5/212003 WEM 2003, Lisbon, Portugal1 Student Loan Schemes: Lessons from International Experience HDNED World Bank

5/212003 WEM 2003, Lisbon, Portugal

1

Student Loan Schemes: Lessons from

International ExperienceHDNED

World Bank


2

Forms of Student Aid

Scholarships

Vouchers

Tax Credits

Matching Savings Grants

Student Loans


3

Outline of the Presentation

The Student Loan Landscape

The WB Experience in Support of Student Loan Schemes


4

Types of Financial Schemes

Mortgage LoansFixed PaymentsGraduated Payments

Graduate Tax (income-contingent)

Tax System (Sweden / Australia)Social Security (Ghana)

Tuition Postponement Option (Yale U.)


5

Funding Sources

Government Graduates &Families

Industry &Services

Alumni &Philanthropists

InternationalCooperation

BudgetaryContributions

X

DedicatedResources Lottery proceeds Gambling tax Payroll tax Banking tax

XX

XX

XX

Trust Funds X X X X

Repayments X X

Investment Income X

Loans X X X


6

Organizational Structure of Student

Loan Schemes

Type ofOrganizational Setup

Example

Department withinUniversity

USA, Mexico, China

Specialized Agency ICETEX (Colombia)Universities with Agency SOFES (Mexico)Commercial Bank Many CountriesAgency with CommercialBank

FUNDAYACUCHO(Venezuela)

SLB (Jamaica)Government with Agency USAGovernment withCommercial Banks

Canada, Poland,Hungary

Multilateral Agency withCommercial Bank

EBRD/ABN


7

World Bank support to student loan schemes

Country Bank Activity Institutional Setup Venezuela

(1991-1999) Loan Government Agency with

Commercial Bank

Kenya (1995-2001) Study of SL reform

Government Agency

Jamaica (1996-2002)

Loan Government Agency with Commercial Banks

Namibia (1996) Study Government and Social Security Commission

Hungary (1998-2002)

Loan Government Agency with Commercial Banks

China (1998-) IDF Grant University-based

Mexico(1998-) Loan Association of Private Universities & Provincial

Public Agency

Malaysia (1998) Technical Advice Government Agency

Poland (1999) Technical Advice Government with Commercial Banks

Ethiopia (1999-) Study Graduate Tax (under study)

Bulgaria (2001-) Technical Advice Government Agency

Colombia (2003-) Loan Government Agency


8

Reasons for Seeking WB Support

establishment of a new scheme

reform to improve an existing scheme

expansion of coverage


9

Difficulties Encountered

Demand

Coverage

Financial Viability

Targeting


10

Demand Factors

KnowledgeAwarenessUnderstanding

AttractivenessCultureCredibility


11

Funding Issues

Public Sources

Privates Funds

Financial Sustainability


12

Financial Viability

Interest Rate Subsidy

Default RateRepayment ScheduleIncomeCollection Mechanisms

Exemptions

Administrative Costs


13

Real Interest Rates

-23.0%

-14.9%

-6.9%

-6.3%

-5.6%

1.0%

1.0%

1.6%

3.0%

3.0%

3.8%

4.1%

5.2%

5.6%

-0.6%

-2.3%

-1.4%

-25% -20% -15% -10% -5% 0% 5% 10%

Venezuela

Brazil

Kenya

Hong Kong

Jamaica

Indonesia

Japan

Finland

Australia

Chile

Sweden

Denmark

Honduras

Colombia

United States

Barbados

Province of Québec, Canada

Norway

0.0%


14

Loan Recovery(Proportion of Present Value of Loan)

Country Without default andadministrative costs

With default andadministrative costs

Mortgage LoansVenezuela 77 8Kenya 30 8Chile 52 18Honduras 49 27Indonesia 43 29Brazil 38 29Jamaica 44 30Denmark 48 38Japan 50 40United States 71 47Finland 65 48Norway 67 52Colombia 71 53Hong Kong 57 53Province of Quebec,Canada

69 63

Barbados 87 67Income-Contingent LoansAustralia 52 43Sweden 72 67


15

Administrative Efficiency

Institution Number ofEmployees

Number ofLoans

Processed

Fundayacucho(Venezuela)

120 5,000

ICEES(Mexico)

30 12,000

CSLP(Colorado)

125 90,000


16

Targeting Factors

Leaking

Guarantees


17

Success Factors:Design Dimensions

Good Information and Marketing System

Transparent Eligibility Criteria and Selection Processes

Adequate Repayment Features

Solid Financial Projections & Scenarios

Appropriate Follow Up Mechanisms

Proper Legal Framework


18

Questions on the Polish Student Loan Scheme

participation of the commercial banksaccess for poor students (guarantors)cost of interest rate subsidyprovision for default exemptionsfixed paymentsfinancial projections (viability)


19

Success Factors:Operational Dimensions

Efficient Institutional Management

Appropriate Financial Management

Efficient Loan Recovery

Stable Leadership

Ability to React Rapidly to Problems


20

Performance Indicators

•Demand and Targeting Indicators

•Financial Indicators•Institutional Operation Indicators


21

Demand and Targeting Indicators

Evolution of higher education enrollment rateProportion of beneficiaries from low and medium income familiesGender distribution of students and beneficiariesGeographical distribution of students and beneficiariesDistribution of students and beneficiaries by academic programCoverage (number of beneficiaries over student population)Academic results of beneficiaries (compared to general student population)


22

Financial Indicators

Arrears & default rates (by socioeconomic group, gender, tertiary institution, academic discipline, and amount of loan)Interest rate subsidy levelLoan recovery ratioAdministrative costs compared to overall portfolio (and distribution of main expense categories)Cash flow projectionsEvolution of real value of assetsDistribution of funding sourcesDependency on government resourcesMobilization of non-government resourceReturn on investment


23

Institutional Operations Indicators

Management indicators (measuring the efficiency and quality of internal processes)Satisfaction of beneficiariesTurnover of personnelIndicators of promotion of the student loan program (awareness of the program and understanding of the terms and obligations)

Documents

5/212003 WEM 2003, Lisbon, Portugal1 Student Loan Schemes: Lessons from International Experience HDNED World Bank