Q&A: How the proposed student loan scheme would work

An ‘income-contingent’ loan system is a future funding option for third-level education, the Cassells report says

How does an “income- contingent” loan system work?

Under this system, higher education is free at the point of access for students. Students are required to pay back tuition loans though when they start earning above a minimum income level later in their career.

Australia became the first country to introduce income-linked loans for students more than 25 years ago. Others have since adopted the system, such as the Netherlands and England.

How much would college courses cost?


The expert group on third level funding, the Cassells report, suggests that tuition costs in a loan scheme could be between €4,000 and €5,000 annually, though these are just illustrative costs.

This would work out at between €16,000 and €20,000 over the duration of a college course.

In other countries with loan schemes, tuition costs vary depending on the type of course a student is studying.

In Australia, for example, humanities, social studies and foreign languages cost in the region of €4,000.

Computing, engineering and science courses are €6,000, while courses such as law, dentistry and medicines cost about €7,000.

In the Netherlands, greater levels of State subsidies mean tuition costs are lower (about €2,000), while the lack of such funding means they are more expensive in England (about €12,000).

When does a student start repaying their loan?

Under a potential loan system in Ireland, the expert group suggests a graduate would begin repaying their loans when their income hits €26,000 a year.

Graduates could pay their full fees up front if they wish, or pay them back over time. The report indicates that repayments would cost just over €100 a month over about 15 years for a person on an average salary.

These figures would vary depending on what kind of interest rates, if any, are applied.

Repayment in Australia begins only when income has reached €36,000. At that point, repayments are levied at between 0 and 8 per cent of income, depending on income level.

Real interest rates are not charged on loans, but the debt is indexed each year to reflect changes to the consumer price index in order to maintain its real value. There are similar schemes in place in the Netherlands and England.

Is the system fair for lower- income students?

This is hotly debated. Advocates of “income-contingent” loan systems say they address fairly effectively a number of the market failures and equity issues that can arise in student loan schemes.

In England, for example, the proportion of lower-income students has increased since student loans were introduced, unlike Scotland which still has "free fees". Those against loan schemes, however, say the prospect of debt is likely to turn off low income students.

What happens if someone doesn’t earn enough to pay back their loan?

The graduate simply would not pay back the loan. About 15 to 20 per cent of loans in Australia are not repaid, leaving the government to foot the bill.

"Some debtors just don't earn enough to repay in full over their lifetimes," says Prof Bruce Chapman, who designed the Australian system.

“The system is designed to protect the relatively poor and this is an expected outcome.”

Would grants still be available for students?

The expert group suggest that student supports would be increased under a new scheme.

Maintenance grants are available to low-income students in Australia, separate to the student loan system. The same is true in the Netherlands.

In England, however, there are plans to fold maintenance costs into the student loan, leading to higher student debt.

Is the system sustainable if there’s another economic crisis?

It is potentially vulnerable, because money raised under the income-contingent loan system isn’t enough to pay for higher education. It relies on State funding to bridge the gap.

“This is an issue of government decisions with respect to outlays, and is not related to income-contingent loans,” says Prof Chapman.

“The loans money goes to the treasury, but what happens to it then is an issue for policy.”

The Australian government has recently resisted increasing its contribution, placing the wider system under strain.

That’s partly due to a big increase in numbers attending college since a cap on places was removed in 2012.

Carl O'Brien

Carl O'Brien

Carl O'Brien is Education Editor of The Irish Times. He was previously chief reporter and social affairs correspondent