1. Finnish student support reform Roope Uusitalo KELA 9.6. 2016

2. Starting point 1: the government program Save 150 M€ from student support Increase student support from 930€/month to 1100€/month (including grant, housing allowance and student loan)

3. Starting point 2: Tasks for the investigator Find a solution that reaches the targets in the government program and still – Covers living expenses of students and allows concentrating on full-time studies – Does not extend the duration of studies – Maintains equality of opportunity and social mobility

4. Current student support expenditures

5. Expenditure on higher education 2014/2015

6. Options for reform Limit the eligibility for student grants to 3 years and finance the rest with loans (or part- time work) Cut the student grants evenly and compensate by simultaneously increasing the state- guaranteed student loan Introduce basic income also for students Create a personal social account that covers also other social benefits

7. Problems with 3 + 2 model Designed for universities, fits less well for polytechnics that do not have two-tier degrees Savings realized only slowly, government would not reach its targets of 70M cuts in spending by 2019 Incentives to graduate with Master’s degree in time diluted – Income limits and progress requirements would no longer discourage working full-time

8. Proposal (1) Cut student grants from 330 to 250 €/month Limit the number of grant months per degree to standard graduation times Limit the total grant eligibility for all higher education degrees to 54

9. Proposal (2) Increase state guarantee for student loans Cap the interest rate of student loans Decrease the graduation bonus to 30% of loan balances exceeding 2500€ Make the graduation bonus gradual so that it also creates incentives to graduate within normal program duration

10. Proposal (3) Abolish the system where student support is granted separately for Bachelor’s and Master’s degree studies Tighten the credit requirements to make total duration of grant period consistent with degree requirements Keep income limits unchanged but tie them to earnings growth

11. Comparison of support systems (1) Example: 300 credit point degree Current system3 + 2 model

12. Comparison of support system (2) Example: 300 credit point degree Current systemProposal

13. Changes in political process? Transfer students from student housing subsidy system to common housing allowance system (probably a bad idea) Loosen credit requirements (surely a bad idea) Restrict the total grant eligibility less than in proposal

14. Impact on equality of opportunity Probably small, because – No evidence that poor students would be more debt averse – Differences in fraction entering higher education by family background quite similar to other Nordic countries where loans are larger fraction of student aid – A major reform in 1990’s that more than doubled the size of grants had no detectable effect on differences in fraction entering higher education by family background

15. Fraction taking student loans by family income (adjusted for age, gender and field)

17. Impact of parents education on entry into higher education (compared to parents with secondary education )

20. Impact on part-time work, graduation times and public finances A separate report with Hannu Karhunen and Niku Määttänen A dynamic optimization model where students make time use (work/study) and loan take-up decisions in an uncertain environment Impact of incentives created by details in the student support system Fit to data so that replicates observed distributions of choices that students make

21. Example: grant months per year

22. Policy simulations Model used to make out of sample predictions of the impacts of changes in – Size of student grants – Max grant eligibility – Credit requirements – Max loan – Graduation bonus – Income limits

23. Time to degree Work during studies Cost of support ”Net taxes” Kk %1000 € Student grant 250 (337) 2.94.8-17.93.1 Eligibility 48 (50) 0.70.9-2.8-0.1 Credit requirement 6 (5) 0.30.5-10.30.6 Income limits -20% -2.3 -3.01.3 Max loan 650 (400) -0.5 0.40.1 Grad. bonus 30% (40%) 1.11.2-0.4-0.3