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Student Loans in Portugal: Why and How?

Student Loans in Portugal: Why and How?. Manuel Heitor Secretary of State for Science, Technology and Higher Education June 2, 2008. 2008. OECD Education at a Glance: Student support in Portugal: 2004. Source:.

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Student Loans in Portugal: Why and How?

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  1. Student Loans in Portugal:Why and How? Manuel Heitor Secretary of State for Science, Technology and Higher Education June 2, 2008

  2. 2008 OECD Education at a Glance: Student support in Portugal: 2004 Source:. Public subsidies for education to households and other private entities as a percentage of total public expenditure on education, by type of subsidy; OECD (2007). Reference Year: 2004

  3. Expenditure on institutions as a percentage of GDP (public and private sources, public and private institutions) Source: EAG, OECD, Last year available.

  4. Student Loans in Portugal • Basic Propositions (Nick Barr, OECD, April 2008): • Students matter!...and we need to enlarge access to HE • The world has changed! • Competition matters! • …Graduates (not students) should contribute to the costs of their degree. The structure of the lecture: 3 main goals Why? …which specific context? Opening-up Tertiary Education: a Reform process How? Student loans with mutual guarantee …and how to evolve? What else do we need to know?

  5. Opening-up Tertiary Education - 1 Some key measures and results (2006-2007):Access • THE BOLOGNA PROCESS: dynamic and on-going… • - 87% of initial educational programs in 2007-2008. …and beyond: • NEW ACCESS REGIME FOR ADULTS • - 11.773 new adults entered Tertiary Education in 2007-2008 • - 10.850 in 2006-2007 • (while, just 900 in 2005-2006) • NEW LEGAL FRAMEWORK FOR SHORT VOCATIONAL CYCLES - (CETs) • - More than 4.800 admitted students in 2007 • - Around 150 CETs in Tertiary Education Institutions • NEW STUDENT LOANS SYSTEM • - 3.000 loans contracted in the period November 2007 – May 2008

  6. Opening-up Tertiary Education - 2 Some key measures and results (2006-2007): Legal Reform • The New Legal Regime of Higher Education Institutions (RJIES) • Diversity of governance systems and increased autonomy • Setting up Governing Boards with external participation • Possibility of independent legal status for public institutions: namely as public foundations) • Establishment of consortia among institutions • Recognition of researchcentres as part of University management framework. • The creation of conditions to foster the national and international mobility of students and graduates • New Regulations on Arrangements for Changes of Study Programmes, Transfers and Return to Higher Education • New legal framework for the recognition of foreign degrees, which simplifies the system for recognizing foreign degrees in Portugal.

  7. Opening-up Tertiary Education - 3 Some key measures and results (2006-2007): Commitment to Science • NEW CONTRACTS FOR PhD RESEARCHERS/TEACHERS • - 630 new contracts supported in 2007 • - At least 1.000 new contracts supported until 2009 • DOCTORATE AND POST-DOCTORATE GRANTS • - Around 2.080 new PhD grants in 2007 (a 77% increase from 2005) • - Around 900 new Post-Doctorate grants in 2007 (a 41% increase from 2005) • INTERNATIONALIZATION - PARTNERSHIPS FOR THE FUTURE R&D CONSORTIA WITH POST-GRADUATE PROGRAMS - MIT-PORTUGAL: 4 new PhDs in Engineering Systems (Energy, Transports, Advanced Manufacturing and Bioengineering) - CMU-PORTUGAL: 5 new PhDs in ICTs - UTAustin-PORTUGAL: 3 new PhDs in Digital Media, Advanced Computing and Mathematics

  8. Student loans with mutual guarantee • All students; all institutions • Universal, but also competitive in the bank sector • Does not demand any kind of endorsement or patrimonial guarantee • Largest banks distribute this credit line all over Portugal • Automatic and fast bank approval in most cases • Very low fixed interest rate[Maximum spread of 1%] • Interest rate varies negatively according to academic performance • [reduced by 0,80% for students with yearly average classification • between 16 out of 20 points and by 0,35% if above 14 points] • Loan between Eur 1.000 and Eur 5.000 per academic year • Payments in 12 months • Grace period of one year • Reimbursement during in a number of years as many as twice the course duration

  9. Bank loan Guarantee commission (fee) Guarantee Counter Guarantee Financial Support Legal environment and framework Why Mutual guarantee ? Historical Guarantee Triangular Relationship Banks SMEs Guarantee Sheme State Source: SPGM, 2008

