Student Loans in Europe Economic and Practical Issues

1
Student Loans in EuropeEconomic and Practical
Issues
World Education Market Conference 2003

• Marianne Guille
• Université Panthéon-Assas Paris II

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Higher Education in Europe

• Recent trends reveal rising costs and
  institutional austerity.
• Why ? A spectacular rise of students numbers
  (transition from an élite to a mass HE system)
  and an extended period of financial stringency
  for governments that highly subsidise HE.
• One response to this funding crisis Increasing
  significantly the scale of private funding.
• How ? Increase of tuition fees and reform of
  student aid schemes (public student loans).
• This strategy increases cost recovery and raises
  students financial participation
• Private returns to education / Social returns or
  externalities
• Equity / Participation of children from poor
  families

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What situation in Europe ?

• Several countries have raised their tuition fees,
  which were very low until the 80s.
• All Western-European countries have defined
  needs-based support schemes.
• These systems are very different.
• Several countries provide this support at least
  partly on a loan basis.

4
Tuition fees and student loans

• A minority of countries still raise no fees (
  Germany and the Nordic countries)
• France raises moderate fees ( 150)
• Other countries raise substantial fees, between
  300 and 3000
• Six countries only have developed large public
  systems of student loans Denmark, Germany, the
  Netherlands, Norway, Sweden and the U.K.
• All these countries belong to the North or Mid
  Western Europe and these countries are also those
  which provide the highest direct support to
  students.

5
Differences in Student Behaviour and Social Role

• Over 80 of students in the Nordic countries and
  the Netherlands live away from home.
• In France and Germany, 60 and 77 of students
  live away from home.
• In Southern countries over 60 live with their
  parents (Spain 80).

6

• The more students live independepently, the more
  they are helped. (Nordic countries and the
  Netherlands)
• The more they are considered young citizens
  investing in their future, the more the loan
  component of the aid is important. (Nordic
  countries and the UK)
• When they are considered children in a family
  system, hardly any support is provided to cover
  their direct expenditure. (Southern European
  countries)
• Mid-Westen European countries are in between
  financial aid to a large minority of students but
  depending on parental resources. (France and
  Germany)

7
Private returns to education

• The share of the loan is also dependent on the
  observed private returns to education the
  lowest private returns to education (inferior to
  6) in Europe are received in the Nordic
  countries and the Netherlands while Germany and
  the UK are at the top of the returns scale.
• As a consequence Sweden and Norway decided
  recently to reduce the share of the loan while
  the UK decided to abolish grants and provide only
  loans to students.

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The share of loan varies between 0 and 100.

• In half of the European countries, which belong
  to the South or Mid-Western countries, student
  direct aid which is rather low still comprises no
  loan.
• In the others, the share of the loan is about 33
  in Denmark and the Netherlands, 50 in Germany,
  75 in Norway and Sweden, 100 in England.
• The share of the loan has been recently increased
  (Denmark and the UK) or reduced (Germany, Sweden,
  Norway and parts of the UK) while it depends on
  students performance in the Netherlands.

9
Criteria of eligibility differ

• The age limit is more restrictive in the
  Netherlands (27 years) or in Germany (30 years)
  than in Sweden (45 years), in the UK (50 years or
  even 54 if students plan to return to work) or in
  Denmark (no age limit).
• Part-time students are excluded except in Sweden
  or the UK.
• The amount lent may or may not depend on
• Parents or spouses resources
• Students way of living
• Students performance.

10
Conditions of repayment differ

• Two countries only have chosen income contingent
  loans Sweden and the UK.
• In the others repayment is not related to
  borrowers income but comprises a period of grace
  varying between one and five years after the
  completion of studies.
• To improve equity or access to the poor, there is
  no interest rate in Germany, a zero real interest
  rate in the UK.
• In the other countries, interest are subsidised
  or reflect the true cost of government borrowing
  to increase cost recovery.
• Interest is charged from the date the loan was
  paid out except in Norway (loans are interest
  free during the period of study).

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The proportion of benefeciaries varies

• In the Nordic countries, almost all students
  receive loan based aid (more than 80 in Sweden,
  Norway and Denmark)
• In the other countries, the proportion of
  benefeciaries varies
• Less than 10 in the Netherlands (performance
  grant and interest payments)
• 18 in Germany ( number of beneficiaries constant
  since 1971)
• 65 in the UK (a proportion progressively close
  to that of the Nordic countries)

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Towards a European Loan Scheme ?

• All students should be eligible to loans and loan
  amounts should be sufficient to cover all living
  costs while free fees and grants should be
  restricted to students from poor families.
• Repayments should be income-contingent because
  automatically tailored to ability to pay and more
  efficient for cost recovery.
• Students should pay subsidised interest rates.