Developed by Paulo A. Meyer M. Nascimento HIGHER … · PAULO A. MEYER M. NASCIMENTO. Spring 2017. ... the same time, some proponents—such as Milton Friedman, the father of the

HIGHER EDUCATION STUDENT FINANCING: THE BRAZILIAN CASE

(with some insights from and on the US)

PAULO A. MEYER M. NASCIMENTOSpring 2017

Developed by Paulo A. Meyer M. NascimentoThis material can be used so long as the author is cited

senator BERNIE SANDERS

“I believe that every kid in this country who has the

ability and the desire should be able to get a higher

education degree, regardless of the income of his or her

family”

Source: http://www.cnn.com/2016/02/03/politics/bernie-sanders-free-college-costs/


http://www.cnn.com/2016/02/03/politics/bernie-sanders-free-college-costs/

Diffuse consensus …

… confusing dissent:

Who would stand against such a goal?

The challenge ishow to achieve it!


Senator Bernie Sanders seeks to achieve it through a college for all act:

• Eliminating undergraduate tuition at 4-year public colleges and universities, splitting the bill between federal government (2/3) and state governments (1/3).• Reforming student loans, mainly by cutting interest rates and enabling borrowers to refinance their loans.• Expanding the federal work study program.• Simplifying the student aid application process, eliminating the requirement that students re-apply for financial aid each year.• Introducing a Robin Wood tax on Wall Street to finance these reforms.


Is tuition-free college provision such a good idea?


“There is no such thing as a free lunch”

“Schooling after the second grade plays only a minor role in creating or reducinggaps”

MILTON FRIEDMANNobel laureate in Economics

JAMES HECKMANNobel laureate in Economics


40

60

80

100

120

140

160

180

200

220

240

260

280

300Below upper secondary All tertiary short-cycle tertiary Bachelor's or equivalent Master's, doctoral or equivalentIndex

Master's, doctoral or equivalent: Brazil 434 Chile 444, Mexico 307

Relative earnings of adults working full-time, by educational attainment (2014).25-64 year-olds with income from employment; upper secondary education (high school) = 100

Source: O

ECD

(2016), Education

ata glance.


http://www.oecd.org/education/skills-beyond-school/education-at-a-glance-2016-indicators.htm

Whether educational services should be free of charge or

not is a political decision


Capital market failures, equality of access goals and the potential presence of positive externalities and spillovers are the usual key

theoretical arguments for government active role in the

provision and finance of postsecondary education

Public budget constraints and high average private rates of return emphasize the need for increasing the cost participation share of direct beneficiaries


StudentsInitial College Attendance

ContinuedCollege

Attendance(repeated)

College Outcomes

(degree, job)

Family and Individual

Background

Financial Aid & Loans

Institutions and Gov’t

If tuition fees exist, the yellow balloon in the chart bellow becomes a central policy issue(especially if the diffuse consensus expressed in Sanders’ discourse is indeed a society goal)

Chart extracted (with minor adaptations) from Eric Bettinger’s keynote speech at ABAVE 2015 Meeting in Brazil.


GABRIEL BETANCOURT MEJÍAColombian economist, diplomat and politician

“El crédito educativo se fundamenta en un principio: se le presta al estudiante para que pague el

profesional”

Student loans are not a new concept: private student credit agencies exist in the US since the 19th century, with Harvard University being the pioneer in creating its own in 1838 (Fuller, 2014). However, institutionalizing educational credit as a public policy was an idea first developed by Gabriel Betancourt Mejía, who wrote a thesis in 1943 as a result of his own experience in borrowing to pursue a degree (Woodhall, 1983; Betancourt-Mejía, 1992). The Colombian educational credit agency, established in 1950, was the first of a public nature. Henceforth, government-run student loan programs have been adopted by an increasing number of countries (Nascimento, 2016).


http://publications.nasfaa.org/jsfa/vol44/iss1/4/?utm_source=publications.nasfaa.org/jsfa/vol44/iss1/4&utm_medium=PDF&utm_campaign=PDFCoverPages

http://documents.worldbank.org/curated/pt/618851468765930700/pdf/multi0page.pdf

https://eric.ed.gov/?id=ED373669

http://www.ipea.gov.br/portal/index.php?option=com_content&view=article&id=28321

Cha

rt extracted

fromD

ynarski(20

16).

