It looks increasingly likely the Government will introduce a student-loan system. How would this work, and how have similar schemes worked in other countries?
LAST SEPTEMBER, I conducted a long interview with the Minister for Education, Batt O’Keeffe. At the time, “Batt”, as everybody calls him, was just getting his feet under the desk at the Department of Education. But the new kid in town was already coming to terms with some of the old, familiar problems – including the funding crisis facing the third-level sector.
Shortly before, two of the most influential figures in higher education – the president of UCD, Hugh Brady and the provost of Trinity College, John Hegarty – had joined forces to spell out the extent of this crisis. Funding for higher education had fallen by 30 per cent since 1998, they claimed. Irish colleges were muddling through with about 50 per cent of the funding available in countries such as Denmark, Switzerland and Scotland. It was a familiar pitch to the Government: a special-interest group pleading for more cash.
The difference here was that the Government had identified the higher education system as the key engine for future economic growth. Now, the word coming back from the universities was that the system was creaking at the edges, and would continue to regress without fresh investment.
In his interview with The Irish Times, the Minister raised the issue of fees. It was the first time any education minister had dared to discuss the issue since Noel Dempsey's attempt to bring back fees was killed off by the PDs and opposition from Fianna Fáil backbenchers five years earlier. The Minister said he felt it was his "duty to look at the funding of the third-level sector and to initiate debate on the issue".
He was not prescriptive about the form any new student contribution should take but within weeks it was clear to his closest advisers there were only two options: a return to straightforward upfront fees (abolished by the Rainbow Coalition in 1995); or a student-loan scheme, perhaps modelled on the much-imitated Australian system.
The advantages of a return to old style, upfront fees were obvious. With fees beginning at €5,000 a year for a general arts or business degree – and with more than 120,000 people in higher education – there was, potentially, a pot of gold at the end of the rainbow.
But things were never that straightforward. Of the 38,000 students who enter college for the first time every year, how many would actually be liable for fees?
Under the old fees regime, wealthy farmers and the self-employed were able to avoid any liability for fees by some creative accounting. And this was not just an urban myth. The 1993 De Buitléir report said these groups easily sidestepped fees by declaring lower income levels for the years in which they are due. That old story about the bar manager paying fees while the publican avoided them had more than a grain of truth. To address this problem, there was loose talk among O’Keeffe’s advisers about a new capital-assets test; the idea was that the value of property and other assets could be taken into account while assessing liability for fees. The Minister even asked a tax consultant to examine the issue.
OVER THE WINTER, however, the appetite for a return to fees began to fade. Any new capital-assets test would involve the establishment of a new administrative layer to police and enforce it; it hardly seemed to be worth the hassle. More significantly, the Government was already on the defensive over the public-service pension levy and the tax changes in the Budget.
Around this time, O’Keeffe began to talk about a new system that would be “family proofed”. The Government realised, he said, there was only so much punishment that ordinary families could be asked to bear.
Coincidentally, it was around this period that Prof Bruce Chapman, the Australian academic who pioneered the student income contingent loan scheme, visited Dublin. Chapman is said to have “dazzled” senior officials with a presentation on the Higher Education Contribution Scheme (HECS) introduced by the Hawke administration in 1989.
Under the system, students are loaned the cost of their fees and this debt is repaid through income tax.
The Australian scheme was the first of its kind. Since then, similar arrangements have been adopted in New Zealand (1991), South Africa (1991), the UK (2006), Thailand (2006) and Israel (2008).
From Batt O’Keeffe’s perspective, a student-loan scheme has one key disadvantage: even if introduced this year, it will be 2015 at the earliest before it generates substantial funding.
But this was easily outweighed by the advantages. For one, the vast majority of the 38,000 who enter third-level education each year will be liable to repay their student loans. And there will be no need to establish an expensive means-testing system.
Second, the proposal, or a variation of it, was backed by university presidents and by Fine Gael.
Third, the new system would establish a long-term funding mechanism for third level, without unleashing another political storm.
Yes, there will be protests and complaints but nothing to match the furore that might flow from the return of fees.
WHO WILL PAY?
WHO WILL RUN THE SYSTEM?
A private company could be established by the colleges to operate the new system, similarly to how the CAO runs the college-admission system. Alternatively, it could be run by a private bank with a State guarantee.
WILL THERE BE A DISCOUNT SCHEME?
There is likely to be a 20 per cent discount for up-front payments and other incentives for students to pay off the loan quickly.
HOW MUCH WILL IT GENERATE?
The report estimates it could generate as much as €300 million per year after eight years in operation. For the colleges, it will generate about €200 million. Everything will depend on the income threshold for payment. The report’s projections are based on income from as low as €18,300, the average graduate starter salary.
WHAT ABOUT STUDENTS WHO LEAVE THE COUNTRY?
They will be able to avoid the debt while outside the State, but will not be able to work in the Republic until their student debt is addressed.
WHAT KIND OF DEBTS WILL STUDENTS FACE?
Fees for arts and business degrees will be pitched initially around €5,700 per annum but science, engineering and medical degrees, which are more expensive to run, will cost more. Projections in the report suggest that a qualified teacher who took an arts degree will have a debt of around €18,000 but the debt for engineers could be over €30,000. It will take the average student from nine to 15 years to clear the debt, although this depends on an improving economic landscape for graduates over the next decade.
DOES A LOAN SCHEME DISCOURAGE SOME FROM GOING TO THIRD LEVEL?
A 1989 government report in Australia found that the Higher Education Contribution Scheme (HECS) did not appear to be a very important factor in limiting access. A 1991 report from a consulting firm concluded that HECS did not seem to be an issue of great concern in determining whether or not to participate in universities. However, it noted that single parents or those from low-income families in rural areas thought loans were “likely to frustrate their intention to participate”. The National Union of Students in Australia says there was a small but consistent trend of decline in the participation rates for working- class, rural and mature-age students.
WHAT HAPPENS NEXT?
The Cabinet will consider a discussion paper from Minister O’Keeffe, probably in September. The Minister is expected to recommend the introduction of a student-loan scheme, although it may not be finalised until after the Lisbon referendum in October. The new system will probably be introduced in September 2010. Existing students will not be liable to any new charges, but those entering college this September may become liable for charges.