Student finance schemes in Norway A case study Jan S. Levy

Transcription

1 Student finance schemes in Norway A case study Jan S. Levy

2 IIEP/WD/139021/R1 Student finance schemes in Norway A case study

3 The views and opinions expressed in this booklet are those of the author and do not necessarily represent the views of UNESCO or the IIEP. The designations employed and the presentation of material throughout this review do not imply the expression of any opinion whatsoever on the part of UNESCO or the IIEP concerning the legal status of any country, territory, city or area or its authorities, or concerning its frontiers or boundaries. The publication costs of this study have been covered through a grant-inaid offered by UNESCO and by voluntary contributions made by several Member States of UNESCO, the list of which will be found at the end of the volume. Published by: 7-9 rue Eugène Delacroix, Paris [email protected] IIEP web site: Cover design: Corinne Hayworth Typesetting: Linéale Production Printed in IIEP s printshop UNESCO 2004

4 Contents Executive summary 7 List of tables 8 List of figures 8 Preface to the series 9 Chapter 1. Introduction: objective 11 Chapter 2. The country context 13 The society 13 The education sector 14 Chapter 3. General overview of the development of the Norwegian student finance system 17 The starting point 17 The means-testing period 17 Introduction of a comprehensive system 18 Studying abroad 19 The administration of the system 20 Chapter 4. Recent reforms, present system: an overview 21 The Quality Reform 21 Overview 21 The student finance system at a glance 24 Subsidies of the system 26 Chapter 5. The administration of the system 29 The State Educational Loan Fund (Lånekassen) 29 Administrative facts and figures 30 Co-operation with higher education institutions 31 Handling of applications for support 31 Dealing with the repayments 32 Use of ICT and electronic applications 33 Budget and finance 34 Chapter 6. The Norwegian student finance system and private returns on education 37 5

5 Contents Chapter 7. Alternative objectives of student finance schemes and the Norwegian model 41 Main group of objectives 42 Effects of schemes on the achievement of objectives 43 Overview 52 Chapter 8. Some general experiences and possible lessons from the Norwegian model 57 References 59 6

6 Executive summary This case study describes the Norwegian student finance system, as it has developed since The study gives a short country background in Chapter 2, a general overview of the development of the system in Chapter 3; and in Chapter 4, it describes the system as it appears following extensive reforms in In this chapter special emphasis is put on analysing the level of subsidy in the Norwegian system, compared to that in other countries. Chapter 5 describes how the system is administered through the State Educational Loan Fund (Lånekassen). In Chapter 6 reference is made to the analysis of the Norwegian system and private returns on education. In Chapter 7 the system is analysed in the context of objectives being common to the development of student finance systems in other countries. A model presented by Adrian Ziderman is supplemented with additional objectives with relevance to the Norwegian system. This analysis shows that objectives of a social and societal nature are more prominent in the Norwegian system than in systems outside Scandinavia. In the final chapter some general experiences are synthesized. The hope is that they may also be of relevance to the development of systems in countries initiating student loans or grants. An important generic lesson is that many decisions regarding the development of student finance systems are taken implicitly. These decisions may still be crucial to the further development of any system of this long-term nature. 7

7 List of tables Table 4.1 Table 4.2 Table 7.1 Table 7.2 Table 7.3 Main figures from the Norwegian student finance system Public subsidies to the private sector as a percentage of total public expenditure on tertiary education, 1999 Alternative objectives of student loans schemes Additional objectives of student finance schemes in Norway Objectives and schemes for student finance support List of figures Figure 6.1 Figure 6.2 Figure 6.3 Life income in relation to length of education: males born in 1936, 1944, 1953 Life income in relation to length of education: females born in 1936, 1944, 1953 Life income in relation to length of education with 3.5 per cent discount rate: men and women before and after taxes 8