A bit on the US studentdebt crisis

• Who defaults on student loans?• Could free community colleges solve

this problem?• Could a more flexible student loan

system work out?


http://www.milkenreview.org/articles/how-to-and-how-not-to-manage-student-debt

Who defaults in student loans in the US?

Could free community collegessolve this problem?

Could a more flexible student loan

system work out? Bringing prices at community colleges back to their historic

standard – near zero – would be one way to reduce

borrowing and, thereby, debt distress, but this would not end the debt problems of

those who attend for-profit institutions (Dynarski, 2016).

Yes! Lengthening the horizon of loan repayment, linking payments to current income, and collecting instalments through the same

mechanisms by which the Government collects income taxes and

social security contributions.

Increase in default is mostly associated with the rise in thenumber of borrowers at for-profit schools and, to a lesser

extent, 2-year institutions (mainly community colleges)

and certain other non-selective institutions

(Looney and Yannelis, 2015).

34% of those borrowing under $5,000; only 18% of those borrowing more than $100,000.


http://www.milkenreview.org/articles/how-to-and-how-not-to-manage-student-debt

https://www.brookings.edu/bpea-articles/a-crisis-in-student-loans-how-changes-in-the-characteristics-of-borrowers-and-in-the-institutions-they-attended-contributed-to-rising-loan-defaults/

Time-based repayment loans (TBRL) can turn out to be very difficult to be managed by graduates!


Repayment burdens (RBs) may become too high for some graduates,

e.g. low-earner females:

Brazil: RBs by age for females with a FIES loan of $14,000

US: RBs by age for females with a Stafford Loan of $20,000

0%

10%

20%

30%

40%

50%

60%

24 25 26 27 28 29 30 31 32 33 34 35

REP

AY

MEN

TB

UR

DEN

S(R

B),

P

RO

PO

RTI

ON

OF

INC

OM

E

AGE

Source: Nascimento (unpublished).

0%

10%

20%

30%

40%

50%

60%

24 25 26 27 28 29 30 31 32 33 34 35

REP

AY

MEN

TB

UR

DEN

S(R

B),

PR

OP

OR

TIO

NO

FIN

CO

ME

AGE

RB for the 10th percentile RB for the 20th percentile RB for the 50th percentile

0%

20%

40%

60%

80%

100%

120%

140%

22 23 24 25 26 27 28 29 30 31

REP

AY

MEN

T B

UR

DEN

(R

B),

P

RO

PO

RTI

ON

OF

INC

OM

E

AGE

Source: Chapman & Dearden (2017).


http://journals.sagepub.com/doi/10.1177/0002716217703969

Income-contingent loans (ICLs) guarantee free access during the study period, insure against default and repayment difficulties after graduation, deal better with the trade-off between RBs and implicit subsidies, and take advantage of the transaction efficiencies associated with government monopoly on the collection of income tax and social security contributions.


MILTON FRIEDMANNobel laureate in Economics

Underinvestment in human capital presumably reflects an imperfection

in the capital market. [A solution] would be to “buy” a share in an

individual’s earning prospects: to advance him the funds needed to

finance his training on condition that he agree to pay the lender a specified

fraction of his future earnings.(Friedman, 1955)


http://la.utexas.edu/users/hcleaver/330T/350kPEEFriedmanRoleOfGovttable.pdf

James Tobin proposed a very similar idea and even attempted toimplement it at Yale University, his home institution. Although the

Yale program proved difficult to administer, one of Tobin’s students would later bring the idea to Australia and show that income-

contingent lending could work at the national level, so long as the national tax authority was put in charge of collection.

