Student loans in higher education

Educational F o r u m Series, N o . 4

Student loans in higher education

4. Latin America and the Caribbean

Report of an HEP educational forum

by Maureen Woodhall

Paris 1993

International Institute for Educational Planning

(Established by UNESCO)

throughout this review d o not imply the expression of any opinion whatsoever on the part of U N E S C O or IIEP concerning the legal status of any country, territory, city or area of its authorities, or concerning its frontiers or boundaries.

T h e cost of the educational forum and of this report have been covered through a grant-in-aid offered b y U N E S C O and by voluntary contributions m a d e b y several M e m b e r States of U N E S C O , the list of which will be found at the end of the volume.

This volume has been typeset using IIEP's computer facilities and has been printed in I ΠP ' s printshop.

International Institute for Educational Planning 7 - 9 rue Eugène-Delacroix, 75116 Paris

This booklet is the fourth of a series which is reporting on Educa­

tional Forums being organized by the 1 Ш Р o n the issue of student loans

in higher education. T h e first booklet examined the situation in Europe and the U S A ; the second concentrated o n Asian countries; and the third reviewed the status of student loans in the countries of English-speaking Africa. T h e present booklet reports on the fourth forum in the series, held for Latin American and Caribbean countries.

T h e purpose of these meetings is to analyze the main issues raised by the introduction of student loans and discuss the ways these issues are being addressed both in industrialized and developing countries. Through open and candid discussion at the forums, and exchanges of experiences between countries, it is hoped to highlight the main implications for policy making in higher education and draw s o m e conclusions concerning the management of student loans in the future.

Each booklet in the series will normally include a report of the forum and summaries of the experiences of the countries represented. T h e H E P , in embarking on this n e w initiative, hopes that the series will stimulate further co-operation in the form of exchanges of experiences a m o n g U N E S C O M e m b e r States.

Jacques Hallak Director, IIEP

Preface v

Executive summary I

Report of an H E P educational forum 6

I. Introduction 6

IL Summary of forum discussion 12

III. Background paper 2 9

IV. Annexes 41

A . Summaries of student support systems 41

43

48

57

63

68

73

81

86

93

100

104

109

115

123

130

B . Participants in the forum 134

I.

IL

III.

IV.

V.

VI.

VIL

VIII.

IX.

X.

XL

XII.

XIII.

XV.

Extracts from opening address

Extracts from the background paper on A P I C E ' s reflection on educational credit Bolivia Brazil Chüe Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Panama Peru Venezuela

This report provides a summary of an educational forum held in Santo D o m i n g o , Dominican Republic, in June 1992, to discuss experience of student loans in Latin America and the Caribbean, where there is a long history of using loans as a form of financial assistance for students in higher education. T h e first student loan programme in the region w a s established in Colombia in 1950, w h e n T h e Colombian Institute for Educational Credit and Technical Studies Abroad ( I C E T E X ) was set u p as a public foundation to provide loans for postgraduate study outside Colombia. Since then student loan or 'educational credit' programmes, as they are called in Latin America, have been set up in at least twenty countries to provide assistance towards tuition fees and/or living expenses of students in public or private universities.

Student loan administrators from thirteen countries (Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru and Venezuela) c a m e together, with staff and officials from the Asociación Panamericana de Instituciones de Crédito Educativo (ÁPICE), and the International Institute for Educational Planning (IIEP), to share experiences, examine the strengths and weaknesses of different types of loan scheme and exchange ideas about h o w to improve the design and management of educational credit programmes.

1. Current patterns of finance for higher education and student support

Higher education enrolments have increased rapidly in Latin America in the past three decades, with the average participation rate for the region increasing from 4 to 18 per cent between 1965 and 1988, but the last decade has seen increasing pressure on public budgets and real expendi-tures per student have declined as a result of economic crisis, high rates of inflation and external debt, which have led to severe reductions in public spending. Most universities are highly subsidised, but private higher education is very important in s o m e countries, particularly Brazil, Colombia and the Dominican Republic, where more than 60 per cent of students are in private institutions, and since 1980 the private sector has grown very rapidly in Chile and n o w accounts for 5 0 per cent of enrolments. All private institutions charge tuition fees, and in s o m e countries public universities also charge fees, but at a m u c h lower level than private institutions. S o m e private universities have their o w n scholarship or loan programmes to assist needy students, and all the countries represented at the forum have established national programmes of student aid; some offer both scholarships and loans, while others rely mainly on loans, but all thirteen countries provide support for s o m e students in the form of loans, though often for only a small minority. 2 . A r g u m e n t s for a n d against loans in Latin America a n d the

Caribbean

There is widespread acceptance of the idea of student loans in Latin America and the Caribbean, even though there is recognition of the fact that they do not always work well. T h e participants agreed that support for student loans in their countries rested upon three factors:

strong popular demand for higher education, and the belief that it represents a sound investment, both for governments and individuals; • the need to democratize entry to higher education by ensuring that

those from low income families are not denied access to public or private universities;

the declining capacity of state budgets to finance public higher education of sufficient quantity and quality, and the need to diversify sources of funding, to include private as well as public finance. Arguments in favour of loans include increased efficiency, through reductions in drop-out, improved equity, if loans are targeted o n low income students, and greater responsiveness. However problems encountered include low rates of loan recovery due to unemployment, decapitalization of loan funds due to high rates of inflation and low rates of interest, and fears of excessive burdens of debt. Participants believed that these problems can be reduced by effective design and management of loan programmes.

3 . Design a n d m a n a g e m e n t of loan p r o g r a m m e s

Financial aid provided for students in Latin America and the Caribbean varies considerably in its scope and coverage, terms and conditions of loans and the type of agency responsible for their adminis-tration. S o m e countries have established public agencies such as I C E T E X in Colombia and C O N A P E in Costa Rica, but others rely on private foundations such as F U N D A P L U B in Brazil and F U N D A P E C in the Dominican Republic, while some countries have a 'mixed model' of administration, with both public and private aspects. It was agreed that the important question was not whether a student loan agency was public or private, but whether it was independent, free from political interference and efficiently managed. Student loan programmes in Latin America and the Caribbean range from relatively large programmes, such as F U N D A P L U B in Brazil, which provides over 100,000 loans each year and I C E T E X in Colombia, which gave 33,000 loans in 1990, and which both cater for about 10 per cent of students, to small programmes such as C I D E P in Bolivia, which provides only 170 loans a year, for less than 1 per cent. Selection of recipients is based o n financial need, academic ability and the type of course or institution attended.

