Characteristics of Student Loans
The basic characteristic of all student loan schemes is that students are offered the chance to borrow money to help them finance tuition costs or living expenses. After completing their studies, graduates must repay the amount borrowed, with or without interest. Although all loan schemes share this basic characteristic, there are important differences in the way different programs are administered, particularly in terms of (1) whether loan programs are operated by the government, independent agencies, banks, or higher education institutions; (2) the level of interest charged, and whether this is subsidized (i.e., lower than commercial or market interest rates); and (3) the way in which repayments are collectedin particular whether loan repayments are fixed over a specific time period (often described as mortgage-type loans), or whether graduates must repay a fixed proportion of their income each year until the loan is repaid (usually described as income-contingent loans).
Evaluation of International Experience
As wide variations exist between programs, comparative studies of international experiencewhich highlight significant differences, examine economic or social effects of alternative systems, and identify strengths and weaknessescan be particularly valuable. A 1986 comparative study of student support in the United States and four European countries (France, Germany, Sweden, and the United Kingdom) by Bruce Johnstone argued that “it was a major premise of this study, borne out by the research, that these and other countries must balance very similar public policy goals in apportioning the costs [of higher education] … and that each country can benefit … by understanding what countries with similar higher educational systems and public policy objectives are doing” (p. 1).
Since this and a few other comparative studies were published in the 1980s there has been growing interest in learning from international experience. Reforms of student aid policies and systems taking place between 1989 and 1999 in Australia, Sweden, and the United Kingdom drew upon lessons from experience in other countries. In Sweden, the government changed the national system in 1989 by reducing the level of interest subsidy offered on student loans, but introducing income-contingent repayment, linking the amount of graduates’ loan repayments with their level of income. This reflected Johnstone’s comparative analysis of student loan schemes that showed that under the previous scheme Swedish students enjoyed far higher “implicit grants” because of the interest subsidy than American students. A major policy shift also occurred in the United Kingdom with the introduction directory of student loans in 1989, and the British government drew heavily on international experience in justifying loans as a means of student support. More recently the experience of Australia and Sweden in introducing and implementing income-contingent loans has been widely quoted as offering important lessons for the design of student loan schemes. Nicholas Barr described income-contingent student loans as “an idea whose time has come” (1991, p. 155), and praised Australia for having introduced a “highly effective income-contingent loan scheme” (1998, p. 186).
Other reviews of international experience have focused on developing countries, where the effectiveness of student loans has often proved disappointing. In the early 1990s a series of international forums on student loans organized by the International Institute for Educational Planning (IIEP) analyzed experiences in the United States, Europe, and in developing countries. An evaluation of student loan experience in developing countries was summarized with the conclusion that “student loans can make a contribution to relieving the financial pressures facing higher education, provided that loan programmes are properly designed, effectively managed and a high rate of recovery is achieved” (Wood-hall 1992, p. 355). Requirements for success include: