Posted tagged ‘student loans’

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 It was introduced in 1989 as the ‘Higher Education Contribution Scheme’ (HECS), which has more recently been replaced by the ‘Higher Education Loan Programme’ (HELP).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.

Fees, grants, loans: now we know the options

July 11, 2009

With the help of the Irish Times today, we now know what options have been put to the cabinet by the Minister for Education and Science, Batt O’Keeffe TD, for student contributions to the cost of higher education. We also know that the Minister favours the option of student loans, under which all students will be able to enter third level education without any up-front payments, but will become liable to repay some of the cost once their annual income exceeds a minimum threshold. The sum to be repaid is likely to be somewhere between €20,000 and €30,000.

I will say that I am not against this plan in broad terms, but there are many matters of both principle and detail that will need to be addressed before it can be activated. Some of the questions to be answered will include the following:

• Will the liability to pay be totally unrelated to income and wealth?
• What will happen in the case of graduates who emigrate after studying at an Irish university or college?
• Who will fund the loans?
• At what point will the sums be payable to the higher education institutions?
• How will repayments be collected?
• Who will set fee levels?
• How will bad debts by graduates who default be handled?
• What level of additional funding by the exchequer is anticipated?
• Will grants be retained?

There is still no sign that the universities are to be briefed on the plans and included in the discussions before final proposals go to the cabinet. However, it is vital that this is done, because some of the issues that may arise cannot readily be analysed without university (or IOT) input. I still hope that a process of discussion with us will begin shortly. I shall certainly be pressing for it. Equally, it is important that students, alumni and their representatives are consulted.

Tuition fees – who can join the debate?

July 9, 2009

Today’s Irish Times has an opinion piece by the Education spokesperson of the Fine Gael party, Brian Hayes TD, on higher education funding. In this he repeats the Fine Gael policy of providing additional funding for the sector through special PRSI contributions from university graduates. It’s a thoughtful piece, and overall the proposals he makes are reasonable. Furthermore, as he suggests himself, this is probably going to be not a million miles away from the proposal being made by the Minister for Education and Science, Batt O’Keeffe TD, that there should be a framework of student loans (probably based in part on the Australian system).

In the circumstances we now face, all of this is probably the best way to go, and I suspect there will be broad support from the university sector. However, there is a need for discussions around the details, some of which will be significant. For example, how will the framework be administered? How will the system overcome the obvious problem that those who in fairness most need to make a contribution (graduates who leave the country on graduation) will not make one? What will be the net effect on higher education institutions – i.e. to what extent will the system actually inject more funds into the sector? How will the funds be ringfenced?

The great weakness in all of this right now is that nobody is talking about any of this to the universities and colleges.  Even Brian Hayes is proposing discussions between the opposition and the government, without apparently feeling there is any need to involve the institutions that are both affected by this and can advise most clearly on the implications. It is time to treat the sector as a partner, and to engage with it accordingly.


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