)
                             40.0
                                                                             UK
                             35.0
                                                        Public subsidy to                                AUS
                                                        SWE
 State subsidy to students




                             30.0
                                                NO R    students (in % of                        Households
                                                        total expenditure                      expenditure on
                             25.0                                 NET
                                                            on tertiary                      tertiary institutions
                                                                                              CAN
                             20.0                                                               (in % of totalUSA
                                          FIN
                                                            education)
                                                           ITA
                             15.0
                                                                         O ECD
                                                                       IRL
                                                                                               expenditure on
                                                   GER                   HUN                 tertiary education)
                             10.0                                      SPA
                                                  FRA      CZ
                                                 PO R                        MEX
                              5.0                 SLV
                                                                PO L

                              0.0
                                    0.0          10.0           20.0          30.0       40.0          50.0          60.0
                                                                  Share of private sources



Source: OECD, Education at a Glance, 2006                                                                                   18




                                                                                                                                 9
                               Private sources and financial subsidy to students
                                          in OECD countries (2004)
                              40.0
                                                                                 UK
                              35.0
                                                                                                       AUS
                                                          SWE
  State subsidy to students




                              30.0
                                                 NO R

                              25.0                                       NET
                                                                                               CAN
                              20.0                                                                           USA
                                           FIN              ITA
                                                                            O ECD
                              15.0                                        IRL
                                                    GER                     HUN
                              10.0                                         SPA
                                                   FRA       CZ
                                                  PO R                           MEX
                               5.0                 SLV
                                                                  PO L

                               0.0
                                     0.0          10.0            20.0            30.0     40.0      50.0          60.0
                                                                    Share of private sources



 Source: OECD, Education at a Glance, 2006                                                                                19




                                         Key findings:
                                Attainment and participation gap

• ECE countries show significant gap in the
  proportion of population with tertiary
  education;
• Though this gap has been gradually narrowing
  during the last decade, it remains substantial,
  even in the youngest cohorts;
• Inequality in access to tertiary education is
  significantly higher in ECE countries than in
  other EU countries;
                                                                                                                          20




                                                                                                                               10
                 Key findings:
                 Funding gap
• Educational systems in East-Central European
  countries are significantly underfinanced;
• The funding gap is particularly large in private
  investments (no tuition fees in public
  universities, low participation of business);
• Public expenditures supporting students loans
  rank among the lowest in EU;
• Inefficient systems of student financial aid
  (indirect, non-cash rather than direct and cash);
                                                 21




               Key findings:
         High returns to education
• Private returns to higher education in ECE
  countries are higher than in other EU countries
  (high demand for high-skilled labor)
• Higher education is in high demand (it is
  perceived as a key to life-success and social
  mobility).




                                                 22




                                                      11
          What to do to narrow
               the gaps?



                                                       23




           Main goals and strategies
1. Further increase of educational opportunities at
   the tertiary level,
   it will require:
  a) Greater diversification of the system to meet greater
      variety of interests, expectations and learning
      abilities
  b) Increase public expenditures to tertiary education
  c) Bring more private resources to the system
          introduce tuition fees
          Incentives for greater involvement
          of commercial sector in R&D
                                                       24




                                                             12
             Main goals and strategies
2. Bring more students from underrepresented
   groups to higher education (low SES and low-
   income families)
  a) reduce selectivity of the secondary school system
  b) introduce more efficient system of student financial aid
     •   social stipends
     •   universal grants
     •   loans for living expenses
     •   system deferring payments of tuition fees (another type of
         loan)
     •   introducing education savings plans (specific loan scheme)
                                                                25




             Main goals and strategies
 3. Coordinate different parts of higher education,
    namely its financing, in order to make it:
    a) coherent and well balanced (fees, loans, grants,
       stipends)
    b) efficient (simple, understandable, inexpensive)
    c) promoting educational aspirations, namely among
       socially disadvantaged
    d) Coordinate for and support of information unified
       system on study opportunities as well as study
       and R&D outcomes



                                                                26




                                                                      13
          Main goals and strategies
4. Stimulate adoption of the “investment”
   approach to higher education, make it more
   attractive for potential learners
  a) high potential in high individual returns to higher
     education
  b) expected growth of educational aspirations and
     expectations
  c) Making schools accountable for educational outcomes




                                                      27




     What student loan scheme
        would work best?




                                                           14
                How to achieve the goals
          THE GOAL(S)                                  STRATEGY
Further increase of educational            Introduce deferred tuition fees
opportunities     bring more private           fee is a type of loan
resources to the system    avoid
increase of inequality
Bring more students from                   introduce more efficient system of
underrepresented groups to higher          student financial aid:
education                                    universal grants (under certain
                                            circumstances may convert in a loan)
                                               social stipends
                                              loans for living expenses
                                              introducing education savings plans
                                             (specific loan scheme)
Coordinate different parts of reform of    Deferred fees + loans for living
higher education finance                   expenses + education savings plans +
                                           grants converted in loans
                                           coordinated administration         29




             How to achieve the goals (2)
            THE GOAL(S)                               STRATEGY
  Stimulate adoption of the                Task for the HE reform: student is a
  “investment” approach to higher          well informed client, economically
  education, make it more attractive for   independent on the background family
  potential learners
  Reduce fear of borrowing for             Loan systems must be perceived as
  education                                save:
                                           • avoid requirement of having co-
                                           signatory or collateral
                                           • reduce the fear from unbearable
                                           financial burden right after graduation
                                           • possibility of suspending repayments
                                           in difficult life situations (no penalty
                                           for legitimate reason of suspension –
                                           maternity, long term unemployment,
                                           illness, disability, etc.)
                                                                                 30




                                                                                      15
          How to achieve the goals (3)
         THE GOAL(S)                      STRATEGY
Reduce fear of borrowing for   1.   repayment system must be
education (2)                       manageable, simple and easy
                               2.   interests should be realistic, but
                                    as low as possible
                               3.   possibility to repay the balance
                                    at any time
                               4.   maximum repayment period
Financial sustainability       1.   limited size of the loan (namely
                                    for living expenses)
                               2.   repayment system minimizing
                                    the risk of default
                               3.   low but realistic interest rate
                               4.   diversify the risk between
                                    borrowers, the lender and the
                                    state
                                                                         31




   Optimal strategy reaching the goals
• Joint and coordinated administration of loans:
   – for deferred tuition fees
   – for living expenses
   – grants converted to loans
• The loan and grant administration system is
  linked to:
   – higher education information system
     (database of students)
   – welfare and social security system
   – tax administration system
                                                                         32




                                                                              16
   Optimal strategy reaching the goals
• Loans are provided by the government :
  – government establishes higher education loans
    fund
  – pay-as-you-go system (similar to pension system)
  – government uses intermediary (state controlled)
    bank to manage loans fund and to disburse funds
    to commercial banks serving as customer points
    for students
  – loan repayments collected by personal income tax
    administration and forwarded to loans fund and to
    schools
                                                                    33




   Optimal strategy reaching the goals
• The loan repayments are income contingent,
  collected by the government agency through the
  tax system
   – low administration costs
   – lower risk of the default
   – lower interests
   – possibility of government interventions into the system
     (participation in repayment in preferred fields of study and
     occupations, during difficult life situations, etc.)
   – possibility of full repayment of the balance at any time
   – availability of statistical indicators on earnings


                                                                    34




                                                                         17
    Complexity of problems
calls for complexity of solutions




                                    35




 Thank you for your attention




                                    36




                                         18

				
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