All loans are highly subsidized, with interest well below market rates and in m a n y cases below inflation. There have been proposals that all loans should charge positive real interest, though possibly with longer periods of repayment in order to avoid unreasonable burdens of debt. In

general the rate of loan recovery has been higher in this region than in Africa or m u c h of Asia, but inflation and unemployment have caused problems and there have recently been efforts in several countries to improve loan recovery. It was agreed that requirements for efficient loan recovery include:

an adequate legal framework to enforce repayment;

strong incentives for the collection agency, whether public or private, to maximize the recovery of loans;

• counselling of borrowers to ensure that they understand their obligation and their repayment schedules;

• opportunities for renegotiation of repayments for those facing difficulties such as unemployment.

4. Evaluation of student loan p r o g r a m m e s and prospects for future reform and development

Participants were in n o doubt about the feasibility of loans in Latin America and the Caribbean, since programmes exist in twenty countries and s o m e have been operating for 25 or even 4 0 years. There w a s general agreement that while student loans had served a useful purpose in the region, by helping to extend access to higher education, diversifying sources of finance and by contributing to the development of the private sector in s o m e countries, it w a s necessary to increase their coverage, improve efficiency, particularly in loan recovery, and m a k e their funding more secure. Loans should also be supplemented by grants for the most needy students, w h o are unable to provide guarantees and are therefore excluded from m a n y existing loan schemes.

T h e forum considered a number of options for future reform or development of student loans, including:

increases in interest rates, to ensure positive, though subsidized, real interest;

• improved targeting of subsidies so that they are concentrated on students with the greatest financial need or courses which meet the most urgent m a n p o w e r needs;

• improved counselling and follow-up of borrowers, particularly in the

period immediately after graduation, which is regarded as crucial in

establishing regular repayment patterns;

diversification of sources of finance for loan programmes.

T h e range of options being considered reflects the optimism and

vitality of student loan institutions in Latin America and the Caribbean.

A factor contributing to this has been the regional co-operation fostered

by A P I C E , and the forum concluded with a proposal that this regional

network could serve in the future as a model for worldwide co-operation

and the development of an international network for the exchange of ideas

and experience on student loans.

4. Latin America and

the Caribbean

Report of an П Е Р educational forum

by Maureen Woodhall

L Introduction

This report provides a summary of an educational forum held in Santo D o m i n g o , Dominican Republic, from 11-12 June, 1992, to discuss experience of student loans in Latin America and the Caribbean. This formed one of a series of meetings organized by the 1 Ш Р on the subject of student loans as a means of financing higher education. Previous meetings covered Western Europe and the U S A (1989), Asia (1990) and English-speaking Africa (1991). Reports of these have already been published by 1 Ш Р .1

The forum took place in conjunction with the XlVth Extraordinary Meeting of the Pan American Congress of Educational Credit Institutions, (Asociación Panamericana de Instituciones de Crédito Educativo, Á P I C E ) and IIEP is grateful for the co-operation of A P I C E and the Fundación A P E C de Crédito Educativo ( F U N D A P E C ) of the Dominican Republic, for their co-operation in the organization of this Forum, which enabled us to draw on the experience and expertise of student loan institutions from thirteen countries in Latin America and the Caribbean.

1. Woodhall, M . (1990) Student loans in higher education: 1. Western Europe

and the USA. Educational Forum Series No.l., IIEP, Paris.

Woodhall, M . (1991) Student loans in higher education: 2 . Asia. Educational Forum Series No.2., IIEP, Paris.

Woodhall, M . (1991) Student loans in higher education: 3. English-speaking

T h e purpose of the meeting was to examine and evaluate experience of student loan programmes in Latin America and the Caribbean, to explore the strengths and weaknesses of loans as a means of providing financial support for students in higher education, and to share ideas about the future development of student loans and ways of improving the effectiveness of existing programmes and institutions.

M o r e than twenty participants and observers attended the forum, including student loan administrators or specialists from thirteen countries: Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru and Venezuela, together with senior officers and staff of A P I C E , the International Institute for Educational Planning (IIEP), Economic Commission for Latin America and the Caribbean ( E C L A C ) , the Overseas Development Administration (British Development Division in the Caribbean) and the World Bank. A full list of participants and observers is given in Annex B.

All national participants provided background papers describing the system of student financial aid in their countries, and also completed a short questionnaire, giving factual information and statistics o n higher education and student loans. Summaries of these background papers are provided in A n n e x A together with edited extracts from background papers provided b y Gabriel Betancur Mejfa and Jorge Tellez Fuentes of A P I C E . The full documents (in Spanish) are available, o n request, from IIEP in Paris.

Student loans are widely used in Latin America and the Caribbean to provide financial support for tuition fees and/or living expenses of students in higher education. Not only are there more student loan programmes in Latin America and the Caribbean than in any other region, with at least twenty countries having one or more programmes, but there is n o w more than forty years experience of student loans in the region. T h e first programme w a s established in Colombia, in 1950, w h e n the Colombian Institute for Educational Credit and Technical Studies Abroad ( I C E T E X ) w a s created to provide financial assistance for students undertaking postgraduate study outside Colombia. T h e forum w a s addressed by the originator of the concept of student loans in Colombia, Gabriel Betancur Mejfa, w h o w a s appointed as the first Director of I C E T E X in 1950, and w h o is an enthusiastic advocate of the idea of investing in higher education through student loans. H e has developed a slogan which represents the fundamental philosophy of an educational

credit institution: ' W e lend to the student and the professional pays us back'.

The idea of providing financial support through repayable loans, which in 1950 w a s the practice in a few European countries, notably Scandinavia, was adopted not only in Colombia but, within a few years, in several other Latin American countries. B y 1992 student loan programmes had been established in Argentina, Bolivia, Barbados, Brazil, Colombia, Costa Rica, Chile, the Dominican Republic, Ecuador, El Salvador, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru, Trinidad and Tobago and Venezuela, and the Caribbean Development B a n k operates a student loan scheme for eleven small island countries.

The Latin American region not only welcomed and adopted the idea of student loans, it created its o w n terminology for the concept. The term 'educational credit' is widely used throughout the region to describe student loans, and m a n y of the programmes and institutions that were established to provide financial support in this w a y have the term 'educational credit' in their title, for example I C E T E X in Colombia, Fundaçâo A P L U B de Crédito Educativo in Brazil, E D U C R E D I T O (Instituto de Crédito Educativo) in Honduras and F U N D A P E C (Fundación A P E C de Crédito Educativo) in the Dominican Republic. A unique regional association has been established, the Asociación Panamericana de Instituciones de Crédito Educativo, Á P I C E , which includes student loan institutions from most of the countries in the region, and whose members share information and expertise through regular meetings, conferences and the newsletter and other publications of A P I C E .

