Posted tagged ‘student loans’

Avoiding excessive student debt

October 2, 2017

Last year in Ireland the Cassells Report (Investing in National Ambition: A Strategy for Funding Higher Education) offered three options for funding higher education. The third of these (deferred payment of fees through income-contingent loans) was clearly seen as the best option, as it appeared to provide the most realistic proposal that might actually lead to more resources for universities and colleges; the other two options were nice in theory, but required the state to spend more on higher education, which it has not shown much inclination to do.

Now however the Taoiseach, Leo Varadkar TD, has ruled out student loans as the way forward,  as he does not want a system that would leave students re-paying substantial debts. In my own opinion, the Taoiseach is right. I am not keen on the Australian/English model, and nor apparently is the British Prime Minister, much. The levels of debt that the English system is causing amongst young people is a real problem, as it has been in Australia, where massive sums remain unpaid.

I believe in fee contributions from those who can afford them, but not fees and loans for all. I doubt that the taxpayer in many countries, or possibly any country, can afford to fund the full cost of a high-quality university system, but the state must pay a substantial part of the cost (more than is the case now in these islands), and those who can afford it must make a contribution. In reality, that is there only way forward; and almost no politician will admit it.

Student debt gets political

August 2, 2016

A key issue in the current (and often strange) American presidential election campaign is student debt. There are a number of reasons why it has taken on political significance, but as an issue it was initially raised by the Democratic candidate Bernie Sanders, who in his election programme promised to make university education ‘free and debt free’. The issue has also been taken on board by Hillary Clinton.

The prominence of this issue is underscored by various reports and news items. A blog post published by the Federal Reserve Bank of New York has pointed not just to the scale of student debt in America, but also its socio-economic consequences, increasing the gap between rich and poor and creating ‘negative wealth’ in a number of households. This finds a resonance on this side of the Atlantic, with a British lobby group suggesting that for many graduates the lifetime salary premium secured by a degree is likely to be overpowered by the weight of debt.

All of this tells us that nobody has yet found the silver bullet for higher education funding that is effective in providing necessary resources for institutions while also being socially equitable. Free tuition, notwithstanding the proposals by Sanders, places institutions at financial risk; a loans-financed higher education based on high tuition fees creates unsustainable debt. Sooner or later politicians will need to face up to the fact that means-tested support is the only way out of this. Maybe the US election campaign will help.

Managing debt. Or not.

December 1, 2015

For many policy-makers on higher education wanting to work out how to fund universities the answer has seemed simple: let students pay, but not at the point of use. This policy, which began in Australia and has spread elsewhere, is based on the view that students should be encouraged to enter university, that they should not pay anything up front, but that the cost of their education should be funded through a loan that eventually they will re-pay (or at least will pay if their salary rises above a certain threshold).

However, outstanding student loans are fast becoming the new major debt burden, in America even outstripping credit card debt. A recent report from Missouri documents a high school teacher who, through ‘a series of unremarkable decisions about college and borrowing’, ran up debts of $410,000.

Large debts also quickly become bad debts. In Australia the total amount of unpaid student loans is estimated to be around AU$70 billion. It is too early to say how this will play out in England, but it is unlikely to follow a completely different pattern. So far, nobody has put any particular thought into how this will be managed, and who will pick up the tab.

As I have said before in this blog, I am in favour of tuition fees, not least because the taxpayer simply cannot afford to fund the entire cost of a higher education system that is internationally competitive. I am also in favour of grants made available to support those who cannot afford to pay, so that nobody is barred from higher education by the inability to pay. But I am  not in favour of a loans-based system, not least because the delayed payment makes the student less conscious of the quality or  good value (or otherwise) of the education she or he is being offered, and because it appears to absolve the state from bothering with higher education funding at all.

The debt bubble connected with property triggered a severe global recession towards the end of the last decade. It is time to think again about the funding of  higher education.