(Moss, 2012)

JAMES TOBINNobel laureate in Economics


https://books.google.com/books?id=AUzGJ3nXDkoC&pg=PA35&lpg=PA35&dq

Proponents such as Chapman and Barr are seeking to secure an appropriate level of instructional costsharing betweenfamilies and taxpayers and also to make the share borne by students manageable and not to distort the decision toattend and persist in an appropriate institution and program.At the same time, some proponents—such as Milton Friedman, the father of the concept—are as or more interested ineliminating altogether— or at least minimizing—the taxpayer subsidization of higher education.And in a similar vein, in countries with large and important private higher educational sectors, such as the United States,[some] may see income contingent loans mainly as a means to greatly raise public sector tuition fees and thereby tolessen the tuition price disparities that they view as unfair competition.

(Johnstone, 2016)

BRUCE JOHNSTONEUniversity at Buffalo

It is now clear that income contingent arrangements can be designed to be administratively feasible, even straightforward. As well, the revenue potential for higher education is considerable. Perhaps most importantly, the Australian experience with HECS reveals strongly that even a radical movement away from a no-charge system can be instituted without jeopardising the participation of disadvantaged potential students; this is all traceable to income contingent repayment. (Chapman, 1997)

In the absence of any subsidy, an individual's investment in a degree would confer a 'dividend' on future taxpayers. [This] gives

an efficiency case for some subsidy, [but] the greater the public-sector subsidy to higher education the greater the pressure on the system not to grow. The introduction of private funds is central to

the expansion of student number. [ICLs] offer the borrower insurance against potential future poverty, a feature of greater

relevance the higher the applicant's degree of risk aversion.(Barr, 1993)

BRUCE CHAPMANAustralian National University

NICHOLAS BARRLondon School of Economics


http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12290/abstract

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.1997.tb00039.x/full

http://www.jstor.org/stable/2234544

Income contingent loan programs run by governments represent an important social innovation, an improvement over previous mechanisms for funding investment like education and now showing its merits in a host of other arena. (Stiglitz, 2016)

JOSEPH STIGLITZNobel laureate in Economics


http://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/IncomeContingentLoans.pdf

Bills to introduce a broadly-based ICL for higher education havebeen proposed in 2012,

2013, 2015 and 2017 in theUS Congress (the Earnings

Contingent EducationLoans – ExCEL Acts).

None of them has ever passed.


There are four income-driven repaymentoptions for federal student loan borrowersin the US;None of them are the default repaymentplan – the automatic option is a 10-year mortgage-style fixed payment;All of them are based on past income; Borrowers opting out for one of the income-driven repayment plans have to reapplyevery year, going through complicatedfinancial paperwork year by year andagain if their income change;Process matters: those who most need a helping hand are probably the least able to navigate this bureaucracy.

Revised Pay As You Earn Repayment Plan (REPAYE Plan)

Pay As You Earn Repayment Plan (PAYE Plan)

Income-Based Repayment Plan (IBR Plan)

Income-Contingent Repayment Plan (ICR Plan)


REPAYMENT PLAN

AVAILABLE? ELIGIBILITY MONTHLY PAYMENT DISCHARGE AFTER

Revised Pay As You Earn (REPAYE)

Now(since

December 17, 2015)

All Direct student loan borrowers. No partial financial hardship (PFH)

requirement10% of discretionary income

20 years if repaying only undergraduate debt;

25 years if repaying any graduate debt

Income-Based Repayment (2014 IBR)

Now(since July 1,

2014)

Borrowers who take out their first loan on or after July 1, 2014, and have a PFH.