8 Preface to the series This book is part of a series of in-depth studies on the functioning of government-sponsored student support schemes. With increasing student flows from the primary and secondary education levels, higher education world-wide is facing obvious financial constraints, and universities have to develop new solutions in order to be able to develop in step with the demand for places. Globalization has created an unprecedented choice in studies for students from any country to study in any university anywhere in the world. Hence what is often fierce competition for home and foreign students between universities within countires, as well as between these and foreign universities. The introduction and increase of tuition fees are on the policy agenda of many countries which previously had free higher education. Cost-sharing has become an inexorable trend across the globe, and the question is not so much whether to accept it or not, but how to apply it: How to decide on the budgeting and allocation of student aid? What are the patterns, models, formulae and alternatives? How can it be projected in terms of needs, demand and governmental budgetary limits? What are the lessons learned so far? A joint endeavor by UNESCO Bangkok and IIEP has been exploring responses to these questions through a number of case studies conducting in different regions, starting with Asia. Since 2001, in close collaboration with the UNESCO Bangkok Office, several studies on the Asian region have been prepared and published, including P.R. China, Hong Kong S.A.R. China, the Republic of Korea, the Philippines and Thailand, to be followed by a regional comparative assessment. Others have been launched in other Asian countries, in Africa, and Europe, including transition economies such as Russia and Moldova. A database is also being set up by the IIEP on policies and strategies, and elements and variables of student support in higher education. 9

9 Student finance schemes in Norway A case study Dominique Altner, Chief, Planning and Sector Analysis Unit, UNESCO Bangkok, with support from Toshiyuki Matsumoto, Assistant Programme Specialist, PSA were at the origin of this challenging project. Adrian Ziderman, Professor of Economics at Bar-Ilan University, Israel, acted as UNESCO international lead consultant. At the IIEP, Serge Peano, Team Leader, Educational Finance, and Igor Kitaev, Programme Specialist, were in charge of implementing this project. It is evident that even if each country case is context-specific and subject to historical traditions, the situation must be re-examined in the light of globalization processes. And, while grants should be well targeted to the needy and deserving, student loans should be well designed and administered to become a sustainable cost-recovery mechanism, rather than a hidden grant. Increased accountability and banking transparency should help to achieve a higher repayment rate. The correct division of labour between governments, universities and the private sector appears to be essential. 10

10 Chapter 1 Introduction: objective The question of public support to the financing of students living costs and/or tuition is increasingly on the policy agenda in many countries. Many developing countries have introduced schemes to help to increase recruitment to higher education; others are looking for arrangements that could be introduced within their financial and political possibilities. Most developed countries have a long experience with the development of such schemes; but the schemes vary greatly between countries, and between regions. The Norwegian model, which is described briefly in this study, may be representative of the approach of the Nordic countries in this respect. For a long time these countries have had rather generous systems, with limited means-testing, as part and parcel of their welfare society model. The model must be seen as a reflex of a society that redistributes more private income through public funding than most other countries, and where private income distribution is quite narrow. Thus, it has for a long time been considered that parents cannot be expected to pay for their children s education after finishing upper secondary school. Furthermore, the system has, up to now, been based on a policy whereby all tuition costs in ordinary education up to Master s Level are paid for by the government. Most countries are not in a position to offer this generous support. Nevertheless, the development and different choices being made during the development of the system might have general interest. The study therefore places emphasis on questions that have to be addressed in most systems, regardless of the level of subsidy. The study has been restricted mainly to support schemes for students in higher education; schemes for students in upper secondary schooling are mentioned, but not discussed. 11

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12 Chapter 2 The country context The society Norway is one of the countries considered representative of what is called the Scandinavian model 1 that has been applied to the contemporary form of social democracy, with its concern for social justice and universal social rights, the well-being of all people and a high level of public welfare. These are combined with a large, institutionalized public sector including education, and the concept of a well-informed and responsible public (OECD, 2002a). Norway has a population of 4.5 million (2001). Whilst its culture and traditions have been remarkably homogeneous, politics and education have been affected by the geography of the country. Much effort is required to sustain communications and relationships over the long north-south trajectory, reaching from the North Sea far into the Arctic. There exists a strong, common political commitment to ensure good living conditions in all parts of the country, despite wide variations in climate, employment possibilities and infrastructure (OECD, 2002a). The Norwegian economy has developed extensively since the Second World War. During the last three decades, with the impetus of the oil industry, the national income has increased substantially. In 2001, the per capita GDP was US$30,166 sixth position in the OECD area (OECD, 2002b). Due to direct state income from oil production on the Norwegian continental shelf, the government budget has a surplus. Nevertheless, to avoid high inflation and uncontrolled increases in the cost of labour, the finance policy has been to restrict a rise in public spending. At the same 1. In political terms, Scandinavia consists of the countries of Denmark, Norway and Sweden. The Nordic countries also include Finland and Iceland. In the description of a society model, the two terms may for most purposes be used indifferently. Adding to the complexity, it may also be mentioned that geographically speaking the term Scandinavia covers the Scandinavian Peninsula this being Norway and Sweden. 13

