Emigration may affect student loans proposal

Expert group report recommends introduction of income-contingent loan system

Graduate emigration could alter repayments and have implications for a system of income contingent loans.

Graduate emigration could alter repayments and have implications for a system of income contingent loans.


Levels of emigration among college graduates would have a significant impact on the cost to the taxpayer of setting up a student loan scheme, according to a draft report on third-level funding.

The expert group report, to be published shortly, recommends the introduction of a new income-contingent loan system for graduates.

Under this system, college would be free at the point of access and graduates would begin to pay back tuition fees once their income reaches a minimum level.

The loans would be advanced at rates lower than the cost of commercial borrowing, allowing for “very affordable” repayments.

The draft report says high levels of emigration among graduates – up to 20 per cent – would cost the State more on the basis that a larger number of students is unlikely to pay outstanding debts.

“There is no doubt that graduate emigration could alter repayments and have implications for a system of income contingent loans,” the report states. However, while emigration will have implications for repayments it should not be assumed that emigration implies an end of loan obligations; this is not the case with loans generally.”


If there were high levels of emigration, the report indicates that a student loan scheme would still be affordable and sustainable, though it recommends further analysis.

Other countries with income-contingent loan systems are examining different ways of encouraging emigrants to repay their debts through information-sharing or repayment agreements between different jurisdictions.

About 18 per cent of student loans remain unpaid in Australia – the first country to introduce the system – as a result of emigration or graduates failing to earn sufficient income for a long enough period. Officials in Australia say these levels of debt are sustainable, though it has been examining an option of “internationalising” student debt.

This could includes bilateral or multilateral agreements among countries with similar third-level loan schemes, such as Australia, New Zealand, England, South Africa and the Netherlands.

Sharing of funds

Under this system, a graduate who emigrated to Australia would have their outstanding loan converted into a debt under their third-level funding scheme. The graduate would make repayments through the tax system based on the same income thresholds as if they accrued the debt in an Australian third-level institution.

Funding could then be shared between countries in a similar manner to international taxation treaties.

Separately, the expert group report explores the likely impact of State-backed student loans on the national balance sheet.

EU spending rules limit the amount of money the State can borrow. However, the report says an initial examination of EU fiscal rules suggests they would not be an obstacle to the introduction of income-contingent loans.

If there is no subsidy for the loans, a government student loan scheme would have no effect on the government deficit. However, if a subsidised interest rate is charged there would be an effect on the national balance sheet.

This would be equal to the difference between the cost to the State of raising the finance and the interest paid by the recipient. There would also be an impact on the deficit when student debt is cancelled.

The longer-term impact of student loans on public finances, the report says, depends on the extent to which the loans are repaid and the level of subsidies provided.