Student Loans in Portugal: Why and How? Manuel Heitor Secretary of State for Science, Technology and Higher Education June 2, 2008

Public subsidies for education to households and other private entities as a percentage of total public expenditure on education, by type of subsidy; OECD (2007). Reference Year: 2004 Source:. OECD Education at a Glance: Student support in Portugal:

Source: EAG, OECD, Last year available. Expenditure on institutions as a percentage of GDP (public and private sources, public and private institutions)

Why? …which specific context? Opening-up Tertiary Education: a Reform process How? Student loans with mutual guarantee …and how to evolve? What else do we need to know? Student Loans in Portugal Basic Propositions (Nick Barr, OECD, April 2008): Students matter!...and we need to enlarge access to HE The world has changed! Competition matters! …Graduates (not students) should contribute to the costs of their degree. The structure of the lecture: 3 main goals

NEW ACCESS REGIME FOR ADULTS new adults entered Tertiary Education in in (while, just 900 in ) NEW LEGAL FRAMEWORK FOR SHORT VOCATIONAL CYCLES - (CETs) - More than admitted students in Around 150 CETs in Tertiary Education Institutions NEW STUDENT LOANS SYSTEM loans contracted in the period November 2007 – May 2008 Opening-up Tertiary Education - 1 Some key measures and results ( ): Access THE BOLOGNA PROCESS: dynamic and on-going… - 87% of initial educational programs in …and beyond:

The New Legal Regime of Higher Education Institutions (RJIES) Diversity of governance systems and increased autonomy Setting up Governing Boards with external participation Possibility of independent legal status for public institutions: namely as public foundations) Establishment of consortia among institutions Recognition of research centres as part of University management framework. The creation of conditions to foster the national and international mobility of students and graduates New Regulations on Arrangements for Changes of Study Programmes, Transfers and Return to Higher Education New legal framework for the recognition of foreign degrees, which simplifies the system for recognizing foreign degrees in Portugal. Opening-up Tertiary Education - 2 Some key measures and results ( ): Legal Reform

NEW CONTRACTS FOR PhD RESEARCHERS/TEACHERS new contracts supported in At least new contracts supported until 2009 DOCTORATE AND POST-DOCTORATE GRANTS - Around new PhD grants in 2007 (a 77% increase from 2005) - Around 900 new Post-Doctorate grants in 2007 (a 41% increase from 2005) INTERNATIONALIZATION - PARTNERSHIPS FOR THE FUTURE R&D CONSORTIA WITH POST-GRADUATE PROGRAMS Opening-up Tertiary Education MIT-PORTUGAL: 4 new PhDs in Engineering Systems (Energy, Transports, Advanced Manufacturing and Bioengineering) - CMU-PORTUGAL: 5 new PhDs in ICTs - UTAustin-PORTUGAL: 3 new PhDs in Digital Media, Advanced Computing and Mathematics Some key measures and results ( ): Commitment to Science

 All students; all institutions  Universal, but also competitive in the bank sector  Does not demand any kind of endorsement or patrimonial guarantee  Largest banks distribute this credit line all over Portugal  Automatic and fast bank approval in most cases  Very low fixed interest rate [Maximum spread of 1%]  Interest rate varies negatively according to academic performance [reduced by 0,80% for students with yearly average classification between 16 out of 20 points and by 0,35% if above 14 points]  Loan between Eur and Eur per academic year  Payments in 12 months  Grace period of one year  Reimbursement during in a number of years as many as twice the course duration Student loans with mutual guarantee

SMEs Banks State Guarantee Sheme Guarantee Guarantee commission (fee) Bank loan Counter Guarantee Financial Support Legal environment and framework Why Mutual guarantee ? Historical Guarantee Triangular Relationship Source: SPGM, 2008

Students (both undergraduate and postgraduate) Banks State (1) Guarantee Sheme Guarantee (2) Counter Guarantee Financial Support Bank loan (3) Legal environment and framework Guarantee commission (fee) (1)Ministry of Science, Technology and Higher Education (2)Portfolio guarantee (covers losses up to 10% of bank loan values) (3)Up to Eur 5000 per academic year Student loans with mutual guarantee Extended Guarantee Triangular Relationship Source: SPGM, 2008

Why succeeding with Mutual guarantee in Portugal? Source: SPGM, 2008

Strategic view and coordination Mutual Guarantee and other financial instruments COUNTER GUARANTEE FUND (MCGF) Mutual Guarantee Societies (MGS) - NORGARANTE - LISGARANTE - GARVAL - AGROGARANTE Banks and other guarantee beneficiaries SME and Students Automatic Counter Guarantee Counter Guarantee fees Guarantees MGS shares-mutualism Guaranteed loans Counter Guarantee - - held by public entities Mutual Guarantee Societies - - mainly privately held SPGM Scheme“holding” -Counter Guarantee Fund Management -Portuguese Mutual Guarantee Scheme development and marketing (“umbrella”) -SeveralBack-Officeservices to Mutual Guarantee Societies -First level control of the Scheme -Minority Participations in the MGS share capital Guarantee fees Interest and loan repayments Under EU MAP All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme Source: SPGM, 2008

Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio Student loans contracted: ≈ Total amount of contracted loans: 33,7 M Euros Amount of contracted loans for : 14 M Euros Students in public institutions / Private institutions ratio: 60/40 Student loans with mutual guarantee November 2007 – May 2008

External Assessment: OECD Review Panel, March 2008 Student loans with mutual guarantee November 2007 – May 2008 … The model of providing student loans by way of a line of credit via the banking system, using the vehicle of the mutual guarantee scheme, is a pace-setting international innovation. The Portuguese initiative satisfies the key policy criteria: it is a horizontally equitable scheme; it represents good value for students; it is financially sustainable at higher volumes of student take-up; it is low risk for government and financial institutions; it avoids the need for additional administrative infrastructure. … In: Notes on the reform of the Portuguese higher education system Michael Gallagher, 7 March 2008

…and how to evolve? What else do we need to know? 1.Who are the students with loans ? 2. Beyond mutual guarantee ? Income contingent loans vs conventional sheme ? Which best scheme: hybrid ? When ? 3. Which economics of tertiary education ? What needs to be payed? … who is paying?

Who are the students with loans? Degree Program Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008.

Who are the students with loans? Geographical distribution Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008

Who are the students with loans? What else do we need to know ? socio-economic characterization relation with public support system what can we learn from other systems and countries?

Loans beyond mutual guarantee ? 1. How far can we extend the current mutual guarantee system? Increased dependence on academic performance ? Loans larger than Eur per academic year ? Grace period larger than one year ? Reimbursement period larger than twice the course duration ? 2. How far can we complement the system with other schemes? How does it depend on the fiscal system and performance ? Income contingent loans vs conventional sheme ? Which best scheme: hybrid ? When ?...how many years after introducing loans ?

Eurostudent 2005 Relative share of student income in Europe (only students away from their parents home) Source: CIES-ISCTE, Eurostudent AlemanhaÁustriaEspanhaFinlândiaFrançaHolandaIrlandaLetóniaPortugalReino Unido FamíliaTrabalhoEstadoOutras Which economics of tertiary education?

Student support in Portugal: 2008 and beyond… Support to students (public and private institutions) Source: Public Budget 2008; GPEARI/MCTES. Approximate figures. Forecast ? Forecast: Social Support annual increase: 2,5% New loans per year annual increase: 25% From new loans per year.

Which economics of tertiary education? Budget M Euros Source: Public Budget Approximate figures.

Student Loans in Portugal What else do we need to know?