Dealing with debt

July 8, 2014

As the global debate continues about how to resource higher education, there are some strong voices suggesting that the only way to generate sufficient cash to pay for educational excellence without discouraging the less affluent from entering universities is through tuition fees funded through student loans. Under such systems students pay nothing on commencing their studies, but rather take on a loan, with the sum of the loan representing some or all of the cost of their courses. That loan is later repaid by instalments when the student, now a graduate, is in employment or economically active and earning more than a specified income.

This system, it is suggested, is superior to ‘free’ higher education (i.e. studies funded entirely by the taxpayer) because it secures more resources for universities than the taxpayer could afford to provide, and to a tuition fee-based model because the student pays nothing up front or during the course of their studies and so is not excluded by lack of means. It is used in Australia (where the Higher Education Contribution Scheme – HECS – was introduced in 1989) and more recently in England (and not, as is sometimes suggested, in the United Kingdom as a whole).

The introduction of a similar scheme in Ireland has been proposed by some for a while. The Irish Universities Association began to argue for the ‘introduction of a system of income contingent loans and top up fees’ by 2009. More recently the new President of University College Dublin Professor Andrew Deeks, in an interview with the Irish Times, said:

‘My personal view is that the contribution system that has worked in Australia for the past 20 years now provides a good model. It is a deferred payment of a debt, which is accumulated module by module as students progress through the course.’

There is little doubt that the Irish system of higher education is now seriously under-funded. It is also easy to see the attraction of a resourcing framework that does not create a financial entry hurdle for students. Whether the Australian model is as good as is suggested could however be open to argument. One of its significant features is the by now very high level of unpaid debt. It is estimated in Australia that over A$30 billion in student debt is outstanding, of which up to A$7 billion will never be recovered (nearly £4 billion). Now one of the live issues in Australian politics is the question of whether student debts owed by people now deceased can be recovered from their estates. Other studies have suggested that the prospect of high indebtedness is also discouraging some poorer students from entering higher education.

Nobody has yet found the silver bullet for funding higher education, and all debate and exploration should be welcomed. As countries in the developed world identify the need to promote universities that are resourced to host world class discovery, attract very high value industry investment and provide graduates with top skills, it is clear that the funding burden is not an easy one for the taxpayer to carry. Equally it remains of vital importance that appropriately able people from all socio-economic backgrounds are encouraged to pursue a university degree. However, whether a loan system is the answer is, in my view at least, somewhat doubtful.

Give us a loan?

October 2, 2012

As the complexity of higher education funding, and the scarcity of available resources to provide funding, has become greater, an increasingly popular method of addressing it has been the idea of student loans. When the Westminster government introduced its recent framework for increased university fees for England, ministers emphasised that a university degree programme was still accessible to students without paying anything up front, and indeed without repaying anything until a reasonable salary threshold has been reached. By providing student loans, the system allows students to embark upon their studies without either them or their parents having to fork out anything at that point.

So is this as good as it sounds? No financial hurdles for students while studying, but financial benefits for universities from fees? Actually, England was not first to try this idea. Australia has been operating a fees/loans system for some time. It was introduced in 1989 as the ‘Higher Education Contribution Scheme’ (HECS), which has more recently been replaced by the ‘Higher Education Loan Programme’ (HELP). This scheme has been used as a model for higher education funding programmes contemplated or introduced elsewhere, including in Ireland. Student loan programmes are also common in the United States.

However, all these schemes are somewhat problematic. In Australia it was estimated in 2010 that outstanding student loans debt was $15.8 billion. In the United States student debt overtook credit card debt around the same time. Furthermore, it has been revealed in America that where graduates begin to re-pay their student loans, nearly 10 per cent default within two years. It is not unlikely that this pattern will be repeated in England, and if it is, it will create a whole new funding issue as the expected resources from loan repayments do not fully materialise.

