Deferred Cost Recovery for Higher Education

Financing Higher Education

"Revenue supplementation" in higher education refers to shifting higher education costs away from relying mainly (sometimes virtually exclusively) on government, or the taxpayer, and toward parents, students, philanthropists, businesses, and other sources. "Cost-sharing" refers more specifically to requiring that parents and students pay all or most of tuition, lodging, and food costs, and other fees, as well as lessening the value of grants or raising the effective interest rate on student loans. This article identifies some of the historic resistance to cost sharing as well as its rationales-the most compelling of which is the sheer need for revenue, coupled with the increasing unlikelihood that African governments can raise enough revenue by taxation to meet currently underfunded social needs and simultaneously provide substantially more to meet the rising costs of higher education. The article identifies some limitations to the "dual-track" tuition policies in East Africa and some reasons for the many failures African countries have experienced with student loan programs. It cautions against the prevailing fascination with incomecontingent loans and makes recommendations, drawn both from theory and from the few empirical examples of "things that work." Résumé Dans le domaine de l'enseignement supérieur, le concept d'« augmentation de revenu » consiste à ne plus dépendre principalement (parfois exclusivement) du gouvernement ou du contribuable pour ce qui est des dépenses d'éducation, et à * An earlier version of this paper was presented to a conference, "

Journal of Higher Education in Africa

"Revenue supplementation" in higher education refers to shifting higher education costs away from relying mainly (sometimes virtually exclusively) on government, or the taxpayer, and toward parents, students, philanthropists, businesses, and other sources. "Cost-sharing" refers more specifically to requiring that parents and students pay all or most of tuition, lodging, and food costs, and other fees, as well as lessening the value of grants or raising the effective interest rate on student loans. This article identifies some of the historic resistance to cost sharing as well as its rationales-the most compelling of which is the sheer need for revenue, coupled with the increasing unlikelihood that African governments can raise enough revenue by taxation to meet currently underfunded social needs and simultaneously provide substantially more to meet the rising costs of higher education. The article identifies some limitations to the "dual-track" tuition policies in East Africa and some reasons for the many failures African countries have experienced with student loan programs. It cautions against the prevailing fascination with incomecontingent loans and makes recommendations, drawn both from theory and from the few empirical examples of "things that work." Résumé Dans le domaine de l'enseignement supérieur, le concept d'« augmentation de revenu » consiste à ne plus dépendre principalement (parfois exclusivement) du gouvernement ou du contribuable pour ce qui est des dépenses d'éducation, et à * An earlier version of this paper was presented to a conference, "

The World Bank Research Observer, 1993

Governments and universities have trouble reconciling the goal of keeping higher education widely accessible with the need to retrieve some of its costs from students. Student loans offer a plausible solution to the problem. But loan programs turn out in practice to have been a disappointing instrument of cost recovery: analysis of twenty-three programs found that students repay only a small portion of the value of the original loan. Subsidies, high default rates, and high administrative costs have eroded the value of repayments. Sometimes loan programs have proved as expensive as outright grants. This article argues that most loan programs could be reformed to improve financial effectiveness-through targeting, charging positive real interest rates, designing repayment plans to take account of the likely pattern of graduate earnings, and ensuring that the oversight institutions can and will collect. Or governments could explore alternative devices for cost recovery, such as a graduate tax. This approach levies a higher income tax rate on beneficiaries of governmentsubsidized higher education and thus preserves the idea, implicit in loan programs, of paying for education with future earnings. As part of an effective tax system, a graduate tax could bring in significantly more revenue than traditional loan programs. n the past thirty years, the most fundamental change in higher education policies throughout the world has been the attempt to democratize access. Rapidly expanding primary and secondary school enrollments, increased demands for skilled labor, and the growing perception of higher education as

