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Thessaloniki, 4 October 2010
Key elements of the Hungarian Student Loan
Scheme
The Loan Scheme
The Loan and the Student Loan Centre
Funding of the Scheme
Improvement and Future Developments
Higher education is a key factor of social mobility.
A HE degree has significant advantages for the individual and for the society as well, therefore it is fair to share its costs.
Higher education places significant burdens on the individuals and the families.
• General access, universal
• Considerable but easily repayable loan size with free use
• Self-sustaining and self-financing
• No credit scoring, no collateral• Wide eligibility• Income contingent repayment, no fixed
tenor• Optional but maximized loan amount• Grace period for repayment, free
prepayment• No general interest subsidy• Can be collected as taxes• Single risk pool with single interest rate
• Covers all expenses of the scheme, but no more
• Three elements of the interest rate:• average cost of funding• risk premium• operation premium
• Current rate: 8.50 %
• 100% state-owned institution• Single activity: managing the student
loan scheme• Not-for-profit operation• Financial activity in non-bank company
form• Main partners:
• Hungarian Development Bank, Ministries• HE institutions, commercial banks, Hungarian Post• Hungarian Tax and Financial Control Administration, BISZ (Central
Credit Information)• Government Debt Management Agency, State Treasury, banks and
investors, Budapest Stock Exchange
Aggregate number of student loans taken out by students (300,000 by October 2010)
WITH student loan
WITHOUTstudent loan
Earning 33% 48%
Family support
25% 38%
Study scholarship 4% 7%
Support from institute 2% 2%
Grants from the state 2% 2%
Other revenue 2% 2%
Student loans 32% 0%
Total: (HUF 90,427)
EUR 321
(HUF 70,476)EUR 250
The impact of loan on students’ revenue
Based on TÁRKI Social Research Institute’s data
Repayment figures• In repayment phase: 120,000• Non-payers: 2-3%• In arrears: 25-30%• Handed over to tax authority (to date):
16,000• Collected by tax authority (to date):
7,000• Crisis:
• Repayment is 170-180% of compulsory
• Signs in soft collection (efficiency)
Principles• State guarantee on the liability side,
financing plan approved by the Minister• No financial burden on the central
budget• Funds raised from money and capital
markets• All funding costs charged on the
borrowers• Built-in mechanisms for avoiding
interest rate volatility• Optimization of cost-risk trade-off
Instruments• Return on investing free assets• Repayments and prepayments of the
borrowers• Stand-by liquidity facilities• Mid and long term loans from
commercial banks• Loans from special purpose financing
institutions (EIB, Hungarian Development Bank)
• Domestic bond issue
Risk management• No exchange rate risk• Interest rate risk
• all risks passed through to borrowers due to not-for-profit operation
• exact duration matching impossible• government debt management
benchmarks for fixed/variable ratio and maturity structure
• Operational risk
On the way to self-financing
• Expected 2010 figure: 90%• 3 levels of self-financing• Main task: debt management
Funding in numbers (EUR million)
• Renewing the portfolio in every 3 years
Impacts of the crisis• frozen capital markets in 2008• lack of liquidity and jumping costs of
funding• rising student loan interest rateHandling of the crisis• new funding strategy (focus on liquidity
and flexibility)• proactive crisis managementResult• no damage to the system
• Adjusted loan amounts
• Widening the eligibility (PhD, EEA)
• Increased age limit (40)
• Increased loan amount (crisis)
• Repayment relief for clients with difficulties
• Assignment of disbursements
Thessaloniki, 4 October 2010
Thank you for your attention!
