Student loan system suggested by IMF

Thu, Jan 31, 2013, 00:00

The International Monetary Fund has suggested the Government take the radical step of introducing a loan scheme for third-level students within two years.

In its latest report from late last month on the Government’s performance in the bailout programme, the IMF argues the Government should spell out the “deeper reforms” it intends to take during 2014 and 2015 to achieve further exchequer savings.

In a surprising development, the IMF report suggests that the measures could include “an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost”.

The other two measures specified in the paper (prepared in advance of December’s budget) are further reforms on tax reliefs on private pension contributions and greater use of generic drugs.

Reducing uncertainties

The rationale for setting out those measures, according to the report, is “to maximise the credibility of fiscal consolidation, and to reduce household and business uncertainties”.

The inclusion of a student grant has taken the Government by surprise. A spokeswoman for Minister for Education Ruairí Quinn said that student loans had not been discussed directly with the IMF.

“This issue has not been raised directly with [the Government],” she said.

It is not the first time that a loan scheme for third-level students has been suggested. As far back as 2004, the Organisation for Economic Co-operation and Development suggested a sustainable funding model for higher education that could include student loans.

Since last year, the Higher Education Authority has been undertaking a comprehensive study of third-level funding for the Minister and the results are expected in the middle of this year.

Indicating that the process was still at an early stage and nowhere near a decision, the spokeswoman said the report would inform the Government on the options in terms of third-level funding.

ESRI research

As part of that exercise last year, the Economic and Social Research Institute examined, among other things, the introduction of a student loan scheme. It noted that the abolition of third-level fees in Ireland had reduced the privately funded element from 30 per cent to 17 per cent by 2008 (although the figure has risen because of increased registration fees).

It also found the public expenditure for higher education funding in Ireland was well above many comparator countries and was “in stark contrast to countries such as New Zealand, Canada, Australia and the UK.

The study explored the application of income contingent loans programmes, to be repaid after students entered the workforce.

Attractive plan

The spokeswoman said the ESRI study had found the student loan scheme was attractive but it had also found the country had to be on a sound fiscal footing.

“Clearly that is not the case [at present]. Ultimately, the key issue is to await the results of the HEA’s sustainability study,” she said.

The IMF report does not indicate whether the loan would cover fees or the maintenance and fees grant available to students from lower-income families.