StudentStudent Loans in EuropeLoans in EuropeEconomic and Practical Economic and Practical

IssuesIssuesMarianne GuilleMarianne Guille

Université Panthéon-Assas Université Panthéon-Assas Paris IIParis II

World Education Market Conference 2003

Higher Education in EuropeHigher 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

What situation in Europe What situation in Europe ??

Several countries have raised their Several countries have raised their tuition fees, which were very low until tuition fees, which were very low until the 80’s.the 80’s.

All Western-European countries have All Western-European countries have defined needs-based support schemes.defined needs-based support schemes.

These systems are very different. These systems are very different. Several countries provide this support Several countries provide this support

at least partly on a loan basis.at least partly on a loan basis.

Tuition fees and student Tuition fees and student loansloans

A minority of countries still raise no fees A minority of countries still raise no fees ( Germany and the Nordic countries)( Germany and the Nordic countries)

France raises moderate fees (€ 150)France raises moderate fees (€ 150) Other countries raise substantial fees, Other countries raise substantial fees,

between € 300 and € 3000between € 300 and € 3000 Six countries only have developed large Six countries only have developed large

public systems of student loans : Denmark, public systems of student loans : Denmark, Germany, the Netherlands, Norway, Germany, the Netherlands, Norway, Sweden and the U.K. Sweden and the U.K.

All these countries belong to the North or All these countries belong to the North or Mid Western Europe and these countries Mid Western Europe and these countries are also those which provide the highest are also those which provide the highest direct support to students.direct support to students.

Differences in Student Differences in Student Behaviour and Social RoleBehaviour and Social Role

Over 80% of students in the Nordic Over 80% of students in the Nordic countries and the Netherlands live countries and the Netherlands live away from home.away from home.

In France and Germany, 60 and 77% In France and Germany, 60 and 77% of students live away from home.of students live away from home.

In Southern countries over 60% live In Southern countries over 60% live with their parents (Spain 80%).with their parents (Spain 80%).

The more students live independepently, The more students live independepently, the more they are helped. (Nordic the more they are helped. (Nordic countries and the Netherlands)countries and the Netherlands)

The more they are considered young The more they are considered young citizens investing in their future, the citizens investing in their future, the more the loan component of the aid is more the loan component of the aid is important. (Nordic countries and the UK)important. (Nordic countries and the UK)

When they are considered children in a When they are considered children in a family system, hardly any support is family system, hardly any support is provided to cover their direct provided to cover their direct expenditure. (Southern European expenditure. (Southern European countries)countries)

Mid-Westen European countries are in Mid-Westen European countries are in between : financial aid to a large minority between : financial aid to a large minority of students but depending on parental of students but depending on parental resources. (France and Germany)resources. (France and Germany)

Private returns to Private returns to educationeducation

The share of the loan is also dependent on The share of the loan is also dependent on the observed private returns to education : the observed private returns to education : the lowest private returns to education the lowest private returns to education (inferior to 6%) in Europe are received in (inferior to 6%) in Europe are received in the Nordic countries and the Netherlands the Nordic countries and the Netherlands while Germany and the UK are at the top of while Germany and the UK are at the top of the returns’ scale.the returns’ scale.

As a consequence : Sweden and Norway As a consequence : Sweden and Norway decided recently to reduce the share of the decided recently to reduce the share of the loan while the UK decided to abolish grants loan while the UK decided to abolish grants and provide only loans to students.and provide only loans to students.

The share of loan varies between 0 The share of loan varies between 0 and 100%.and 100%.

In half of the European countries, which belong In half of the European countries, which belong to the South or Mid-Western countries, student to the South or Mid-Western countries, student direct aid which is rather low still comprises no direct aid which is rather low still comprises no loan.loan.

In the others, the share of the loan is about In the others, the share of the loan is about 33% in Denmark and the Netherlands, 50% in 33% in Denmark and the Netherlands, 50% in Germany, 75% in Norway and Sweden, 100% in Germany, 75% in Norway and Sweden, 100% in England. England.

The share of the loan has been recently The share of the loan has been recently increased (Denmark and the UK) or reduced increased (Denmark and the UK) or reduced (Germany, Sweden, Norway and parts of the (Germany, Sweden, Norway and parts of the UK) while it depends on students’ performance UK) while it depends on students’ performance in the Netherlands.in the Netherlands.

Criteria of eligibility differCriteria of eligibility differ

The age limit is more restrictive in the The age limit is more restrictive in the Netherlands (27 years) or in Germany (30 Netherlands (27 years) or in Germany (30 years) than in Sweden (45 years), in the UK years) than in Sweden (45 years), in the UK (50 years or even 54 if students plan to (50 years or even 54 if students plan to return to work) or in Denmark (no age limit).return to work) or in Denmark (no age limit).

Part-time students are excluded except in Part-time students are excluded except in Sweden or the UK.Sweden or the UK.

The amount lent may or may not depend on :The amount lent may or may not depend on : Parents or spouse’s resourcesParents or spouse’s resources Students’ way of living Students’ way of living Students’ performance.Students’ performance.

Conditions of repayment Conditions of repayment differdiffer

Two countries only have chosen income contingent loans : Two countries only have chosen income contingent loans : Sweden and the UK.Sweden and the UK.

In the others : repayment is not related to borrower’s In the others : repayment is not related to borrower’s income but comprises a period of grace varying between income but comprises a period of grace varying between one and five years after the completion of studies.one and five years after the completion of studies.

To improve equity or access to the poor, there is no To improve equity or access to the poor, there is no interest rate in Germany, a zero real interest rate in the interest rate in Germany, a zero real interest rate in the UK.UK.

In the other countries, interest are subsidised or reflect In the other countries, interest are subsidised or reflect the true cost of government borrowing to increase cost the true cost of government borrowing to increase cost recovery.recovery.

Interest is charged from the date the loan was paid out Interest is charged from the date the loan was paid out except in Norway (loans are interest free during the except in Norway (loans are interest free during the period of study).period of study).

The proportion of The proportion of benefeciaries variesbenefeciaries varies

In the Nordic countries, almost all In the Nordic countries, almost all students receive loan based aid (more students receive loan based aid (more than 80% in Sweden, Norway and than 80% in Sweden, Norway and Denmark)Denmark)

In the other countries, the proportion of In the other countries, the proportion of benefeciaries varies :benefeciaries varies : Less than 10 % in the Netherlands Less than 10 % in the Netherlands

(performance grant and interest payments)(performance grant and interest payments) 18% in Germany ( number of beneficiaries 18% in Germany ( number of beneficiaries

constant since 1971)constant since 1971) 65% in the UK (a proportion progressively 65% in the UK (a proportion progressively

close to that of the Nordic countries)close to that of the Nordic countries)

Towards a European Loan Towards a European Loan Scheme ?Scheme ?

All students should be eligible to loans All students should be eligible to loans and loan amounts should be sufficient to and loan amounts should be sufficient to cover all living costs while free fees and cover all living costs while free fees and grants should be restricted to students grants should be restricted to students from poor families.from poor families.

Repayments should be income-contingent Repayments should be income-contingent because automatically tailored to ability to because automatically tailored to ability to pay and more efficient for cost recovery.pay and more efficient for cost recovery.

Students should pay subsidised interest Students should pay subsidised interest rates.rates.