There is, therefore, a more extensive network of information about student loans in Latin America and the Caribbean than exists in Europe, Asia or Africa, but since it is almost entirely in Spanish it is relatively u n k n o w n outside the region. This forum therefore provides an opportunity to bring to a wider audience, from developing countries throughout the world, the range of experience with student loans in Latin America and the Caribbean.

The forum took place at a time w h e n there is increasing interest in student loans as a means of financing higher education. The previous three forums organised by H E P collected and disseminated information about student loans and other forms of financial support in five European countries (Denmark, Germany, Netherlands, Sweden and the United K i n g d o m ) , the United States, Australia, ten Asian countries (China, H o n g K o n g , India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore

and Thailand) and eight African countries (Botswana, Ghana, Kenya, Lesotho, Malawi, Nigeria, Uganda and Z i m b a b w e ) . All these either have or are currently considering the introduction of student loan programmes. T h e reasons w h y loans are increasingly being adopted or considered as a form of student support in m a n y countries include:

the need to reduce public expenditure as a result of falling govern­ ment revenues, economic crisis and structural adjustment;

a wish to expand higher education and improve its quality, without imposing excessive burdens on taxpayers and the public exchequer, changing priorities within the education sector, which have resulted in s o m e developing countries wishing to reallocate resources to expand or improve basic education;

concern about the equity of current patterns of financing education. All these pressures and concerns are to be found in Latin America and the Caribbean, as in other regions, and they help to explain w h y there is n o w such widespread interest in student loans, in the strengths and weaknesses of current programmes and in possibilities for improving their effectiveness. T h e forum not only provided an opportunity for the exchange of ideas and experiences in the thirteen countries represented, but also drew on recent research and analysis of student loans in other developing countries, including the three previous 1 Ш Р forums; a special issue of the journal Higher Education (June 1992) o n student loans in developing countries, which covered mainly experience in Asia and English-speaking Africa.2; a recent study for the World B a n k of student loans and their alternatives (including graduate tax and other forms of deferred payment of tuition fees)3; a study for the World B a n k of private

2. Higher Education, Vol. 23, N o . 4, June, 1992 (Special Issue on Student Loans in Developing Countries), Dordrecht: Kluwer Academic Publishers.

3. Albrecht, D . and Ziderman, A . (1992) Cost Recovery and Financial Aid for Higher

Education. Washington, D . C . : The World Bank (mimeo); Albrecht, D . and Ziderman, A .

(1992) "Student Loans and their alternatives: improving the performance of deferred payment programs", Higher Education, Vol. 21, N o . 4, June 1992, pp. 357-74; Albrecht, D . and Ziderman, A . (1991), Deferred Cost Recovery for Higher Education: Student Loan

Programs in Developing Countries. Washington, D . C . : World Bank Discussion Paper

financing of higher education in Latin America and the Caribbean, with a section o n student loans which was summarized at the forum,4 and a recent study of student loans for postgraduates, conducted for A P I C E .5

T h e discussion at the forum concentrated o n four main topics: (i) current patterns of finance for higher education and support for

students b y means of loans, scholarships, fellowships and other financial aid;

(ii) arguments for and against loans as a means of student support; (iii) the design and administration of student loan programmes, including

particularly:

the type of agency responsible for administering loans, whether public or private, and its constitution and powers;

the selection of students for financial aid and criteria determining eligibility;

terms and conditions of loans;

• collection of loan repayments and ways of reducing default, (iv) evaluation of experience with student loans and prospects for future

development and improvement of loan programmes to expand their coverage and improve their efficiency.

4 . Carlson, S . (1992) Private Financing of Higher Education in Latin America and the

Caribbean. Washington, D . C : World Bank L A C Technical Department Regional Studies

Program, Report N o . 18.

5. Oróstegui, Francisco Rodríguez (1992) Análisis del Crédito Educativo Para

This report includes:

S u m m a r y of forum discussions. Background paper.

A n n e x A . Edited extracts from background papers by Gabriel Betancur Mejia and Jorge Tellez Fuentes of A P I C E and summaries of Student Loan Schemes in Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Guatemala, Honduras, Panama, Peru and Venezuela. These summaries are based on the background papers prepared by the participants of the forum. A n n e x B . List of participants.

1. Current patterns of finance for higher education a n d student support in Latin A m e r i c a a n d the Caribbean

Higher education has a high priority in Latin America; enrolments in higher education have increased rapidly in the past three decades, with the average participation rate for the region increasing from 4 to 18 per cent between 1965 and 1988. A recent study concluded that relative to other developing regions, Latin America spends a greater share of the government budget o n education and a larger proportion of the education budget (over 2 5 per cent) is allocated to higher education6. Nevertheless the last decade has seen increasing pressure o n public budgets and real expenditures per student have declined as a result of economic crisis, high rates of inflation and external debt, reductions in public spending due to declining government revenues and structural adjustment programmes.

T h e private sector is very important in s o m e countries in the region. In Brazil and Colombia m o r e than 6 0 per cent of students are in private universities, while in the Dominican Republic there are 26 private universities and only one public university. In most other countries in Latin America public universities dominate, but there are significant private enrolments in Costa Rica, Ecuador, Peru and Venezuela and there w a s a very rapid expansion of the private sector in Chile, after the 1980 reform of the higher education system allowed the establishment of private institutions. O f the 374 higher education institutions that n o w exist in Chile, the majority of non-university institutions (professional institutes

6. Winkler, D . R . (1990), Higher Education in Latin America: Issues of Efficiency and

and technical training centres) are private, nine of the country's 23 universities are private, and about half of total enrolment is in the private sector.

All private universities and institutions charge tuition fees, and in s o m e countries public universities also charge fees, but at a m u c h lower level than in private institutions. S o m e private universities have their o w n scholarship or loan programmes to assist needy students, and all the countries represented at the forum have established national programmes of student aid, with the exception of Bolivia, which operates a series of regional schemes. T h e extent of coverage of these programmes, the type and level of support offered and the terms and conditions vary consider-ably. S o m e programmes offer both scholarships and loans, while others rely mainly on loans, but all thirteen countries provide student support in the form of loans.

In Brazil there are different loan programmes for students at public and at private universities. A public programme is run b y the Federal Savings B a n k (Caixa Económica Federal), and a private agency or foundation, Fundaçào A P L U B de Crédito Educativo ( F U N D A P L U B ) , which w a s originally set up by a professional association, the Associaçâo dos Professionais Liberais Universitarios do Brasil ( A P L U B ) , offers educational credit to students at private universities. T h e scheme operated by F U N D A P L U B is, strictly, a deferred payment, rather than a loan scheme; eligible students w h o are unable to pay tuition fees at a private university are allowed to postpone payment until after graduation, w h e n they must pay the deferred fee plus interest, and F U N D A P L U B collects these deferred fees o n behalf of the university. T h e programme w a s established in 1972 and F U N D A P L U B n o w collects deferred tuition fees on behalf of thirteen private universities.