13 Student finance schemes in Norway A case study time, there exists an underlying growth in pensions and health care, calling for yearly budget cuts in other public finance sectors. The Norwegian public sector is organized into three administrative levels. As far as education is concerned, the most important features are as follows: The State has an overall responsibility for the whole education sector, and administers universities and university colleges directly. The Ministry of Education and Research is responsible for this. The country is divided into 19 regional entities, counties (fylker), having from 75,000 to 510,000 inhabitants. The counties are responsible for upper secondary education, including both academic and vocational training. The country is organized into 434 local units municipalities (kommuner). These are responsible for running day-care child institutions, and public primary and lower secondary schools. Norway is not a member of the European Union, 2 but is associated with the Union through a special agreement on the European Economic Area (EEA). 3 This makes Norway a part of the internal market. Norway also takes part in all EU educational programmes. The education sector The education sector covers ten years of compulsory schooling (6-15) with 100 per cent participation. Everyone between the ages of 16 and 19 is entitled to 3-4 years of upper secondary schooling. The participation rate is high, and more than 90 per cent of the age cohorts are engaged in education at the age of 17 (OECD, 2002c). Upper secondary schooling is organized within one comprehensive framework leading to both general and vocational examinations. The general entrance condition for higher education is achieved after passing three years of general upper secondary education, but may also be achieved by vocational means, with some additional courses. 2. Both in 1972 and 1994 Norway negotiated an EU-membership agreement, but entry on both occasions was rejected by a popular majority through referendums. 3. The agreement includes all EU members on the one hand, and Iceland, Liechtenstein and Norway on the other. When established, the agreement also included three additional EFTA countries Austria, Finland and Sweden becoming EU members in

14 The country context Higher education is organized at the national level, through a system of state-owned universities, specialized universities and university colleges. Institutions are located in all counties in all parts of the country; 88.6 per cent of the students are enrolled in these institutions. In addition there are thirty recognized private institutions of higher education, with varying direct state subsidies, enrolling 11.4 per cent of the students; 20 of the private institutions are partially state subsidized. 4 There are no tuition fees in state institutions for the provision of ordinary studies. This is described in more detail in Chapter 7. Private institutions may charge tuition fees, depending on the degree of public financing. Institutions whose courses are fully financed at the same level as state institutions, are not supposed to charge fees. Overall capacity in higher education is high, and has increased substantially during the last fifteen years. In 1990 there was a capacity for 90,000 students, but in 1996 this increased to 170,000. In addition, there was an enrolment of 21,000 in 2001 in private higher education institutions. This capacity has been more or less maintained in the following years. The net entry rate 5 is 59 per cent, with the OECD country mean being 45 per cent (OECD, 2002c). As is the case in all Nordic countries, entry into higher education tends to be stretched over a wider age range than in most other countries (for example, 80 per cent of new entrants was not reached before the age of 29.6 years, compared to Germany 24.3 years and the United Kingdom 25.4 years (OECD, 2002c)). This fact, combined with a tendency to attend higher education for a longer period than the average in OECD countries, may contribute to the understanding of the importance of some general social features in the Norwegian support system, described later in this study. Additionally, there exists a certain provision of vocational post-secondary, non-higher education courses. Those courses attract, in total, the equivalent of approximately 20 per cent of one age cohort. 4. Separate law covers the private sector, and capacity is regulated through yearly decisions in parliament on institutional state support. Increased enrolment may also be financed directly through fees or other institutional incomes. Student finance schemes are described in Chapter Referring to the OECD definition of net entry rate in tertiary Type A institutions. In addition there are entries into Type B institutions. For further reference see OECD, 2002c: Ch. C2. 15

