Student Loans in Europe Economic and Practical Issues Marianne Guille Université Panthéon-Assas Paris II World Education Market Conference 2003

Higher 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 ? Several countries have raised their tuition fees, which were very low until the 80’s. Several countries have raised their tuition fees, which were very low until the 80’s. All Western-European countries have defined needs-based support schemes. All Western-European countries have defined needs-based support schemes. These systems are very different. These systems are very different. Several countries provide this support at least partly on a loan basis. Several countries provide this support at least partly on a loan basis.

Tuition fees and student loans A minority of countries still raise no fees ( Germany and the Nordic countries) A minority of countries still raise no fees ( Germany and the Nordic countries) France raises moderate fees (€ 150) France raises moderate fees (€ 150) Other countries raise substantial fees, between € 300 and € 3000 Other countries raise substantial fees, between € 300 and € 3000 Six countries only have developed large public systems of student loans : Denmark, Germany, the Netherlands, Norway, Sweden and the U.K. Six countries only have developed large public systems of student loans : Denmark, Germany, the Netherlands, Norway, Sweden and the U.K. All these countries belong to the North or Mid Western Europe and these countries are also those which provide the highest direct support to students. All these countries belong to the North or Mid Western Europe and these countries are also those which provide the highest direct support to students.

Differences in Student Behaviour and Social Role Over 80% of students in the Nordic countries and the Netherlands live away from home. Over 80% of students in the Nordic countries and the Netherlands live away from home. In France and Germany, 60 and 77% of students live away from home. In France and Germany, 60 and 77% of students live away from home. In Southern countries over 60% live with their parents (Spain 80%). In Southern countries over 60% live with their parents (Spain 80%).

The more students live independepently, the more they are helped. (Nordic countries and the Netherlands) The more students live independepently, the more they are helped. (Nordic countries and the Netherlands) The more they are considered young citizens investing in their future, the more the loan component of the aid is important. (Nordic countries and the UK) The more they are considered young citizens investing in their future, the more the loan component of the aid is important. (Nordic countries and the UK) When they are considered children in a family system, hardly any support is provided to cover their direct expenditure. (Southern European countries) When they are considered children in a family system, hardly any support is provided to cover their direct expenditure. (Southern European countries) Mid-Westen European countries are in between : financial aid to a large minority of students but depending on parental resources. (France and Germany) Mid-Westen European countries are in between : financial aid to a large minority of students but depending on parental resources. (France and Germany)

Private returns to education The share of the loan is also dependent on the observed private returns to education : the lowest private returns to education (inferior to 6%) in Europe are received in the Nordic countries and the Netherlands while Germany and the UK are at the top of the returns’ scale. The share of the loan is also dependent on the observed private returns to education : the lowest private returns to education (inferior to 6%) in Europe are received in the Nordic countries and the Netherlands while Germany and the UK are at the top of the returns’ scale. As a consequence : Sweden and Norway decided recently to reduce the share of the loan while the UK decided to abolish grants and provide only loans to students. As a consequence : Sweden and Norway decided recently to reduce the share of the loan while the UK decided to abolish grants and provide only loans to students.

The share of loan varies between 0 and 100%. In half of the European countries, which belong to the South or Mid-Western countries, student direct aid which is rather low still comprises no loan. In half of the European countries, which belong to the South or Mid-Western countries, student direct aid which is rather low still comprises no loan. In the others, the share of the loan is about 33% in Denmark and the Netherlands, 50% in Germany, 75% in Norway and Sweden, 100% in England. In the others, the share of the loan is about 33% in Denmark and the Netherlands, 50% in Germany, 75% in Norway and Sweden, 100% in England. The share of the loan has been recently increased (Denmark and the UK) or reduced (Germany, Sweden, Norway and parts of the UK) while it depends on students’ performance in the Netherlands. The share of the loan has been recently increased (Denmark and the UK) or reduced (Germany, Sweden, Norway and parts of the UK) while it depends on students’ performance in the Netherlands.

Criteria of eligibility differ The age limit is more restrictive in the Netherlands (27 years) or in Germany (30 years) than in Sweden (45 years), in the UK (50 years or even 54 if students plan to return to work) or in Denmark (no age limit). The age limit is more restrictive in the Netherlands (27 years) or in Germany (30 years) than in Sweden (45 years), in the UK (50 years or even 54 if students plan to return to work) or in Denmark (no age limit). Part-time students are excluded except in Sweden or the UK. Part-time students are excluded except in 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 resources Parents or spouse’s resources Students’ way of living Students’ way of living Students’ performance. Students’ performance.

Conditions of repayment differ Two countries only have chosen income contingent loans : Sweden and the UK. Two countries only have chosen income contingent loans : Sweden and the UK. In the others : repayment is not related to borrower’s income but comprises a period of grace varying between one and five years after the completion of studies. In the others : repayment is not related to borrower’s income but comprises a period of grace varying between one and five years after the completion of studies. To improve equity or access to the poor, there is no interest rate in Germany, a zero real interest rate in the UK. To improve equity or access to the poor, there is no interest rate in Germany, a zero real interest rate in the UK. In the other countries, interest are subsidised or reflect the true cost of government borrowing to increase cost recovery. In the other countries, interest are subsidised or reflect the true cost of government borrowing to increase cost recovery. Interest is charged from the date the loan was paid out except in Norway (loans are interest free during the period of study). Interest is charged from the date the loan was paid out except in Norway (loans are interest free during the period of study).

The proportion of benefeciaries varies In the Nordic countries, almost all students receive loan based aid (more than 80% in Sweden, Norway and Denmark) In the Nordic countries, almost all students receive loan based aid (more than 80% in Sweden, Norway and Denmark) In the other countries, the proportion of benefeciaries varies : In the other countries, the proportion of benefeciaries varies : Less than 10 % in the Netherlands (performance grant and interest payments) Less than 10 % in the Netherlands (performance grant and interest payments) 18% in Germany ( number of beneficiaries constant since 1971) 18% in Germany ( number of beneficiaries constant since 1971) 65% in the UK (a proportion progressively close to that of the Nordic countries) 65% in the UK (a proportion progressively close to that of the Nordic countries)

Towards a European Loan Scheme ? All students should be eligible to loans and loan amounts should be sufficient to cover all living costs while free fees and grants should be restricted to students from poor families. All students should be eligible to loans and loan amounts should be sufficient to cover all living costs while free fees and grants should be restricted to students from poor families. Repayments should be income-contingent because automatically tailored to ability to pay and more efficient for cost recovery. Repayments should be income-contingent because automatically tailored to ability to pay and more efficient for cost recovery. Students should pay subsidised interest rates. Students should pay subsidised interest rates.