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

2. 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.
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Higher School of Economics , Moscow, 2012

3. 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?
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Higher School of Economics , Moscow, 2012

4. 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
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Higher School of Economics , Moscow, 2012

5. 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
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Higher School of Economics , Moscow, 2012

6. 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).
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Higher School of Economics , Moscow, 2012

7. 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.
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Higher School of Economics , Moscow, 2012

8. 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’
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Higher School of Economics , Moscow, 2012

9. 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
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Higher School of Economics , Moscow, 2012

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

11. 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?
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Higher School of Economics , Moscow, 2012

12. 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?
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Higher School of Economics , Moscow, 2012

13. 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.
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Higher School of Economics , Moscow, 2012

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