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16 Chapter 3 General overview of the development of the Norwegian student finance system The starting point A national system of student loans was established in 1947, as part of the post-war common reconstruction programme. The goals were twofold: (a) to facilitate access to higher education for applicants from all parts of society, and (b) to meet the growing demand for a labour force with relevant qualifications. The system was started by the establishment of a state institution for student loans, primarily taking over loans schemes that had existed at different institutions of higher education before the war, and which had been organized locally. The loans were given after means-testing (parental economy), and following an individual assessment of the student s plans and progression. Loans could be given for studies in higher education in Norway or abroad. The loans were subsidized with a zero interest rate during the time of studies, and a fixed interest rate afterwards. Repayment of loans gave the right to income deductions before payment of taxes, for the payment of interest as well as repayment of capital. The means-testing period During the 1950s various grant schemes were developed, and gradually transferred to the state institution for administration. Grants were given to students both in general secondary education, to vocational education and to the so-called folk high schools not providing public examinations or credits. Common to all the schemes was rigorous meanstesting. In the early 1960s the system consisted of the following meanstested support elements: (a) a loans scheme for higher vocational education and university education; (b) a grants scheme for the same groups; (c) a grants scheme for students in general secondary education; and (d) a grants scheme for vocational training at secondary level. 17

17 Student finance schemes in Norway A case study All schemes were means-tested on parental income and assets. Loans were interest-free during time of study; the interest rate was subsidized afterwards. New loans after 1961 could not, however, be deducted from income during repayment. During the 1960s, demographic development substantially increased the demand for higher education. Means-testing was criticized as being a barrier to increased participation. A royal commission proposed comprehensive reforms of the system, and a revised system was decided by Parliament in Important features of the new system were as follows: A common grant for students who had to leave home for their secondary and higher education (criterion: distance between home and educational institution); the grant was not means-tested. Loans should still be given free of interest during time of study; meanstesting were sustained. The state institution had the sole responsibility for the administration of all student loans and grant schemes; this was named the State Educational Loan Fund. 6 Following this reform the income levels for means-testing on loans were gradually increased, and means-testing to parental income for students in higher education was finally removed in Technically, this was achieved by introducing a principle that the coming of age which at that time was 20 years should represent the borderline between dependence and independence from parents. Below this age, meanstesting was sustained. Introduction of a comprehensive system This system remained mainly unchanged throughout the 1970s. At the end of the decade it came under heavy student criticism, due to insufficient total support and a deteriorating proportion of grants. On the basis of a new commission report in 1984, Parliament decided on a new integrated system whereby loans and grants were calculated automatically as part of an overall support; this was revised by Parliament according to changes in general living costs. The system also included schemes giving 6. In Norwegian: Statens lånekasse for utdanning. Short form: Lånekassen, which will be used in this study. The direct meaning of the word is The Loan bank. 18

18 General overview of the development of the Norwegian student finance system extra support to student families, and also to compensate for long journeys from home to the place of study, etc. The problem with this reform, however, was the proportion given as a grant for a single student living away from home. There was also increasing criticism on repayment conditions. The general interest rate became high and student loans followed suit. Loans had a zero interest rate during the time of study, but the financial burden on the newly educated became serious when they started repayment at the same time as they established themselves with a home and family. There were also concerns about the system not giving incentives to finalize the study period. On the contrary it was argued that the system of zero interest rate while studying, gave incentives to prolong study periods, and thus postpone the repayment period. Over several years, many changes came about: (a) the introduction of a premium for completing long studies; (b) increased grants as a proportion of total support; and (c) improved repayment schemes, where income was taken into account. Studying abroad As mentioned above, since its establishment, the Norwegian system allowed for the financing of studies abroad. This was then due to a severe lack of study possibilities in Norway, especially in important fields of study needed for the reconstruction of society, such as engineering and health sciences. This feature has been kept as an important part of the Norwegian support system following the growth of the national educational system. Even today, when a general surplus capacity in the system exists, the conditions of studying abroad are so favourable that approximately 10 per cent of Norwegian students take a full degree course abroad. The arguments for maintaining this possibility have, however, changed. Today the main argument is the need for the internationalization of higher education and research, based on the notion that a large proportion of the candidates will return to Norway and contribute to research and the development of academic life in Norway. Besides, it is considered important for Norwegian business and industry, being heavily dependent on export/ import, to have a broad international competence. In general, candidates from abroad are highly appreciated in large companies in Norway. 19