10% of discretionary income, up to the fixed 10-year

payment amount20 years

Pay As You Earn (PAYE)

Now(since 2012)

Direct student loan borrowers who took out their first loan after September 30,

2007 and at least one loan after September 30, 2011, and have a PFH



Income-Based Repayment

(Original IBR)

Now(since 2009)

All federal student loan borrowers (Direct Loan or Federal Family

Education Loan – FFEL) with a PFH



Income-Contingent Repayment

(ICR)

Now(since 1994)

All Direct Loan borrowers. No PFH requirement

The lesser of: 20% of discretionary income or 12-year repayment amount x income percentage factor

25 years

Extracted from: http://www.ibrinfo.org/what.vp.html

SUMMARY OF THE CURRENT INCOME-DRIVEN REPAYMENT PLANS IN THE USDeveloped by Paulo A. Meyer M. NascimentoThis material can be used so long as the author is cited

https://studentaid.ed.gov/sa/glossary#letter_p

https://studentaid.ed.gov/sa/glossary#letter_d

https://studentaid.ed.gov/sa/glossary#letter_f

http://www.ibrinfo.org/what.vp.html

During his campaign, President Trump said he would change the terms of the income-driven repayment plans so that payments would be capped at 12.5% of discretionary income and any remaining debt would be forgiven after 15 years.http://money.cnn.com/2017/04/21/pf/college/trump-student-loans-betsy-devos/

During the Republican party presidential primaries, Bush proposed to replace student loans with a

$50,000 line of credit that is repaid solely based on income. Students would pay 1% of their income for 25

years for each $10,000 that they access to pay for their college educations. No interest would be

charged and total payments would be capped at 1.75 times the original amount borrowed.

https://www.brookings.edu/research/jeb-bushs-student-loan-plan-should-outlive-his-campaign/

Clinton’s platform incorporated manyof Sanders’ ideas and promised also tomake it easier for borrowers to enroll

in income-driven repayment plans that would cap monthly payments at

10% of discretionary income.https://www.hillaryclinton.com/briefing/factsheets/2016/07/06/hillary-clintons-commitment-a-debt-free-future-for-americas-graduates/

Senator Sanders’ policy proposals for student loans are condensed in his

College for All Act, discussed earlier in this presentation.

Student loans on the 2016 US Presidential elections

DONALD TRUMPPresident of the United States

JEB BUSHFormer Governor of Florida

HILLARY CLINTONFormer US Senator

BERNIE SANDERSUS Senator


http://money.cnn.com/2017/04/21/pf/college/trump-student-loans-betsy-devos/

https://www.brookings.edu/research/jeb-bushs-student-loan-plan-should-outlive-his-campaign/

https://www.hillaryclinton.com/briefing/factsheets/2016/07/06/hillary-clintons-commitment-a-debt-free-future-for-americas-graduates/

Characteristics of a good loan design (i)

Income-contingent repayments based on current earnings.

A write-off after n years, or at retirement or death.

Repayment threshold and repayment rate chosen so that:

A graduate with ‘good’ earnings repays (in present value terms)100 per cent, or for high earners perhaps more than 100 percent, in the latter case with a cap on maximum overpayment(in present value terms) by any individual, to avoid the“Mick Jagger problem”.

As far as possible seeks to avoid distortions, e.g. large cliff edgesor wedges.

Implicit subsidy should be concentrated on people with low lifetimeearnings. Loss on other borrowers should be minimal(therefore, interest-rate subsidies should be particularly avoided,as they benefit everyone, including the wealthiest).

Source: Barr, Chapman, Dearden & Dynarski (2017).


https://books.google.com/books?id=JPWBAgAAQBAJ&pg=PT75

http://www.researchcghe.org/perch/resources/publications/wp16.pdf

Characteristics of a good loan design (ii)

Fiscal parsimony of loan design matters, not out of a sense of thepurity of the loan, but because loans that make avoidable lossesreduce their capacity to fulfil their core purpose of facilitatinginvestment in human capital. Expensive loans restrict one ormore of:

The number of loans that are made available;

The size of loans;

Student numbers;

The breadth of the loan system, e.g. not covering living costs,or excluding part-time students, postgraduate students andstudents in sub-degree tertiary education;

Spending on more powerful pro-access policies, includingearlier in the system.