In Bolivia there is also a private agency, the Centro Impulsor de Educación Profesional ( C I D E P ) which provides student loans and also operates a Family Savings Fund which enables parents to save regularly in a fund specifically intended for the financing of higher education expenses. C I D E P w a s first established in 1969 as a regional, rather than a national scheme, and C I D E P still provides only for students from one region of Bolivia.

T h e oldest programme in Latin America is Instituto Colombiano de Crédito Educativo y Estudios Técnicos en el exterior ( I C E T E X ) estab-lished in Colombia in 1950 to provide loans for study abroad. T h e forum

heard from the original founder of I C E T E X , Gabriel Betancur, that the first educational credit programme in Latin America was founded with limited capital but with deep and enthusiastic commitment to the idea of education as a sound national and personal investment. That enthusiasm and commitment remains strong, after more than forty years of experience of lending to finance higher education both in Colombia and abroad. I C E T E X n o w operates a range of programmes with different levels of support for students w h o study in public or private universities, in Colombia or overseas, and with very diversified sources of funding, both public and private. Public funds include allocations both from the Central B a n k and from Regional Development Funds, while private funding comes from a variety of trust funds, under which I C E T E X administers funds for various trade and professional associations, universities, private companies and corporations, and also from the sale of Education Savings Bonds, which enable parents to save, in order to pay their children's higher education expenses in the future; the bonds have a maturity of 15 years and offer protection against inflation. In addition, more than 20 per cent of I C E T E X resources n o w c o m e from repayment of loans, and past beneficiaries of student loans are a m o n g the most enthusiastic advocates of educational credit in Colombia.

The educational reforms introduced in Chile in 1980 included the introduction of tuition fees in public universities, together with a student loan programme for low-income students, and encouragement for the development of private institutions, which have grown rapidly in the last decade, so that the private sector n o w accounts for half of all enrolments. Students m a y receive either loans or scholarships, depending o n both financial need and academic merit. Loans are available both through a government programme and through a private University Credit Fund, established in 1987 to provide loans and deferred payment opportunities for students in private universities and professional institutes.

In Costa Rica a national agency, the Comisión Nacional de Préstamos para Educación ( C O N A P E ) , provides student loans for study both at h o m e and abroad, and also administers a scholarship programme. C O N A P E derives its funds from a variety of sources including c o m m e r -cial banks, which are legally obliged to contribute 5 per cent of their net profits to the student loan fund, as well as the government and private universities.

The Dominican Republic has a private agency, Fundación A P E C de Crédito Educativo ( F U N D A P E C ) , which was established over twenty-five

years ago to provide loans for students in the predominantly private universities. T h e agency is n o w extremely active, not only in providing financial assistance for students, but in carrying out labour force surveys, to assess the demand for different types and fields of higher education. Originally F U N D A P E C provided loans mainly for study abroad, but increasing costs, together with the growth of universities in m e Dominican Republic, has meant a change of policy and most loans are n o w for students in domestic private universities. Students taking subjects judged to be in 'over-supply', such as medicine and law, are m u c h less likely to receive loans than students taking shortage subjects such as engineering. In Ecuador, the Instituto Ecuatoriano de Crédito Educativo y Becas (ГЕСЕ) provides a range of educational credit programmes, including 'Family loans' to help parents to meet the costs of essential educational equipment and materials for their children, as well as loans to students for undergraduate or post-graduate studies at h o m e or abroad. T h e loan fund is partially financed from oil revenues and payroll taxes, and the feasibility of n e w sources of finance, such as the Education Savings Bonds operated by I C E T E X in Colombia is currently being explored in Ecuador. A national scholarship fund has recently been established, for the poorest students, but loans account for the bulk of student aid, which is given both for tuition fees and living expenses.

In El Salvador an Educational Collateral Fund E D U C R E D I T O was established in 1973, jointly funded by the government and by commercial banks, and this form of co-operation continues today, although economic crisis and the collapse of the government caused severe problems and the n e w government elected in 1989 had to introduce reforms to restore sound financial management. T h e central bank n o w allocates funds from the Fund for Economic Development, and commercial banks also provide loans to students, backed by a government guarantee and a 'collective insurance policy' against default, to which all borrowers are obliged to contribute.

A n unusual feature in Guatemala is that the agency which adminis­ ters student loans is responsible to the Ministry of Labour, rather than the Ministry of Education, and the main source of funding for the agency is a payroll tax, levied o n all companies and enterprises which hire foreign workers. A n y company which employs foreign labour is obliged either to train a national w h o can eventually replace the foreign worker, or contribute to the training fund: Dirección para el fomento de becas

( D I F O B E ) operated by the Ministry of Labour. The programme is small, but there are currently proposals before the government of Guatemala to expand it by imposing a payroll tax on all employers.

In Honduras, the Instituto de Crédito Educativo ( E D U C R E D I T O ) was originally private, set up to provide loans for students at both the national and private universities, but it later became a public agency, partly in order to obtain bi-lateral and international aid which w a s available only for public, rather than private agencies. T h e question of whether the agency should be public or private remains controversial in Honduras, and there are currently proposals once again to privatize the administration of student loans.

In Panama there is a compulsory Education Tax, paid by both employers and employees, and this is used to finance student loans, administered by the Instituto para la Formación y Aprovechamiento de Recursos H u m a n o s ( I F A R H U ) , which was first established in 1965. The institute provides both loans and fellowships, awarded on grounds of merit. Under the previous political regime the programme faced severe problems of default and by 1989 the fund w a s bankrupt. T h e n e w government recapitalized the loan fund, restored confidence and improved the administration of I F A R H U which n o w administers loans, scholarships and fellowships for study abroad.

There are two student loan programmes in Peru, one operated by a private agency, the Instituto Peruano de Fomento Educativo (IPFE), which was founded in 1962 and a small programme run by a national agency set up in 1972, but n o w practically discontinued due to declining government revenues. IPFE offers both loans and scholarships to needy students, to cover both tuition fees and living expenses.

There are also several different loan programmes in Venezuela. The first programme w a s established in 1965, by a private agency, E D U C R E D I T O , and there are n o w six different agencies offering student loans, including S A C E U D O and В A N A P , but the largest is the Fundación Gran Mariscal de Ayacucho ( F G M A ) which w a s set up in 1975 and originally provided mainly scholarships, but has recently considerably expanded its student loan programme. In June 1992, the World Bank approved a student loan reform project which will provide funds to expand the F G M A loan programme, while introducing a number of

reforms designed to improve its efficiency, particularly in the collection of loan repayments7.

Table 1 provides a brief summary of the main features of the student loan programmes in twelve countries in Latin America and the Caribbean. M o r e detailed summaries of the loan programmes are given in Annex A . In view of the wide variations that exist in the size and type of student loan programmes in Latin America and the Caribbean, and in their range of experiences, there w a s lively discussion at the forum o n the strengths and weaknesses of different models, particularly o n whether loans should be administered by public or private agencies.

There was eventual agreement that there was no single answer to this question, but that the choice between a public or private agency would depend on the conditions in a country, and that in s o m e cases a 'mixed model', involving both public and private elements m a y be desirable. There are examples of successful public agencies in Latin America, including I C E T E X in Colombia and C O N A P E in Costa Rica, and also well established and successful private agencies, including F U N D A P L U B in Brazil and F U N D A P E C in the Dominican Republic. S o m e participants believed that private agencies were likely to be more flexible, but other favoured public agencies, on the grounds that their funding might be more secure. In the past, some public agencies have been subject to political pressure, patronage and corruption, but it was agreed that the important question was not whether a student loan agency was public or private, but whether it w a s independently free from political interference and efficiently managed.

7. See Carlson, S. (1992) Private Financing of Higher Education in Latin America and

the Caribbean. Washington, D . C . : The World Bank L A C Technical Department Regional

Studies Program Report N o . 18 for a discussion of the reforms and Reimers, Fernando

(1990) The Feasibility of Introducing Loan Schemes to Finance Higher Education in Latin

loans in higher education я о la Ri и s olo и га

d

S

°^

g

g

Summary of the forum, discussions Я 442.0 750.000 o 2.00 \o с o o o tN CT\ 195.000 ber of dents

l

§

S

i

g

g

ä

19

In the light of the very varied experiences within A P I C E it w a s concluded that the choice between public and private administration of student loans depended o n three issues:

• the legal framework within a country; in s o m e cases this m a y favour public or private agencies, or permit a mixed model, under which the government provides funds and guarantees for a private agency or even commercial banks;

the strength or weaknesses of an agency's powers of negotiation vis-à-vis the government; it is essential that student loan programmes should be recognized as independent and free from excessive political control;

the capacity for long-term planning and financial stability, which is likely to be enhanced w h e n a student loan programme is financed from a variety of sources, rather than depending on a single, public source of funds.

There are also considerable differences between loan programmes in different countries in the w a y in which borrowers are selected, the terms and conditions of loans, and the mechanisms for collecting repayments. M o s t of the discussion focused o n these differences, together with the arguments for and against loans and the prospects for future reform and development.

2 . A r g u m e n t s for a n d against loans in Latin America a n d the Caribbean

Unlike the regions covered in the previous H E P forums: Europe, Asia and Africa, there is widespread acceptance of the idea of student loans in Latin America. Indeed, one writer (Dominguez, 1973) has described the idea of national educational credit institutions as 'indigenous to Latin America - an original answer to a genuine national problem'8. There is less evidence than in other regions of opposition to ¿Se idea of student loans, and indeed all participants at the forum reported strong demand for student loans, often far in excess of the funds available for

8. Dominguez-Urosa, J. (1973) Student Loan Institutions in Developing Countries. Harvard University.

lending. Nevertheless, there have been severe problems with loan programmes in s o m e countries, and Argentina has currently virtually abandoned student loans because of the problems of decapitalization due to high rates of inflation and low debt recovery.

All participants agreed that support for student loans in their countries rested upon three factors:

strong popular d e m a n d for higher education, and the belief that it represents a sound investment, both for governments and individuals; e the need to democratise entry to higher education b y ensuring that those from low income families are not denied access to public or private universities;

the declining capacity of state budgets to finance public higher education of sufficient quantity and quality, and the need to diversify sources of funding, to include private as well as public finance. A wide variety of arguments have been put forward in favour of student loans in Latin America, including:

improved efficiency: loans can help to reduce drop-out and encourage

students to choose courses and careers in the light of labour market needs;

increased equity: it is recognized that access to higher education is

highly inequitable, in most countries of the region, but free tuition or highly subsidized public institutions generally benefit the rich, rather than the poor, and loans are therefore m o r e equitable than grants, although there m a y be a need for carefully targeted scholar-ships for those from very poor families;

greater responsiveness: it is suggested that students with loans m a y

be m o r e highly motivated, and that loan schemes can be m o r e flexible than other forms of student aid.

O n the other hand, loan programmes have certainly encountered major problems in s o m e countries, including:

high rates of inflation, and negative real interest rates in countries such as Argentina and Bolivia, have led to decapitalization of loan funds;

default has been high in m a n y cases, particularly where there are high levels of graduate unemployment;

excessive burdens of debt, particularly w h e n borrowers are expected to repay loans in a short period.

Such problems can be minimized, however, by the careful design and management of loan programmes and m a n y countries in the region have recently introduced reforms designed to improve loan recovery and overcome problems of inefficient administration. Participants were eager to share ideas about which features had proved most successful in the past, and what reforms were most likely to prove effective in the future. 3. T h e design and m a n a g e m e n t of loan p r o g r a m m e s

Debate about the design and management of student loan pro-grammes focused on four main issues:

• size and coverage; • selection of borrowers;

terms and conditions of loans; recovery and repayment.

Size and coverage

Student loan programmes in Latin America and the Caribbean range from relatively large programmes, such as F U N D A P L U B in Brazil, which provides over 100,000 loans each year, I C E T E X in Colombia, which gave 33,000 loans in 1990 and F U N D A P E C in the Dominican Republic, which provides about 22,000 loans a year, to small or even tiny programmes such as C I D E P in Bolivia, which provides only 170 loans a year, and I F A R H U in Panama, which provides only 427 loans, but concentrates mainly on scholarships. In terms of coverage there is also considerable variation. In Brazil and Colombia about 10 per cent of all students receive loans, whereas in Bolivia and Venezuela the proportion is less than 1 per cent. It is difficult to obtain comparable figures, since some loan programmes state the proportion of all students w h o receive loans or scholarships, while others state the proportion of apphcants. A P I C E intends to carry out a survey to obtain comparable data.using c o m m o n definitions, but even without such information it is clear that the coverage

of most loan programmes is strictly limited at present, and demand for loans greatly outstrips supply.