19 Student finance schemes in Norway A case study The support scheme for students abroad has two main features: first, students are free to take their ordinary student support with them for studies in any country, in any discipline leading to a degree at Bachelor, Master or Ph.D. levels. 7 Secondly, in special fields of study approved by the Norwegian Parliament, the student is awarded an extra grant for the payment of tuition fees abroad, up to a certain level (approximately 6,500). 8 The administration of the system The same governmental institution has run the system since 1947, although its responsibility and name has changed over time. The authority, the State Educational Loan Fund (Lånekassen) has been in charge of all functions related to the administration of the schemes, in close co-operation with the ministry and the educational institutions. It is thus in charge of planning the activity, the development of support schemes, rules and regulations, the handling of applications for support during studies or relief in repayment, and for administration throughout the repayment period. Payments are made through the ordinary banking system. Loans suffering from severe default in repayment have been transferred permanently to the State Agency for the recovery of fines, damages and costs (Statens Innkrevingssentral). The administration is described in greater detail later. 7. Before 2002 the support exceeded the support given to students in Norway, in order to cover extra living expenses when away from home. Coupled with the increase in national support through the Quality Reform, this has changed. This was also based on the fact that living costs are high in Norway compared to abroad. 8. In a few selected high standard universities, this grant may be doubled. 20

20 Chapter 4 Recent reforms, present system: an overview The Quality Reform Recent reform of the support system is a result of decisions on a major reform of Norwegian higher education the Quality Reform. The main principles on the reform were laid out through Parliament decisions in 2001, and the legal, budgetary and systemic changes were in place by summer Major objectives of the reform have been increased student participation and improved outcome of studies. In order to enhance learning yield and progression, emphasis shall be placed on teaching methods involving a high level of student activity. This may imply a larger workload for students and a better utilization of the whole academic year. For this reason, the student finance system has been revised, mainly in three ways: (a) ordinary educational support is increased to enable full-time studies; (b) the grants proportion is increased to 40 per cent of total support to reduce repayment burden; and (c) grants amounting to 25 per cent are payable upon commencement of studies. The remaining 15 per cent is conditional on the completion of the course, and is converted from the loan already paid out. Along with the reform, some earlier schemes have been reduced or removed, as a trade-off for the increased total finance. This is also to make the system more transparent. Overview To sum up, the Norwegian support scheme (for students in higher education) in 2003 is given below. The system for upper secondary education is currently under revision, and will not be referred to here. To 9. The reform will be systematically evaluated by the Norwegian Research Council (NFR), over a period of three years following its implementation. 21

21 Student finance schemes in Norway A case study enhance comparison with other studies, the different schemes are described under similar headings to the Eurydice study (1999: Pt I, Chap. 1-6). Registration and tuition fees No tuition fees are paid for ordinary studies in state-owned higher education institutions. Students in private Norwegian institutions may have a loan for the payment of tuition fees limited to 20,860 Norwegian kroner (NOK) per year (approximately 2,610). State institutions may charge a small registration fee (approximately 100 a year) to cover various student services. This expense is meant to be met by the general support as described below. Grants and loans Students in higher education (both public and private) may have support for their normal study time. This may be for a maximum of eight years; they may be supported one year longer through delays or unfinished courses. Each student may have a base support of NOK8,000 per month (approximately 1,000). Of the base support 25 per cent is given as a grant upon payment. An additional 15 per cent may be converted from a loan to a grant upon completion of the actual course. 10 Loans are interest-free for students during the course of studies for the time that he/she is eligible for support. The interest on the loans is automatically calculated on the basis of official state loans. The repayment period is set to a maximum of 20 years. Smaller loans may have a shorter repayment period. Students finishing certain long studies are entitled to have the total debt reduced through a loan write-off scheme. For a study programme of five years, the reduction is NOK22,535 ( 2,800). This 10. As from the academic year 2004, 40 per cent of the base support may be subject to conversion from loan to grant, meaning that the entire grant will be made conditional to completion of the actual course. 22