Source: Barr, Chapman, Dearden & Dynarski (2017).Developed by Paulo A. Meyer M. NascimentoThis material can be used so long as the author is cited


Characteristics of a good loan design (iii)

Financing non-repayment. The design question is where the loss on low-earning borrowers should fall:

(a) on the taxpayer, implying ex post subsidies at potentially large fiscal costs,creating downward pressure on the number and/or size of loans andcrowding out other beneficial activities;

(b) on the cohort of borrowers through:

• a cohort risk premium (that is, an interest rate significantly above thegovernment’s cost of borrowing) or

• A surcharge.

With a small loan any of these methods can work.

The larger the loan the greater the marginal loss.

If loans are large, excessive reliance on any one method is generallysuboptimal, because large losses require substantial ex-post subsidies, riskpremia or surcharges.

Substantial risk premia or surcharges raise the prospect of adverse selectionand may create political problems.

Source: Barr, Chapman, Dearden & Dynarski (2017).




There are 205.8 million citizens living in this middle-income commodity-producer mostly Christian and urban country situated in South America. Brazilis still a young nation, but current favorable age structure will begin to shiftaround 2025. Inequality is high, but public pensions reduce poverty among theelderly, and in the last 20 years Bolsa Familia and other social programs havelifted tens of millions out of poverty. Only 14% of 25-64 years-old hold tertiarydegrees, whereas the OECD average is 35%.

Let’s talk about Brazil!Developed by Paulo A. Meyer M. NascimentoThis material can be used so long as the author is cited

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00

K-12 education Higher education

Bra

zil /

OEC

D (

in %

)

pu

blic

exp

end

itu

re p

er s

tud

ent

(in

USD

PP

P)

OECD average Brazil Brazil / OECD average

Public expenditures per student in K-12 x Higher

education, Brazil x OECD

Source: OECD. Chart adapted from Nascimento and Verhine (2017).


http://www.ipea.gov.br/portal/images/stories/PDFs/radar/170324_radar_49_artigo01.pdf

Approved by law, the 2014-2024 NationalPlan for Education (NPE) sets three targetsfor higher education:

IndicatorThe

target for 2024

How it was in 2014

Enrolments as a proportion of the 18-24 years-old population 50% 34.2%

Proportion of 18-24 years-old Brazilians enrolled in higher education

33% 17.7%

New enrolments in public institutions as a proportion of total new enrolments

40% 5.5%

million people were enrolled in undergraduate programs in Brazil in 2015of the enrolments were in the private sector, mostly in low-quality colleges


Major constraints to reach NPE targets for higher education• Low completion rates of secondary education: just

over 50% of the 18-24 years-old Brazilians have completed secondary schooling.

• Low learning performance in secondary education: PISA results for Brazil improved substantially in the first editions, but high proportions of students still perform poorly in all three assessed subjects – and improvements in recent editions are marginal.

• Fiscal austerity: a Constitutional bill approved by the Brazilian Congress limits the growth of public spending to the rate of inflation for the next 20 years.


Using a sample of over 3000 first year university entrants in Greece, Psacharopoulos & Papakonstantinou (2005) find that families spend privately more than the state in order to prepare for the entrance examinations and while studying at the university. In addition, poorer families spend a higher share of their income on the education of their children.

Meanwhile, in another constitutionally “free for all” higher education country…


https://www.researchgate.net/publication/222983805_The_real_university_cost_in_a_free_higher_education_country_Economics_of_Education_Review_24_103-108

The policy scene for student finance in Brazil• Historically, there has been strong political opposition in

Brazil to the introduction of tuition fees in public higher education institutions (public HEI).

• Tertiary education free of charge in public-administrated institutions is guaranteed by the Brazilian Constitution.

• Changing it is still difficult at present, but increasing numbers of economists, social scientists and politicians have been advocating so.

• There has been at least three constitutional amendments proposed in the Brazilian Congress to put this “gratuity” in relative terms.

• However, the current government seems to have other fiscal priorities and lacks popularity to approve a wider agenda.

• For the moment, reforming FIES is the trending topic when it comes to higher education funding policies in Brazil.


A federal student loan program designed to defer fees for low-income students enrolled in undergraduate programs run by private higher education institutions (private HEI).