Selection of borrowers

M o s t loan programmes select borrowers o n the basis of three criteria: financial need,

• academic merit, and

• type of course or institution.

In s o m e cases, for example under the F U N D A P L U B programme in Brazil, preference is given to students w h o have already completed part of a course, since one of its main aims is to reduce drop-out and wastage by students unable to complete a course because of financial difficulties, and the scheme is confined to students in private universities. In most countries loans are available for students in both public and private institutions, although in Chile m a n y private universities have their o w n loan programmes for their o w n students.

Several countries take account of m a n p o w e r needs in allocating student loans, both to maximise the chances of repayment and because the purpose of the loan programme is to contribute to national development by financing higher education and professional training. F U N D A P E C carries out its o w n labour force surveys, to assess m a n p o w e r demand in the Dominican Republic, and the loan programme in Guatemala is run b y the Ministry of Labour and is geared very closely to estimates of m a n p o w e r needs.

The main determinants of eligibility in most countries are financial need and academic merit, and several countries attempt to target student aid o n the most needy, although there is general recognition that the poorest families are usually excluded, since their children are unlikely even to apply for a loan, having dropped out of school at the primary or secondary education, or failed to achieve the school grades necessary for entry into higher education. M a n y loan programmes require borrowers to provide two guarantors, and this will also eliminate those from the poorest families. This is undesirable o n equity grounds, but the extreme shortage of funds means that loan institutions want to maximise the likelihood of repayment, so efficiency goals m a y clash with equity. Because of this, there was a general agreement that grants m a y be a more appropriate form

of financial assistance for students from the poorest families, with loans offered to those w h o are able to provide guarantees.

Terms and conditions of loans

There are wide variations in the rate of interest charged o n student loans and the length of repayment period. Compared to other regions, where student loans charge interest as low as 2-4 per cent, or m a y even be interest free, rates of interest appear high in Latin America and the Caribbean: 12 per cent in Bolivia and Honduras, 19 per cent in Costa Rica and 24 per cent in Colombia. Compared with commercial rates of interest in Latin America, however, these rates are highly subsidized, and in m a n y cases are below the level of inflation. In Colombia and Costa Rica, for example, where student loans charge 2 4 and 19 per cent, respectively, commercial rates of interest are 36 and 3 4 per cent, and the interest charged on student loans is below the rate of inflation. S o m e programmes, for example in Chile and the Dominican Republic, do link the rate of interest charged o n student loans, with the price index or the rate of inflation to ensure a positive real interest rate. F U N D A P E C adjusts its interest rate every six months, in line with inflation and F U N D A P L U B in Brazil also links interest rates with the price index, while I P H E in Peru indexes interest rates to Central Bank rates. It is significant that all these loan programmes are private; public agencies are m u c h less likely to link interest on student loans with inflation or market interest rates. In P a n a m a , for example, the rate of interest has been unchanged, at 5 per cent, since the scheme was established, and in El Salvador interest is only 6.5 per cent.

The World Bank has recommended that student loan programmes in Latin America should charge positive real interest rates, even if social objectives m e a n that s o m e degree of subsidy is desirable9. The student loan reform project recently approved in Venezuela involves a significant increase in interest charged on loans by F G M A , and several participants at the forum believed that such a change would be feasible, although in El Salvador an increase in the interest charged o n student loans led to a marked fall in the number of applicants.

O n e possible w a y to increase interest rates without too damaging an increase in debt burdens is to extend the length of repayment, in order to reduce the burden of repayments for n e w graduates. M a n y loan pro-g r a m m e s currently require borrowers to repay their loans within 3 to 5 years, although in several cases it depends o n the size of the loan or the length of study period, for example in Bolivia the length of repayment is equal to the period of study, and in Colombia and the Dominican Republic it can be twice the period of study. S o m e participants were in favour of extending the period of repayment to reduce the burden of debt, but others feared that this would lead to greater risks of decapitalization of student loan funds.

There is no general agreement about what constitutes a 'reasonable' burden of debt. In Colombia, I C E T E X regards it as reasonable for graduates to devote 15 to 2 0 per cent of their income to loan repayments, in Peru 30 per cent of income is regarded as the m a x i m u m that should be devoted to loan repayments, whereas in El Salvador 10 per cent of income is regarded as the m a x i m u m for repayment purposes.

There w a s considerable discussion of one of the basic dilemmas facing student loan administrators: h o w to avoid the twin dangers of decapitalization of the loan fund and excessive burdens of debt for young graduates. Everyone recognized that low interest rates, particularly if they are below the annual rate of inflation, will lead to a rapid depreciation in the capital value of a loan fund, which will severely limit the number of n e w loans that can be provided and, if not corrected, will eventually lead to bankruptcy. In order to avoid this danger, m a n y programmes in Latin America demand a relatively short repayment period. However, this m a y result in a heavy burden of debt for young professionals, particularly where there is a danger of unemployment.

Perhaps the most difficult task in the design of a student loan programme is to find an appropriate rate of interest that avoids excessive subsidy, which will result in de-capitalization of the fund or require frequent injections of n e w capital to maintain its value, and also avoids excessive burdens of debt, which will deter borrowers, particularly from low income families. This problem has been intensified by the high rates of inflation in Latin America in recent years. Participants agreed that n o country has succeeded in establishing a truly revolving fund, and the search for an optimum combination of interest rates and repayment

periods to meet both efficiency and equity objectives remains a major preoccupation of student loan administrators.

Recovery of loan repayments

In the past several loan programmes suffered high rates of default, although in general the rate of loan recovery has been considerably higher in this region than in Africa or m u c h of Asia, and several countries in Latin America have n o w reduced default rates to 10 per cent, or even less. Nevertheless, inflation, unemployment and political turmoil have caused problems in some countries, and there have recently been efforts in several countries, including Chile, Honduras, P a n a m a and El Salvador, to improve loan recovery. Television campaigns have been conducted in Chile, to remind borrowers of their obligation to repay, there have been threats of legal action against defaulters and employers have been involved in collecting repayments in Ecuador and Guatemala. T h e influence of guarantors is regarded as very important in several countries, including Brazil, Colombia and the Dominican Republic, but guarantors are m o r e likely to be used to apply 'moral pressure' or to give help in locating borrowers, than to actually repay the loan, though this is obviously the last resort in s o m e cases. In Colombia I C E T E X has a network of regional offices which administer student loans and organise recovery and there is a strong incentive for each regional office to maximise recovery in order to increase the availability of loans in that region in the future.

