Sunday, March 14, 2010
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STUDENT LOANS ARE GOING GLOBAL
We Americans already export everything from blue jeans to cigarettes to cable television channels, so it should come as no surprise that we have now begun to export something a bit more ephemeral – the concept of student loans.Many other countries have begun to discover and put in place what policymakers here dabbled in following WW II, and rolled out in a big way starting in the 1970s. Specifically, foreign governments are realizing that the cost of higher education should be shared by four principal stakeholders: the government, parents, students and philanthropists.
And when it comes to parents and students, these governments have learned quickly that the relative high cost – and perceived high value – of college means that these groups are willing to (and, in some cases, must) borrow to meet the price points of a higher education. Student loans have gone global.
Policymakers around the world are agreeing with New York-based higher education scholar Dr. Bruce Johnstone, who recently wrote in a paper entitled Higher Education Accessibility and Financial Viability: The Role of Student Loans: "The results (of a college degree) for students are higher earnings, greater status and increased life options." He added that this means that the costs of education are appropriately "borne more by the student and deferred into the future" when a student has reached the earning potential made possible by the education he or she has received.
Johnstone posits that virtually all developed (and even some developing) countries are wrestling with where to place the burden of college costs and that nearly all are coming down on the side of a shared societal burden. With two parts of that shared burden being made up of parents and students (who lack the collective resources of governments and philanthropic endowments), an instant demand is created for money to be borrowed.
According to Johnstone, borrowing to pay for college is not necessarily a bad thing. At the core of student loans, writes Johnson, the "ability to borrow gives young persons the ability to invest in their own futures."
But Johnstone knows that a clear, core purpose does not necessarily imply student loan simplicity. Indeed, he declares near the conclusion of his recent policy paper that "student loans are inherently complex and require proper design and good execution."
As various countries have put in place their own student loan programs, no one-size-fits-all solution has emerged. Each government has wrestled, to varying degrees, with seven core elements – or questions – to be considered in the establishment of any student loan program. Those questions, as posed by Johnstone, are:
- Who will be eligible to borrow?
- Where will the money come from?
- Who (or what) will be the lender?
- How much can be borrowed and for what purpose?
- Who will bear the risk in case of default?
- Are government subsidies appropriate and, if so, how will they work?
- What are the repayment terms and who decides those terms?
Dozens of countries have dealt with these questions and put student loan programs on their maps, most within the past decade. Starting on the other side of the globe, here is a quick tour of some illustrative examples:
- AUSTRALIA, where there is a zero "real" rate of interest since rates are pegged exactly to inflation;
- JAPAN, where interest-free loans are made available based on merit and need, while more traditional loans – with market interest rates � are available to serve those who demonstrate need alone;
- GERMANY, where there is a means-tested combo program of grants and loans, with no payments due until 5 years after graduation;
- THE NETHERLANDS, w here there is a 2-year grace period, and a "means-tested" forgiveness program for those who fail to attain certain income levels following a 15-year period after graduation;
- SWEDEN, where tuition is "free" (paid for by high taxation rate) and living costs are expected to be borne by students and covered by loans;
- THE UNITED KINGDOM, which is moving more to a market system for higher education, with greater access paid for by loans with interest rates that mirror inflation; and
- SOUTH AFRICA, where higher-than-average interest rates are counter-balanced by a generous loan forgiveness policy if good grades are achieved.
While no student loan program is exactly like that in the United States, all of the programs around the world have been inspired, to some extent, by what has happened here. It does not help our trade deficit, but the concept of a student loan has become the new American export.
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