22 Recent reforms, present system: an overview scheme will be removed for new students as from the academic year 2003/2004. Cash benefits available to families with student children Students living with their parents are not entitled to grants, but may receive the support as a loan. There are no benefits to families with children attending higher education. On the other hand, student grants and loans are not meanstested to parental income. Other social benefits Other grants (in addition to the general grant) may be given to students with children. This grant is means-tested to the spouse s income. Grants may be reduced according to income, pensions or social benefits received by the student. Students under 25 may be given a travel grant of up to NOK7,000 a year, for three return trips to their parent s home. This grant is not means-tested. Students are entitled to medical treatment as for other citizens. In addition, in the three largest cities with the highest student population, special health services have been provided for students. Professionals at work in specific regions of the country will have their debt to Lånekassen reduced by 10 per cent of the initial debt up to a maximum of NOK16,500 for each working year in the region. After finishing studies, or periods of illness, child-birth, child-care, unemployment or other specific social causes, students may be entitled to a zero interest rate for a limited period, and for the extension of the repayment period. Debt may be reduced or cancelled through permanent loss of working ability. All debt is cancelled in the case of the death of the debtor. Support for study abroad Students taking education abroad can use their support to finance degree studies at Bachelor s, Master s or Ph.D. level. 23

23 Student finance schemes in Norway A case study Students abroad may get travel support for two return trips between Oslo and the institution (70 per cent grant, not means-tested). Students abroad may receive a tuition grant up to a maximum of NOK52,320 in some professional areas. 11 The student often has to pay fees exceeding this. Supplementary grants can be granted to students studying specific subjects at specific educational institutions. Language grants can be offered to students taking a language course in order to complete an education at a university where English (or a Scandinavian language) is not used. Support for foreign students Nordic citizens, studying in another Nordic country, have the right to student finance either from the home country or host country. EU/EEA citizens living and working in Norway are treated according to EU rules regarding the right to Norwegian student finance for themselves and/or their children. There are regulations to ensure student finance support to immigrants and refugees on certain conditions. Lånekassen offers a programme to a limited number of students from Central and Eastern European countries and developing countries, for the finance of studies in Norway on equal terms as Norwegians. Candidates returning to stay in their homeland after completion have their debt from Norwegian student loans written off. The student finance system at a glance Table 4.1 gives a synopsis of the student finance system in Norway. Figures concerning the administration of the system are listed in Chapter 5. The three years are chosen to reflect the growth in student 11. As from the academic year 2004, part of the former grant for tuition will be given as loan. 24

24 Recent reforms, present system: an overview numbers in the first part of the 1990s, followed by a stagnation in growth and the substantial increase in grants from the mid-1990s and later. Economic values are given in Norwegian kroner (NOK8 = 1). Table 4.1 Main figures from the Norwegian student finance system 1993/ / /2002 Number of recipients, 224, , ,997 all support Number of recipients 159, , ,754 of loans Number of recipients 199, , ,481 of grants Number of recipients 121, , ,773 in higher education Higher education recipients 113, , ,346 of loans Higher education recipients , ,353 of grants Received support per student 53,812 59,578 62,976 in higher education (NOK) Received loans in higher 44,182 41,368 45,869 education (NOK) Received grants in higher 9,630 18,210 27,219 education (NOK) Number of applicants for 8,348 11,905 15,039 studies abroad * Average loan at end of higher 183,587 ** 174, ,433 *** education studies (NOK) Number of debtors in 428, , ,968 repayment position Total debt (NOK) 48,197 57,957 69,059 * Full time studies of higher education. ** Figures as 2001 value. *** Figures 1998 and 2002 as 2002 value. Source: Lånekassen annual reports. 25

25 Student finance schemes in Norway A case study Subsidies of the system Total subsidies Obviously, the Norwegian system is very costly. But it may be difficult to give a precise illustration of the cost in the system, compared to other educational expenditures and to other countries. The most recent international comparison is given in the OECD publication Education at a glance (OECD, 2002c), and is referred to here as an illustration. Table 4.2 shows public subsidies to the private sector as a percentage of total public expenditure on education, and sums up scholarships/other grants to households and student loans. The evaluation of this comparison should take into account that some countries are channelling parts of the institutional finance through loans schemes to students. This fact counts for the major part of student loans in the United Kingdom, and contributes also to loans in Australia and the Netherlands. Looking at the net figures, it is noted that Denmark, Sweden and Norway have the highest proportion of subsidies aimed at covering students living costs. The subsidy of interest on loans The Norwegian system differs from most other countries in the treatment of loans, providing interest-free loans during the period of study. 26