It exists since 1999, but it was much less important until reforms undertaken in 2010, which reduced interest rates, extended eligibility to students from middle income families and substantially raised the program’s budget (11.4 times in real terms between 2010 and 2014).

In 2014, Fies new contracts were as many as the equivalent to 44% of new enrolments in private HEI (Corbucci, Kubota and Meira, 2016).

1.5 year later, FIES’ budget started to be cut, interest rates were raised and eligibility was restricted to low-income students with a minimal performance in the National High School Exam (ENEM).

Government is discussing alternatives for a complete redesign of FIES.

What it is


http://www.ipea.gov.br/portal/images/stories/PDFs/radar/radar46_art01.pdf

FIES’ growth in recent years(2005=100)

0

100

200

300

400

500

600

700

800

900

1000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PROUNI (new scholarships)

FIES (new loans)

new entrants in private HEI

Source: FNDE and INEP. Chart extracted from Nascimento (unpublished)


My current researchwork:

• Investigating the impactof FIES on enrollments, program choices, and drop out rates.

• Simulating ICL designs for a broad reform on higher education student financing in Brazil.


Simulating eight ICL scenarios

either four or sixthresholds (-4T or -6T); either

higher or lowerthreshold (-HT

or -LT)

either onmarginal

income (_MI-) or on total

income (_TI-)

either with(ICL-15_) or

without (ICL-NS_) interestrate subsidy

ICL-15_ICL-NS_

_MI-

-4T

-6T

_TI-

-HT

-LT

Source: Nascimento (unpublished)


Gvrmntreal cost of borrowing

Real rate of interest in ICL-15 scenarios

Real rate of interest in ICL-NS scenarios

Thresholds on monthly income

Personalincome

taxburdens

Thresholds for MI-4T scenarios

Thresholds for MI-6T scenarios

Thresholdsfor TI

scenarios

Repayment burdens (RB)

for MI scenarios

Repayment burden (RB)

for TI scenarios

4T 6T HT LT

5.0%per

annum

1.9%per

annum

5.0%per

annum

BRL 1,174.12(USD 367)

- - 1 LT - 2.0% -

8.0%

BRL 1,787.78 (USD 559)

7.0% 1 2 HT 3.75% 3.75%

8.0%

BRL 2,679.30 (USD 837)

15.0% 2 3

TI s

cena

rios

have

only

the

initi

alt

hres

hold

, whi

chw

illb

eei

ther

LT o

rH

T

7.5% 7.5%

BRL 3,572.44 (USD 1,116)

22.5% 3 4 11.25% 11.25%

BRL 4,463.81 (USD 1,395)

27.5%

4 5

13.75%

13.75%

BRL 5,936.87 (USD 1,855) +

No changeon RB

6 18.0%

The ICL scenarios’ parametersN

ascim

ento (unpub

lished).

Simulations consider student loan repayments being collected before income tax or social security contributions.


0%

2%

4%

6%

8%

10%

12%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LIN

E: E

FFEC

TIV

E R

B (

IN %

)

AR

EAS:

IMP

LIC

IT S

UB

SID

Y (

IN %

)

PERCENTILES OF GRADUATES' INCOME (FEMALE ONLY) 0%

2%

4%

6%

8%

10%

12%

14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LIN

E: E

FFEC

TIV

E R

B (

IN %

)

AR

EAS:

IMP

LIC

IT S

UB

SID

Y (

IN %

)

PERCENTILES OF GRADUATES' INCOME (FEMALE ONLY)

Overall implicit subsidy: females, 43%; males, 23%

Overall implicit subsidy: females, 57%; males, 41%

Overall implicit subsidy + default rate for FIES (currently time-based): 51%

Source: Nascimento (unpublished)

interest rate at the same level as FIES’ 2015 new contracts(ICL-15_MI-6T scenario)

interest rate set at the government’s cost of borrowing(ICL-NS_MI-6T scenario)

