Lobby sheet 3: Student loans

Argument: Student loans should be predominant form of student support.

Student loans are a special form of student support, which is repayable by its nature. For the following text, we have taken into account a state-funded loan facility, where the state is the lender and ensures the funds for the facility.

Arguments pro:
  • Graduates benefit from higher education as that results in higher salaries and better jobs, so they should contribute to the system;
  • This form of student support is cheaper for the state, so more students can benefit from it;
  • State will not have to pay for unsuccessful students, as they will have to pay back the loan no matter the outcome of their studies;
  • Incentive to finish the studies faster in order to not accumulate too much debt

Arguments con:
  • When introducing the scheme and until the repayment scheme is fully in place, the costs for the state are the same as with grants as the state has to provide initial funds for the facility;
  • With some studies/courses, it is difficult to get a high salary job, so students would choose their studies only based on the chances of employment after they finish and not on what interest them or what they are good in. This can result in lower success rates, in decrease in some study courses etc.;
  • Loans can be a deterrent for students from lower socio-economic background, as they , so this system favours students from higher socio-economic background;
  • Student loans can lead to indebtedness of the young generation, if graduates cannot get high paid jobs and fail on the repayment of their loans (see the example of the loan system in USA)

Risk mitigation:
  • Special repayment conditions: income-contingent repayment, limited period of repayment, subsidised interest rates (lower than market ones) etc.
  • In case students are successful, part (or all) of the loans can be turned into grants.

Resources and references:
Eurostudent: Social and Economic Conditions of Student Life in Europe 2008-2011(external link)
Eurydice: Modernisation of Higher Education in Europe: Funding and the Social Dimension 2011(external link)
Eurydice: National Student Fee and Support Systems 2011/12(external link)

Possible systems and countries to compare:
Loans are a major form of student support: UK, Iceland
Loans are additional form of student support next to grants: Sweden, Finland, Denmark, Norway
Loans are taken by more than 5% of student population (apart from countries mentioned above): Bulgaria, Germany, Estonia, Greece, Latvia, Lithuania, Hungary, Poland, Slovakia, Turkey

For more information, check the FINST Compendium on Financing of Higher Education – Part 4: Future Funding Scenarios of Higher Education (especially Scenario I).