26 Recent reforms, present system: an overview Table 4.2 Public subsidies to the private sector as a percentage of total public expenditure on tertiary education, 1999 Country Scholarships/ Student loans Total Scholarships/other grants other grants to households attributable to households to educational institutions Australia Canada m Denmark m Netherlands New Zealand 22.2 a 22.2 (incl.) Norway n Sweden (incl.) United Kingdom United States (incl.) OECD mean Notes: m: Data not available incl.: Data included in another category or column in the table n: Magnitude either negligible or zero a: Data not applicable because the category does not apply Source: OECD, 2002c. It may be difficult to overview this component of the cost structure. It may be argued that the actual cost of the loans schemes have from time to time been underestimated politically. This relates both to the cost of zero interest rate during studies, and the cost of subsidies during the repayment period. This may be of some interest since loans schemes are the far most popular alternative when introducing student finance systems in a country. There is often a notion that a loans scheme may be more or less self-sustainable, presuming that the repayment of loans will contribute substantially to the financing of future loans. In the Norwegian model, the cost of loans schemes has been considerable during the period of loan repayment. Some elements can be mentioned: (a) zero interest during the period of study; (b) frequent subsidies due to politically motivated low-interest rates following the study period; (c) tax deduction schemes related to the payment of interest; (d) gradual development of interest-free periods during repayment; and (e) the debtor s failure to comply with the repayment demands resulting in losses the loans not having security. 27

27 Student finance schemes in Norway A case study A public commission (NOU, 1992) stated that over time, the cost of the loans scheme appeared to be one-third that of a grants scheme giving equal payment to the student. This figure may differ from scheme to scheme. Some loans schemes are probably more expensive. It may, nevertheless, be difficult to prove that loans schemes are self-sustainable See also the conclusions of a World Bank report referred to in the publication (World Bank, 2002: 95). 28

28 Chapter 5 The administration of the system This chapter describes, in more detail, the administration within the institution. The State Educational Loan Fund (Lånekassen) Governance Lånekassen is established through an Act of Parliament. The Board is appointed by the King, 13 and consists of five members, two of those being appointed following a proposal by student organizations. The other three (chairman and vice-chairman included), are freely elected, but will normally represent different political orientations. The Board makes proposals to the ministry on major decisions, especially yearly revisions on rules and regulations, the overall budget for student finance, and the budget for the institution itself. It also proposes the appointment of a managing director to the ministry. The Board makes comments on policy proposals put forward by the ministry, and is also free to forward policy proposals within its domain. The Board decides on specific rules and routines to guide the administration. It also decides on the administrative budget within frames set out by Parliament. An appeal body is established independently of the Board. It is appointed by the Ministry of Education and Research. The appeal body has final authority regarding all individual complaints from students and debtors to decisions taken by Lånekassen. 13. For practical purposes, this means a government decision. Decisions taken by the government as a whole are, in Norway, taken in Council with the King (in Statsråd), after a proposal by the relevant minister. 29

29 Student finance schemes in Norway A case study Organization Lånekassen is an authority directly under the Ministry of Education and Research. Its main office is in Oslo. The institution is led by a managing director, being appointed by the King, after a proposal by the Board to the ministry. It is organized into six departments and staff services. The departments are: Administration, Customer Services, Economy, Development, Support and Repayment, Collection Proceedings. The Department of Support and Repayment is organized into 10 regional offices, each one responsible for handling all the applications related to its region. Five of the offices are localized in the central office in Oslo, dealing with applicants studying in or living in the central eastern areas of the country. The five other offices are located in Stavanger, Bergen, Ørsta, 14 Trondheim and Tromsø, each covering nearby districts in the western and northern regions of Norway. The Department of Collection Proceedings has three offices, all handling default re-payers. Administrative facts and figures Following are some figures relating to 2001: Administrative budget: NOK236.9 million Number of employees: approximately 370 Number of clients: 720,000 (applying for support/repaying loans) Number of processed cases: 616,000 Recipients of support (financial aid): 227,344 Number of clients repaying loans: 468,968 Number of accounts subject to collection proceedings: 44,700 Average handling time, applications for support: 10 days Average handling time, applications regarding repayment: 20 days. (Source: State Educational Loan Fund: Annual Report 2001, Oslo, 2002). 14. Some places in the document the letters Æ, Ø and Å may be found in Norwegian names. Scandinavian alphabets have these three vowels, in addition to the English alphabet. The letters are pronounced as follows: Æ (German Ä) as United States a in last; Ø (German Ö) as the first e in merge; Å as English a in call or small. 30

