Loan Subsidies in Eight Countries
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Loan Subsidies in Eight Countries Alex Usher Vice-President (Research) and Director (Canada) Educational Policy Institute Student Financial Aid Research Network Providence, Rhode Island 23 June, 2006 Outline Look at loan subsidies and conditions in 8 countries

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Loan Subsidies in Eight CountriesAlex UsherVice-President (Research) and Director (Canada)Educational Policy InstituteStudent Financial Aid Research NetworkProvidence, Rhode Island23 June, 2006


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Outline

  • Look at loan subsidies and conditions in 8 countries

  • Look at how different subsidies affect government expenditures

  • Look at how different subsidies and loan repayment options affect graduate debt burdens


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Subsidies

  • Subsidies during studies

  • Subsidies to lower debt at graduation

  • Subsidies during repayment


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Subsidies During Studies(as of March 2005)





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Loan Defaults

  • Money which is irrecoverable due to un-willingness or inability to pay

  • Issues related to unwillingness can be dealt with through better technology and tracking (Canada), compulsion to pay (UK, Aus), or increasing penalties for non-compliance (US).

  • Issues related to inability to repay can be dealt with through some form of income-contingency.



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That Swedish Student Loan Formula in Full

At = Payment, L = balance, r = interest rate, p = annual increase, n=years remaining on loan


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The Truth About Thresholds

  • High thresholds are good for the student (less payment) but bad for the government (higher costs)

  • Over the long run, higher thresholds can mean significant costs for Government, especially if accompanied by promise to forgive the loan after a period of time


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Australia

Canada

Netherlands

New Zealand

Sweden

US

28%

12%

7.5%

11%

26%(ICR)/15%(new)

8%

Estimated Loan Losses


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Average Student Debt (% students who borrow)




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Debt Repayment Burden (avg. debt, avg. income)


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Debt Repayment Burden (high income students only)


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Debt Repayment Burden (low income students only)


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Lessons Learned

  • There are no cheap student loan programs

  • As # and size of loans increase, so do loan losses

  • In international context, any student loan that returns 70% of its original value to the government is a good one

  • The choice is between subsidizing failure directly (default costs/high thresholds and forgiveness) and trying to prevent failure in the first place (low interest, loan remission)


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For further information…

Alex Usher

Educational Policy Institute

Toronto Office

300-20 Maud St.

Toronto, Ontario

(416) 848-0237

[email protected]

www.educationalpolicy.org/pdf/Global_Debt_Patterns.pdf


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