Student loan as an instrument for students’ funding Seminar 9 Ilya Prakhov Research fellow, Centre for Institutional Studies Higher School of Economics , Moscow, 2012 www.hse.ru

The Problem Dual-track system of higher education in Russia. High proportion of students who study on a tuition-paid basis. Need for alternative mechanisms of funding. Agents who are interested in this issue: the state, charity funds, banking sector, employers, students and their parents. photo photo photo Higher School of Economics , Moscow, 2012

Outline Aim: to analyze the practice of Western countries in realization of schemes of student funding, to make conclusions about current situation on Russian market of student loans. Questions: What sources of student funding exist and can be implemented? What is the role of student loan as a funding instrument? What programs of student lending exist? What problems and concerns take place due to asymmetric information? Why student loans are not widespread in Russia? What can be done? photo photo photo Higher School of Economics , Moscow, 2012

Sources and types of higher education funding Mechanisms Sources Transfers Cash (a) Grant (b) Scholarship (c) Tax expenditure Subsidies (d) Subsidised tuition fees (e) Subsidised accommodation (f) Subsidised food 2. Current earnings (a) From university (b) From other sources 3. Loans Commercial (a) Mortgage (b) Income-related Subsidised (c) Mortgage (d) Income-related Student (а) him/herself (b) parents 2. Private sector (employers) 3. Taxpayer 4. Other (а) university (b) Philanthropy Source: Barr, 1993 photo photo photo Higher School of Economics , Moscow, 2012

Models of funding higher education State funding (Germany, Sweden, France) Private funding (the US, the UK) Russia: transition from the state funding model to the private one, when parents cover the costs of education photo photo photo Higher School of Economics , Moscow, 2012

Student loan: definition Student loan is a type of financial aid to students who are not able to cover tuition at university. The existence of student loans can result in: enhanced institutional quality, additional capacity, additional participation and accessibility, more higher educational choices for students, better style of student living (Johnstone, 2005). photo photo photo Higher School of Economics , Moscow, 2012

The role of the government in student borrowing In state lending programs: increase of accessibility, efficiency and quality of higher education. In private lending programs: laws, bearing the risks of defaults, subsidizing, diminishing of transaction and administrative costs of lending. photo photo photo Higher School of Economics , Moscow, 2012

Forms of student loans Conventional mortgage-type loan (-) increased risks for students and their parents Income contingent loan (+) more preferred system (+) administrative costs are lower (+) ‘insurance from poverty’ (-) situation in Russia: ‘salary in envelopes’ photo photo photo Higher School of Economics , Moscow, 2012

Elements of student loans (Johnstone, 2005) Laws Eligibility Source of capital Origination and lender Ultimate risk Loan amounts and limits Amount and form of subsidization The shape and duration of the repayment period photo photo photo Higher School of Economics , Moscow, 2012

Student loans in international perspective Australia: HECS Germany: Bafög Sweden The UK The US photo photo photo Higher School of Economics , Moscow, 2012

Presentation Dynarski A. Who Defaults on Student Loans? Findings from the National Postsecondary Student Aid Study Student loans for low-income groups? But they are more likely to default. What should be done in this case? photo photo photo Higher School of Economics , Moscow, 2012

Role-play game ‘Designing a student loan for Russian students’ Evidence: only 4% of students used the loan. Potentially, more than 35% of parents are ready to take a student loan. Why don’t they do so? Unfavorable conditions of lending? The choice towards cheaper education? photo photo photo Higher School of Economics , Moscow, 2012

Three groups of agents The government: develops a policy that will encourage (1) taking a loan by households, (2) providing a loan by banks. Banking sector: makes an offer to the households and to the government. Households: explain conditions of taking a loan. photo photo photo Higher School of Economics , Moscow, 2012

20, Myasnitskaya str., Moscow, Russia, 101000 Tel.: +7 (495) 628-8829, Fax: +7 (495) 628-7931 www.hse.ru