It w a s suggested that requirements for efficient loan recovery include:

A n adequate legal framework to enforce repayment;

strong incentives for the coUection agency, whether public or private, to maximise the recovery of loans;

counselling of borrowers to ensure that they understand their obligation and their repayment schedules;

opportunities for renegotiation of repayments for those facing difficulties such as unemployment.

4. Evaluation of student loan p r o g r a m m e s and prospects for future reform and development

The long history of educational credit institutions in Latin America and the Caribbean, and the existence of A P I C E , which serves as a network and mechanism for the exchange of information and ideas, means that student loans have been subjected to more scrutiny than in m a n y other regions, and there is a greater enthusiasm and commitment to the idea of educational credit than in m a n y other developing countries. Previous П Е Р forums have been concerned with the question of the feasibility of student loans as a means of financial aid for students. Participants at this forum were in no doubt about the feasibility of loans in Latin America and the Caribbean, since programmes exist in twenty countries and s o m e of these have been operating for more than 25 years ( F U N D A P E C in the Dominican Republic) or even 4 0 years ( I C E T E X in Colombia).

Nevertheless the fact that coverage of loan programmes is still very limited and that problems of inflation and unemployment have reduced loan recovery in m a n y cases means that there is still a degree of scepticism about the role of student loans as a means of financing higher education. The forum devoted some time to the question of h o w student loan programmes could be strengthened, m a d e more effective and expanded in the future.

There was general agreement that while student loans had served a very useful purpose in Latin America and the Caribbean, by helping to extend access to higher education, by diversifying sources of finance and by contributing to the development of the private sector in some countries, notably Brazil, Chile and Colombia, there was an urgent need to increase their coverage.

M a n y loan programmes cater for only 1 to 3 per cent of the student body, which limits their effectiveness as a tool to promote equity, and their role in increasing cost recovery is also limited, since few countries, apart from Chile, have been willing to tackle the sensitive political issue of raising tuition fees in public universities.

M a n y countries have taken steps to improve the efficiency of loan programmes, particularly the recovery of past loan repayments. There have been proposals to privatize some programmes and to reduce administrative costs in others. Computerization of records has helped to

improve efficiency, and improved training of staff in student loan institutions and is a high priority in several countries. A P I C E has been able to contribute to this by running workshops and sharing information on such questions as computer software and management techniques.

T h e forum considered a number of options for future reform or development of student loans, including:

increases in interest rates, to ensure positive, though subsidized, real interest;

improved targeting of subsidies so that they are concentrated o n students with the greatest financial need or courses which meet the greatest m a n p o w e r needs;

» increased efficiency of loan recovery and reductions in default; improved counselling and follow-up of borrowers, particularly in the period immediately after graduation, which is regarded as crucial in establishing regular repayment patterns;

diversification of sources of finance for loan programmes, for example through development of n e w services, n e w types of programme such as the Education Savings Bonds being developed in s o m e countries, or n e w payroll taxes or collective insurance schemes which have been introduced or proposed in others.

T h e range of options being considered reflects the optimism and vitality of student loan institutions in Latin America and the Caribbean. O n e factor contributing to this has been the regional co-operation fostered by A P I C E , and the forum concluded with a proposal that this regional network could serve as a model for worldwide co-operation, so that the Panamerican Congress of Educational Credit Institutions might develop, in the future, into a World Congress.

It is hoped that this series of H E P forums on student loans can contribute to this goal of improving the effectiveness of educational credit programmes by disseminating more widely the result of this sharing of ideas, experiences and lessons learned, and by developing the nucleus of an international information network.

Student loans in developing countries:

feasibility, experience and prospects for reform

by Maureen Woodhall

Introduction

Student loans have been widely advocated as a w a y of financing the private costs of investing in higher education and more than 50 countries n o w have loan schemes which enable students to borrow from government agencies or commercial banks in order to finance their tuition fees or living expenses, and to repay the loans after graduation. Most loan schemes offer government guarantees and some form of interest subsidy, and in m a n y countries students receive financial support through a combination of loans, grants, scholarships or bursaries.

In some countries small-scale loan schemes were introduced 60 or 7 0 years ago but loans were established on a significant scale in the 1950s and 1960s in m a n y developed countries (Canada, Denmark Sweden and the U S A , for example) and in a few developing countries (Colombia and India both set up loan schemes in the 1950s). A review of international experience with student loans (Woodhall 1983) found examples of student loan programmes in Western Europe, North America, Japan, Latin America and Asia and a few in Africa. M o r e recently there has been a n e w upsurge of interest in student loans in both developed and developing countries and significant changes have been introduced in several countries with established loan programmes (Sweden, Germany and the Netherlands, for example); a n e w loan scheme has been established in the United Kingdom and Australia has introduced a Higher Education

Contribution Scheme ( H E C S ) which allows students to defer payments

until after graduation, and these deferred payments are then collected

through the tax system. (See Woodhall 1989 for a discussion of recent

changes in Australia, Sweden, Japan and the United Kingdom).

At the same time a number of developing countries are n o w seriously

considering student loans as a means of financing higher education. The

World Bank has advocated loans on grounds of both efficiency and equity

(World Bank 1986 and 1988) and the Commonwealth Secretariat and the

World Bank have published guidelines for developing countries consider­

ing h o w to design a student loan programme (Woodhall 1987 a and b).

The subject of student loans is therefore very topical at present, and

the International Institute for Educational Planning is therefore holding a

series of Education Forums on student loans. T h e fourth of these

Education Forums is being held in Santo Domingo, Dominican Republic,

in June 1992, and is devoted to student loans in Latin America and the

Caribbean.

2. Research on student loans

The first of the 1 Ш Р "Educational Forums" on student loans was held

in Paris in 1989 and was concerned with recent experience in Western

Europe and the U S A . (For a summary of the discussion see Woodhall

1990). Similar forums were held on Asia, (in Malaysia in November

1990) and on English-speaking Africa (in Kenya in June 1991). (See

Woodhall 1991 a and b for summaries of the forums on Asia and

English-speaking Africa). The purpose of these forums is to share experience on

student loans, to analyze the main issues raised by the introduction and

use of loans and to discuss ways of overcoming problems and difficulties

and improving the management of loan programmes in the future.

Participants in the forums have exchanged information and ideas in a very

frank and open way. Discussions have raised both positive and negative

issues, and the countries represented at the seminars include countries

where loan programmes are regarded as successful (Japan and H o n g

Kong), countries which have encountered major problems, but which are

embarking on attempts to improve and reform loan programmes (Kenya

and Nigeria), countries which have already introduced major changes to

reform student loans (Sweden and Ghana), countries where loans are

regarded as unsuccessful (India) or which have abandoned government financed student loans (Indonesia), and finally countries which are currently considering introducing loans (Botswana and Uganda).

