Student Loan Schemes: Lessons from International Experience

1
Student Loan Schemes Lessons from
International Experience

• HDNED
• World Bank

2
Forms of Student Aid

• Scholarships
• Vouchers
• Tax Credits
• Matching Savings Grants
• Student Loans

3
Outline of the Presentation

• The Student Loan Landscape
• The WB Experience in Support of Student Loan
  Schemes

4
Types of Financial Schemes

• Mortgage Loans
• Fixed Payments
• Graduated Payments
• Graduate Tax (income-contingent)
• Tax System (Sweden / Australia)
• Social Security (Ghana)
• Tuition Postponement Option (Yale U.)

5
Funding Sources
6
Organizational Structure of Student Loan Schemes

7
World Bank support to student loan schemes
8
Reasons for Seeking WB Support

• establishment of a new scheme
• reform to improve an existing scheme
• expansion of coverage

9
Difficulties Encountered

• Demand
• Coverage
• Financial Viability
• Targeting

10
Demand Factors

• Knowledge
• Awareness
• Understanding
• Attractiveness
• Culture
• Credibility

11
Funding Issues

• Public Sources
• Privates Funds
• Financial Sustainability

12
Financial Viability

• Interest Rate Subsidy
• Default Rate
• Repayment Schedule
• Income
• Collection Mechanisms
• Exemptions
• Administrative Costs

13
Real Interest Rates
14
Loan Recovery(Proportion of Present Value of
Loan)
15
Administrative Efficiency
16
Targeting Factors

• Leaking
• Guarantees

17
Success FactorsDesign Dimensions

• Good Information and Marketing System
• Transparent Eligibility Criteria and Selection
  Processes
• Adequate Repayment Features
• Solid Financial Projections Scenarios
• Appropriate Follow Up Mechanisms
• Proper Legal Framework

18
Questions on the Polish Student Loan Scheme

• participation of the commercial banks
• access for poor students (guarantors)
• cost of interest rate subsidy
• provision for default
• exemptions
• fixed payments
• financial projections (viability)

19
Success FactorsOperational Dimensions

• Efficient Institutional Management
• Appropriate Financial Management
• Efficient Loan Recovery
• Stable Leadership
• Ability to React Rapidly to Problems

20
Performance Indicators

• Demand and Targeting Indicators
• Financial Indicators
• Institutional Operation Indicators

21
Demand and Targeting Indicators

• Evolution of higher education enrollment rate
• Proportion of beneficiaries from low and medium
  income families
• Gender distribution of students and beneficiaries
• Geographical distribution of students and
  beneficiaries
• Distribution of students and beneficiaries by
  academic program
• Coverage (number of beneficiaries over student
  population)
• Academic results of beneficiaries (compared to
  general student population)

22
Financial Indicators

• Arrears default rates (by socioeconomic group,
  gender, tertiary institution, academic
  discipline, and amount of loan)
• Interest rate subsidy level
• Loan recovery ratio
• Administrative costs compared to overall
  portfolio (and distribution of main expense
  categories)
• Cash flow projections
• Evolution of real value of assets
• Distribution of funding sources
• Dependency on government resources
• Mobilization of non-government resource
• Return on investment

23
Institutional Operations Indicators

• Management indicators (measuring the efficiency
  and quality of internal processes)
• Satisfaction of beneficiaries
• Turnover of personnel
• Indicators of promotion of the student loan
  program (awareness of the program and
  understanding of the terms and obligations)