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Design and Implementation of Student Loan Schemes: Lessons from International Experience Forum on Financing of Post-Compulsory Education in China Beijing, 6 June 2007
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Lending for human capital
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Outline of the Presentation n Why Student Loans? n Design Issues: Types of Student Loans n Implementation Issues: Taking Stock of International Experience
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Why Student Loans? n Financial viability n Equity n Student motivation n Quality assurance
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Financial viability n Possibility to introduce / increase tuition fees in public universities n Possibility to expand private tertiary education institutions n Self-financing mechanism
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Equity n Opportunities for low-income and minority students n Solidarity: helping tomorrow’s students
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Student motivation n Better individual academic results n Higher internal efficiency in institutions
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Quality assurance n Linking eligibility of institutions to quality assurance criteria u Accreditation u Labor market outcomes
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Why government intervention? n Capital market imperfections u Collateral u Information about completion u Information about future income n Equity considerations
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Outline of the Presentation n Why Student Loans? n Design Issues: Types of Student Loans
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Scope and Ownership of Student Loan Programs
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Organizational Structure of Student Loan Schemes
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Types of Financial Schemes n Direct loans n Guaranteed / shared risk loans n Income-Contingent Loans
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Direct loans n Public resources n Mortgage type n Subsidies u Interest rate u Default n Repayment not linked to income
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Guaranteed / Shared risk loans n Government contract with commercial banks n Shared default risk n Mortgage type n Interest subsidy
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Income-contingent loans n Graduates repay fixed proportion of income n Need for solid recovery channel u Tax System (Sweden / Australia) u Social Security (Ghana)
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Tuition Postponement Experience (Yale U) n Risk pooling n Moral hazard n Collection for individual university
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Repayment modes n Fixed payments n Graduated payments n Proportion of income
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Fixed vs. Graduated Repayment Schedule
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Outline of the Presentation n Why Student Loans? n Design Issues: Types of Student Loans n Implementation Issues: Taking Stock of International Experience
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Implementation difficulties n Demand n Funding n Financial Viability n Targeting
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Demand problems n Awareness n Attractiveness Interest rate Priority disciplines Guarantees Repayment period
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Insufficient funding Overall funding Stability over time
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Financial viability n Interest Rate Subsidy n Default Rate Economic situation Ineffective collection mechanisms n Exemptions n Administrative Costs
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Real Interest Rate
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Real Interest Rates
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Exemptions n Advanced or on-time payments n Work with priority public institutions n Outstanding academic results
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Collection a reliable, preferably universal, system of unique identifiers accurate record-keeping of the accruing liabilities of students (while studying) efficient way of determining with accuracy, over time, the actual incomes of former students collection mechanism with a sound, computerized record- keeping system
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Loan Recovery (Proportion of Present Value of Loan)
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Targeting n Leakage due to ineffective screening of applicants n Elimination of targeted students because of excessive guarantees
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Targeting modalities n Self-declaration with audit n Income tax information n Proxy (secondary education, housing)
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Guarantees n Guarantor(s) n Moral Guarantor n State n University (SOFES)
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Loan beneficiaries by income group
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Success Factors n Efficient Institutional Management n Appropriate Financial Management n Transparent Eligibility Criteria and Processes n Efficient Loan Recovery n Good Information and Marketing System
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Performance indicators F Demand Indicators F Financial Management Indicators F Operational Management Indicators
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Demand and Targeting Indicators n Evolution of higher education enrollment rate n Proportion of beneficiaries from low and medium income families n Gender distribution of students and beneficiaries n Geographical distribution of students and beneficiaries n Distribution of students and beneficiaries by academic program n Coverage (number of beneficiaries over student population) n Academic results of beneficiaries (compared to general student population)
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Financial Indicators n Arrears & default rates (by socioeconomic group, gender, tertiary institution, academic discipline, and amount of loan) n Interest rate subsidy level n Loan recovery ratio n Administrative costs compared to overall portfolio (and distribution of main expense categories) n Cash flow projections n Evolution of real value of assets n Distribution of funding sources n Dependency on government resources n Mobilization of non-government resource n Return on investment
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Institutional Operations Indicators n Management indicators (measuring the efficiency and quality of internal processes) n Satisfaction of beneficiaries n Turnover of personnel n Indicators of promotion of the student loan program (awareness of the program and understanding of the terms and obligations)
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conclusion: the student loan challenge n Social vocation: instrument to promote equity n Financial viability imperative u Not a mechanism to deliver subsidies If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest. Benjamin Franklin
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