Student loan programs are among the most complex, controversial, frequently misunderstood, and yet potentially important elements in the financing of higher education. Their importance stems from the increasing prominence of cost sharing-meaning the shift of at least some higher education costs from governments and taxpayers to parents and students-on the public policy agendas for higher education in most countries. 1 And yet the international higher education policy landscape is littered with loan programs that have either failed outright, or failed to accommodate the devilishly difficult policy balance between expanding higher educational participation and accessibility, while simultaneously expanding real cost recovery from students. This paper will look at student loans for higher education from an international comparative perspective, looking especially for the essential elements of lending and borrowing for higher education that lie beneath some of the more visible features of certain student loan programs, both in theory and in practice. We will examine especially the challenges of student lending in low-income, or "less industrialized," countries, as well as countries "in transition" from predominantly state-owned means of production and governmentally-controlled economies to market-oriented economies with substantial private ownership. We will search for possible explanations for the difficulties that many student loan programs in such countries have had, and suggest some principles for better accommodating the twin goals mentioned above. (In addressing much of this analysis to so-called developing and transitional countries, we do not equate the economies cultures, or especially the higher education systems of a typical "less industrialized" or "developing" country with those of the former Socialist countries of East and

2016

Discussion Papers present results of country analysis or research that are circulated to encourage discussion and comment within the development community. To present these results with the least possible delay, the typescript of this paper has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. Any maps that accompany the text have been prepared solely for the convenience of readers; the designations and presentation of material in them do not imply the expression of any opinion whatsoever on the part of the World Bank, its affiliates, or its Board or member countries concerning the legal status of any country, territory, city, or area or of the authorities thereof or concerning tbe delimitation of its boundaries or its national affiliation.

SSRN Electronic Journal, 2017

Developing countries intensively promote education abroad through financial aid policies. While some financially support students with scholarships, other countries prefer to provide loans. This paper provides a novel data-set containing characteristics of worldwide government-funded scholarship and loan programs supporting education abroad. The data allows us to identify unique stylized facts on these financing policies for middle and low income countries. We find that scholarship programs more frequently select students based on merit criteria, target graduate and postgraduate study level, and require recipients to return after studies than loan programs do. We build a two-country student migration model with government intervention to qualitatively account for the observed patterns. In our model, government intervention is justified for two reasons. First, students from a developing country are financially constrained and cannot afford education abroad. Second, the government values the productivity of "returnees" higher than the market does. We argue that when students are uncertain about their future productivity and may fail at their studies, scholarship programs can insure them against potential default. Consequently, if students differ in their expected ability, under certain conditions a government with a tight budget will prioritize ex-ante high-ability students and support them with scholarships with the return requirement, and support ex-ante low-ability students with loans without the return requirement.

2020

Purpose-The objective of this study was to review existing empirical and theoretical literature on the effect of higher education funding models, budgetary allocation, loan recovery and sustainability of students' loans schemes. Methodology-This is a critical review of theoretical and empirical literature on the effect of higher education funding models, budgetary allocation, loan recovery and sustainability of students' loans schemes. Findings-From the existing literature on higher education funding, most studies associate higher education funding to government support in order to meet the skills gap in their respective economies. The studies also indicate that as government budgets continue to be overburdened by other emerging issues sustainable government support in higher education is a reality dawning in most economies especially the developing ones. In this light governments are incorporating other stakeholders to give their support in higher education and that this is believed to increase at a rate higher than that for government support to finally have sustainable higher education by the establishment of a self-sufficiency mechanism. Further literature reveals that most governments are managing higher education funding through the establishment of Students' Loans Schemes in their quest for a self-sufficiency higher education funding mechanism. Moreover the studies reviewed are anchored on either Agency Theory, Stakeholder Theory, Financial Intermediation Theory or Resource Based Theory. The financial sustainability of students' loans schemes is considered paramount for such countries to achieve their optimal levels of higher education funding. Most of the past studies give mixed results with some linking the funding models to the sustainability of students' loans schemes, while others view loan recovery as a key component. Other studies still view that the sustainability of students' loans schemes is a function of budgetary allocation from the exchequer from such countries. There is a