There is, I believe, a strong case for tuition fees paid by the well off, with financial support for those who cannot afford to pay. There is also a case for state funding of higher education fees, provided the state understands the scale of the funding requirement. There seems to me to be no convincing case for loan schemes. They deter students, and they create unpredictable financial issues. It is time to move away from the whole idea.

How should we view student debt?

November 22, 2011

One of the growing concerns across the developed world is that student debt will increasingly deter young people from entering higher education. In the United States the level of graduate debt is now over $900 billion, a sum considerably larger than American credit card debt. In England individual student debt in the more extreme cases has risen above £60,000.

So is this a major problem in the quest to widen participation in higher education? Not so, according to the English Universities Minister David Willetts in an interview in the Guardian newspaper:

‘We’re trapped in this language of debt. It’s not like leaving university with £25,000 worth of debt on your credit card or anything. If someone said your child was leaving university with £25,000 on a credit card, you’d be quite rightly horrified. If someone said they’re leaving university and during their working lives they’re going to pay half a million pounds of income tax, you’d be completely relaxed. And our graduate repayment scheme is closer to – it’s not exactly the same – but it’s closer to the income-tax end of the scale than the credit-card end of the scale. If their earnings ever fall below £21,000, at that point any repayment stops. It’s 9% of earnings only above £21,000. If you’re earning £25,000, that’s £30 a month. So it is a graduate repayment scheme that has many of the features of income tax. It’s not like some debt around their necks.’

The Minister’s argument is not on the face of it absurd. In fact, if the government had decided to generate the income for universities through a graduate tax, or rather if it had labelled the same scheme differently, the effect might have been different. But it didn’t, and fees will be funded by loans, which in turn produce debt. It is still too early to gauge exactly what impact this is having, but the first visible effect has been a significant reduction in the number of student applicants.

The evidence from the United States, Australia and Britain all points to a similar conclusion: that student loans have unintended consequences and present both a disincentive to study and financial uncertainties attached to repayments. In this setting, it would be wise for countries contemplating loan schemes – like Ireland – to think again. It is one thing to ask those who can afford to do so to pay a tuition fee; it is another to suggest to those who cannot afford it that a loan may be an acceptable form of support. It almost certainly isn’t.

Securing the future of Irish higher education

August 18, 2011

Irish higher education, the engine that drove the Irish economy forward in recent decades by providing skilled graduates for the major investments by ICT companies in the 1990s and by acting as magnet for knowledge-intensive investment and start-ups over the past ten years or, so continues to face major problems. By common consent – and this includes the view of the Minister for Education and Skills, Ruairi Quinn TD – it is seriously under-funded and cannot realistically perform the tasks set for it. It has been buffeted by public criticism of the quality of its graduates. It has been told that it now faces an era of much heavier regulation.

Over recent years the university presidents have called for the reintroduction of tuition fees in order to off-set reductions in public funding and in order to protect the universities’ ability to compete internationally and maintain high levels of quality.  This call for tuition fees has been accompanied by the proposal that they should be made affordable through the provision of student loans. However, doubts have arisen – prompted in part by the controversial higher education reforms in England – whether students will be able to carry debts of this magnitude and whether in consequence there is a likelihood of significant default or non-repayment of loans.

Now the Minister has announced that, whatever funding framework may be found, it will not involve student loans. He is right to decide the issue in this way. Student loans excessively delay the provision of funds and create a major uncertainty as to the amounts likely to be raised. They also obscure the more urgent need of redirecting some of the fee income (if there are fees) to socio-economically disadvantaged students to ensure that they are not discouraged from entering higher education.

However, given the consensus on the inadequacy of current funding levels, it is now urgent that a resourcing plan for higher education is finalised and announced. The current financial uncertainty is undermining the capacity of the sector to support Irish economic recovery.