The World Bank is currently conducting a major review of higher education policy, which involves a programme of research and studies, regional and international seminars. A s part of this programme Albrecht and Ziderman (1992) have carried out a study of the role of student loans in financing higher education which examines experience in both developed and developing countries and proposes a number of reforms designed to improve the effectiveness of loans as a means of cost recovery.

3. S u m m a r y of issues and experience in Asia and English-speaking Africa

The H E P forums on Asia and English-speaking Africa both covered four main issues:

existing patterns of finance for higher education and systems of student support;

reasons for interest in student loans;

design, management and administration of student loan programmes; the feasibility of student loans in developing countries.

Higher education is highly subsidized throughout Asia and Africa and in m a n y countries students receive not only free tuition but also grants or bursaries covering living expenses. M a n y countries n o w have loan schemes to provide financial support for students" living expenses, books and, in a few cases, tuition fees.

In Asia loan schemes n o w exist in China, H o n g K o n g , India, Japan, Malaysia, Philippines, the Republic of Korea and Singapore; Indonesia had a student loan programme from 1982, but it was abolished in 1990, while Thailand is planning to introduce student loans shortly, as part of a reform of higher education finance. In Africa there are n o w student loan schemes in six English-speaking countries: Ghana, Kenya, Lesotho, Malawi, Nigeria and Z i m b a b w e . T h e governments of Botswana and Uganda are currently considering introducing student loans and Tanzania,

which had a short-lived programme, is once again considering the feasibility of loans as one element of a cost-sharing programme.

Brief details of the current systems in all these countries are given in the reports of the H E P forums (Woodhall 1991 a and b) and more extended descriptions and analysis are included in Higher Education (June 1992) in articles on China (Shouxin and Bray), India (Tilak) and Singapore (Shantakumar), Botswana (Mokgwathi), Ghana (Kotey), Nigeria (Chuta) and Uganda (Kajubi).

4. Reasons for interest in student loans

Both in Africa and Asia student loans have been justified o n grounds of financial stringency, increasing efficiency or improving equity. Four main reasons were identified at the forums for the renewed interest in student loans in developing countries:

financial pressures o n public budgets, which m e a n that m a n y governments are seeking ways to increase private contributions to the costs of higher education;

changing educational priorities have resulted in several governments giving higher priority to primary and secondary education, and trying to increase cost recovery in higher education, in order to free resources for lower levels of education;

e attempts to improve the efficiency of higher education;

concern about equity leads advocates of loans to argue that loans will result in a more equitable sharing of the costs of higher education than a system of grants, scholarships and free tuition, financed from government revenue, which mainly benefits students from upper-income families, w h o in the future are likely to enjoy higher than average incomes.

5. T h e design a n d m a n a g e m e n t of student loan p r o g r a m m e s Student loan schemes differ widely in their design, form of administration and management, extent of public subsidy and methods of collection. Although loans are advocated on the grounds that they will help overcome the severe financial constraints facing governments, by

shifting part of the financial burden of higher education from public to private funds, Albrecht and Ziderman (1992) conclude that the high degree of subsidy and default in most loan programmes in developing countries m e a n that "the government continues to bear the cost burden of higher education and/or student maintenance expenses .... and in s o m e instances, loans have been more expensive than outright grants".

In Asia, default rates are high and cost savings are minimal in India (Tilak 1992); financial problems caused the government to abandon student loans in Indonesia and in Sri Lanka, but in H o n g K o n g and Singapore default rates are low (see Bray 1986 and 1991 and Shantakumar 1992). In Africa high default rates have plagued loan schemes in Nigeria, G h a n a and Z i m b a b w e and Albrecht and Ziderman calculate that in K e n y a the high costs of interest subsidies combined with default rates of over 80 per cent m e a n that loans are actually more costly to administer than grants.

Although there are considerable differences between countries in the w a y student loan programmes are administered, there w a s general agreement at the forums that conditions for the effective management of student loans include:

sound financial management to ensure that the purchasing power of the capital of a student loan fund is maintained, and the costs of administration of loans are adequately covered; this means that realistic interest rates must be charged o n student loans;

a sound legal framework for student loans, to ensure that loan recovery is legally enforceable;

e effective machinery for targeting financial support and selecting recipients of subsidies o n grounds of financial need or m a n p o w e r priorities;

° effective machinery for loan recovery, to minimize default;

publicity campaigns to ensure widespread understanding and acceptance of the principles of student loans and the importance of the obligation to repay loans.

6. T h e feasibility of student loans in developing countries

Critics of student loans question whether loan schemes are feasible in developing countries which lack the financial and administrative infrastructure needed to ensure effective management and loan recovery. High rates of default, problems of graduate unemployment, inadequate banking mechanisms and political opposition and public hostility to the idea of loans are all cited as reasons w h y loan programmes would not work in developing countries.

Certainly m a n y programmes have faced formidable problems. Student loans have been abandoned in Indonesia and Sri Lanka. O n e of the first schemes in Africa, the G h a n a University Students" Loan Scheme, w a s introduced in 1971 but abandoned after less than a year due to political opposition and the fall of the government that had introduced loans. T h e initial failure of loans in G h a n a is often cited as evidence that student loans are unworkable in Africa, but in fact this early experience offers s o m e interesting lessons. Williams (1974) analyzed the case for the introduction of loans in G h a n a , and the reasons for their failure.

Detailed proposals were first put forward in 1970 by a Committee which advocated a "modest redistribution" of the cost burden of university education o n grounds of social justice:

"It is partly to reduce the burden of educational costs on the tax paying community, and partly to achieve greater social justice that the Committee feels that students and/or their families should themselves contribute something directly to the public cost of education at university institutions. In this w a y , the beneficiaries will partially repay the generosity of the c o m m u n -ity in educating them and thus m a k e it possible for educational facilities to be expanded m o r e widely and m o r e quickly to others." (Republic of Ghana, 1970, p . 10)

This is remarkably similar to the argument put forward twenty years later in Australia by the Committee that proposed the introduction of the Higher Education Contribution Scheme o n grounds that it would represent:

"a funding partnership in which the beneficiaries m a k e a direct and fair contribution to the cost of higher education, to supple-ment the funds provided by taxpayers ... Australian taxpayers should not be expected to carry the burden of financing the growth envisaged in higher education, particularly since few directly enjoy its financial benefits." (Committee on Higher Education Funding, Australia 1988)

Similar arguments have been used in several other countries to justify the introduction of loans; for example Shantakumar (1992) quotes just such an argument for Singapore.

Despite the fact that loans were advocated in G h a n a on grounds of social