0%1%2%3%4%5%6%7%8%9%10%

11%

12%

13%

14%

15%

16%

17%

18%

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10th

15th

20th

25th

30th

35th

40th

45th

50th

55th

60th

65th

70th

75th

80th

85th

90th

Effective RB (in %)

implicit subsidy (in %)

Perc

entil

es o

f gra

duat

es' in

com

e

Figur

e 8b:

ICL-N

S_M

I-4T f

or fe

male

writt

en-o

ff-de

bt su

bsidy

(in %

)int

erest-

rate

subs

idy (in

%)

RB on

inco

me e

arne

d dur

ing th

e stu

dy p

eriod

(effe

ctive

RB)

(in %

)

all p

erce

ntile

s fro

m th

e 70t

hre

pay i

n fu

ll

0%1%2%3%4%5%6%7%8%9%10%

11%

12%

13%

14%

15%

16%

17%

18%

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10th

15th

20th

25th

30th

35th

40th

45th

50th

55th

60th

65th

70th

75th

80th

85th

90th

Effective RB (in %)

implicit subsidy (in %)

Per

cent

iles o

f gra

duat

es' i

ncom

e

Figu

re 8

b: IC

L-N

S_M

I-4T

for f

emal

e

writ

ten-

off-

debt

subs

idy

(in %

)in

tere

st-ra

te su

bsid

y (in

%)

RB o

n in

com

e ea

rned

dur

ing

the

study

per

iod

(effe

ctiv

e RB

) (in

%)

all p

erce

ntil

es fr

om th

e 70

thre

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A BROAD INCOME CONTINGENT LOAN FOR BRAZIL?


Is Brazil institutionally preparedfor a comprehensive national ICL for higher ed?

• The Brazilian federal government annually collects information on every single enrolment in higher education, from both public and private sectors.

• Income tax and social security contributions are also collected by the federal government.

• FIES is administrated by a federal government entity as well.

• The cadastro único – the administrative data on people and families eligible to income transfer and other social benefits – helps to identify graduates who are indeed poor.

• These mechanisms are operated electronically and can easily be linked one to the others by an identification key common to all of them: the individual national insurance number (CPF).

• Number of emigrants is negligible relative to Brazil's total population; number of international students are very low in Brazil as well.

• Brazil’s censuses, household surveys, tax records and wide range of administrative datasets provide rich information on the key variables to construct evidence-based ICL arrangements.


General lines for a broad reform• Converting FIES into an income contingent loan scheme.

• Extending FIES to the currently free public HEI.

• Fees in public HEI would initially follow the fee levels paid by FIES for similar tertiary programs offered in the private sector.

• Repayment revenue would be transferred to the public HEI where graduates studied.

• The government would keep putting money into public HEI, frozen at 2015 expenditure real levels (recall the bill tying public spending to inflation rate for the next 20 years).

• Eligible places for private HEI would initially be means-tested on income and performance on the National High School Exam (ENEM) + restricted to HEI performing well at the National Assessment for Higher Education (ENADE). Later on it could be linked to the proportion of loan recovery related to past loan disbursements.

• Graduates neither reached by the income tax office nor registered in cadastro único would be charged large fixed instalments – large enough to provide incentives for these graduates to reveal their income levels.



To access a reference cited in this presentation, simply click on it when it appears and you will be redirected to a link to read or download it (not all references cited hereinbefore are available without a subscription, unfortunately).The only reference you may not find online is the one by Nascimento, from which this presentation reports repayment burdens for the Brazilian time-based student loan program as well as results for simulations of income contingent loans for Brazil. That reference was not published yet at the time of this presentation. How to cite this presentation:Nascimento, P. A. M. M. (2017, May 30th). Higher education student financing: the Brazilian case (with some insights from and on the US). Seminar presented at Stanford Graduate School of Education, Lemann Center for Entrepreneurship and Educational Innovation in Brazil.


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Documents

Developed by Paulo A. Meyer M. Nascimento HIGHER … · PAULO A. MEYER M. NASCIMENTO. Spring 2017. ... the same time, some proponents—such as Milton Friedman, the father of the