The problem of student debt

August 4, 2011

As longer term readers of this blog will know, it is (and remains) my view that students who can afford to make a contribution to the cost of their university education should do so, in large part because this will allow the use of public money specifically to support those who need financial help in order to access higher education. I am therefore a supporter of tuition fees for those who can afford them – though I also accept that in Scotland there will be no fees for the foreseeable future (in Ireland the position is now less clear).

However, while I doubt whether public funding should be spent to cover the entire university education of wealthier students, I have significant reservations about the use of student loans to fund degree programmes. While it is true that a university degree  has the effect of increasing the anticipated lifetime salaries of graduates, there is also now growing evidence that the size of average student (or graduate) debts in a number of developed countries is now such that many will struggle to meet repayments, and indeed many may conclude that the financial burdens they are carrying exceed their expectations of higher pay.

Graduate debt statistics bear out this problem. In addition however there are now increasingly bizarre developments that highlight the issue. So for example the recent suggestion by Sue Rabbitt Roff, a senior research fellow at the University of Dundee, that it should be permissible for people to sell a kidney for transplant purposes was justified, inter alia, with the suggestion that this might be a useful way of paying off university loans. Equally alarming is the sudden rise of websites that offer ‘sugar babies’ to ‘sugar daddies’ – i.e. the offer by female students of ‘companionship’ or sex to older men in return for financial support while at university. While the websites in question are American, one of them claims to have over 200 Irish female students registered for these purposes.

As the trend continues to have high tuition fees for students funded by loans, the consequences of this need to be considered carefully. It is not that loans are never appropriate, but rather that there needs to be a much more sophisticated assessment of when a loan is a viable funding method, or when the resulting debts will simply be unmanageable. This also means that access programmes need to be more than token in terms of students numbers. It is time to take the financial circumstances of students much more seriously.

Educational pricing

July 14, 2009

Referring to recent disclosures regarding fees and student loans for higher education programmes, a reader has written a letter to the Editor of the Irish Times which the newspaper published today. In this the writer (Mark Sugrue) warns that higher fees for science and engineering programmes could push more students away from these subjects.

He is absolutely right. As we know, we already have a problem persuading students to take courses in science and engineering, but we also know that our need for skilled graduates in these areas will grow. Unless we can address this we may be unable to present Ireland as an attractive place for foreign direct investment.

Right now there is a perception amongst many students applicants that science and engineering programmes are harder and require more work. If on top of that we are saying that it will also cost more to do these courses, the result is almost certainly going to be a further reduction in student numbers in these areas.

It seems to me that there is a good argument for institutional solidarity here, and that all fees (together with the associated loans)  should be set at exactly the same level – but a level that will allow the university to redistribute some of the income in internal processes so that the more expensive subjects are covered. It also seems to me that all of this should not just be determined centrally by government, but should be the subject of detailed discussions with the universities and colleges; it may indeed be necessary to vary the fee slightly between institutions to reflect different disciplinary mixes across each university.

If we were to have flat rate fees that are the same for everyone, this would put in place an innovative approach that should benefit the sector as a whole. We would also be among the first in the world to do this.

In the end, this is another aspect of any new framework for student contributions that confirms the importance of full consultation with the higher education institutions before any final model is put in place.

Fees, grants, loans: PS

July 12, 2009

Interviewed today on RTE television, the Minister for Communications, Eamon Ryan TD, indicated his willingness to consider the introduction of a student loans framework to help fund higher education. He said that any such framework needed to be structured in such a way so as not to discourage or prevent those from disadvantaged backgrounds from taking third level courses, and also needed to provide a more stable funding system for universities and colleges.

The Minister’s statement is significant because it may suggest that the Green Party is willing to support the proposal likely to be made to the cabinet by the Minister for Education and Science; the position of the Green Party had been the subject of some speculation, particularly in the light of the Party’s previous opposition to tuition fees. The Minister’s caveats in the matter seem entirely sensible.

However, my earlier point remains: the discussions around this need to involve the universities and colleges – they should not be bystanders as their future financial viability is debated.