  10. Student loans with mutual guarantee Extended Guarantee Triangular Relationship Banks Students (both undergraduate and postgraduate) Bank loan (3) Guarantee Sheme Guarantee commission (fee) Guarantee (2) State(1) Counter Guarantee Financial Support Legal environment and framework • Ministry of Science, Technology and Higher Education • Portfolio guarantee (covers losses up to 10% of bank loan values) • Up to Eur 5000 per academic year Source: SPGM, 2008

  11. Why succeeding with Mutual guarantee in Portugal? Source: SPGM, 2008

  12. - Counter Guarantee Fund Management - Portuguese Mutual Guarantee Scheme development and marketing ( “ umbrella ” ) - Several Back - Office services to Mutual Guarantee Societies - First level control of the Scheme - Minority Participations in the MGS share capital SPGM Scheme “ holding ” Mutual Guarantee Banks and other Societies (MGS) COUNTER guarantee Guarantees beneficiaries Automatic Counter NORGARANTE - GUARANTEE Guarantee FUND Interest Guaranteed LISGARANTE - loans and loan (MCGF) Counter repayments Guarantee fees GARVAL - Guarantee fees AGROGARANTE - SME and Students Counter Guarantee - Counter Guarantee - held by public entities held by public entities MGS shares - mutualism Mutual Guarantee Societies - Mutual Guarantee Societies - mainly privately held mainly privately held Mutual Guarantee and other financial instruments Strategic view and coordination Under EU MAP Source: SPGM, 2008 All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme

  13. Student loans with mutual guarantee November 2007 – May 2008 • Student loans contracted: ≈ 3.000 • Total amount of contracted loans: 33,7 M Euros • Amount of contracted loans for 2007-2008: 14 M Euros • Students in public institutions / Private institutions ratio: 60/40 Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008.

  14. Student loans with mutual guarantee November 2007 – May 2008 External Assessment: OECD Review Panel, March 2008 … The model of providing student loans by way of a line of credit via the banking system, using the vehicle of the mutual guarantee scheme, is a pace-setting international innovation. The Portuguese initiative satisfies the key policy criteria: it is a horizontally equitable scheme; it represents good value for students; it is financially sustainable at higher volumes of student take-up; it is low risk for government and financial institutions; it avoids the need for additional administrative infrastructure. … In: Notes on the reform of the Portuguese higher education system Michael Gallagher, 7 March 2008

  15. …and how to evolve? What else do we need to know? • Who are the students with loans ? • 2.Beyond mutual guarantee ? • Income contingent loans vs conventional sheme ? • Which best scheme: hybrid ? • When ? • 3. Which economics of tertiary education ? • What needs to be payed? … who is paying?

  16. Who are the students with loans?Degree Program Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008.

  17. Who are the students with loans?Geographical distribution Source: Comissão de Acompanhamento do Sistema de Empréstimos, Maio 2008

  18. Who are the students with loans? • What else do we need to know ? • socio-economic characterization • relation with public support system • what can we learn from other systems and countries?

  19. Loans beyond mutual guarantee ? • 1. How far can we extend the current mutual guarantee system? • Increased dependence onacademic performance ? • Loans larger than Eur 5.000per academic year ? • Grace period larger than one year ? • Reimbursement period larger than twice the course duration ? • 2. How far can we complement the system with other schemes? • How does it depend on the fiscal system and performance ? • Income contingent loans vs conventional sheme ? • Which best scheme: hybrid ? • When ?...how many years after introducing loans ?

  20. 4 4 7 9 10 8 8 13 11 4 29 13 27 9 21 30 52 45 27 44 57 44 33 43 52 70 17 51 45 42 38 34 28 28 26 11 Alemanha Áustria Espanha Finlândia França Holanda Irlanda Letónia Portugal Reino Unido Família Trabalho Estado Outras Source: CIES-ISCTE, Eurostudent 2005. Which economics of tertiary education? Eurostudent 2005Relative share of student income in Europe(only students away from their parents home)

  21. Student support in Portugal: 2008 and beyond… Support to students (public and private institutions) Forecast ? Forecast: Social Support annual increase: 2,5% New loans per year annual increase: 25% From 3.000 new loans per year. Source: Public Budget 2008; GPEARI/MCTES. Approximate figures.

  22. Which economics of tertiary education? Budget - 2008 M Euros Source: Public Budget 2008. Approximate figures.

  23. Student Loans in PortugalWhat else do we need to know?

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