30 The administration of the system Co-operation with higher education institutions There is close co-operation between Lånekassen and institutions of higher education. The main subjects for co-operation are: (a) exchange of data on students, examinations, degrees; (b) exchange of data on studies; (c) information to students; and (d) distribution of loans and grants. Processing in Lånekassen is computerized, and is dependent on accurate registers on the students and their studies. Administrative computer systems at the higher education institutions and Lånekassen are therefore co-ordinated, using common identification codes and numbering. The exchange of data is restricted to what is needed for the different institutions needs, according to regulations under the Norwegian Personal Data Act of The exchange possibilities will be more extensively utilized when the loan to grant conversion system is in effect, since this will be dependent on information obtained on each student s gained credits. The higher education institutions play an important role in informing students, since Lånekassen have a limited administrative capacity to meet individual information needs. Study advisers, teachers and administrative personnel at higher education institutions are therefore an important target group for Lånekassen s information activities. The distribution of loans and grants are described in a later chapter. In order to verify that students enter into the planned study, initial financial aid is provided as a payment order directly to each student at the beginning of each term. The student then has to personally sign a loan document. This is supervised under the auspices of the admission office at the university. The institution also reports on students abandoning studies during mid-term. Handling of applications for support Applications are submitted and forwarded either through the institution, or directly. They are then forwarded to the appropriate regional office, where they are scanned for registration. These applications are registered and, unless further queries are raised, are processed automatically by the computer. Other applications are first handled manually. A physical file is established and archived only if there are 31

31 Student finance schemes in Norway A case study paper enclosures to the application. The application form itself is stored according to date of registration. The computer system produces the necessary lists and documents. Most important is the payment document; this is given to the customer by the institution of learning. This contains a loan document to be signed by the receiver and returned to Lånekassen. The rest is sent by a payment order, entitling the bearer to receive first payment (20 per cent) from the bank or post office. The rest is reimbursed monthly to a bank account. At present, Lånekassen is investigating the possibility of an electronically distributed payment order, being dependent on a reliable working electronic signature system. Students abroad receive a loan document directly. Money is reimbursed to a bank account following the return, by post, of the signed loan document. Controls are being executed regularly through the learning institution, and also through registered information on school attendance, private addresses, and the personal income of the student. False or omitted information may result in an obligation to repay immediately and/or loss of entitlement to further support. Dealing with the repayments When the student has finished the study, a repayment plan is generated automatically. The loan is charged with interest from the first month after the end of the study period. The plan is sent to the customer approximately four months later. The delay is to give the customer time to apply for support if commencing new studies; this may stop the repayment plan being produced. He/she may react to this if continuing study without support, or if he/she has any legal right to a reduced interest or postponed payment. The customer may repay the debt more quickly than that proposed by Lånekassen. Normally, the first repayment is due seven months after completion of the studies. Applications for social benefits during the repayment period must be submitted on the relevant forms. They should be accompanied with official documents confirming the reason for the application. The application is registered in the computer system, but treated manually by the relevant 32

32 The administration of the system regional office. Letters containing decisions, and the execution of decisions, is taken care of through the computer system. Customers not being given relief, and not paying their dues, are informed of the immediate termination of the loan. If there is no reaction, they are informed that there is to be a collection procedure of the outstanding debt. It is still possible to contact Lånekassen for the establishment of an individual repayment scheme. If there is still no reaction, the case is transferred to the State Agency for the recovery of fines, damages and costs (Statens Innkrevingssentral) who execute the collection procedure. For customers abroad, private companies or law firms in the foreign country are used. Statens Innkrevingssentral may claim directly from the customer s salary or social security payments, or in assets such as an apartment, house, shares or bank accounts. If repayment is effected, Lånekassen will again work with the client. If the case is not settled within three years, Statens Innkrevingssentral will be permanently in charge of the case. Use of information and communication technologies (ICT) and electronic applications Increasingly, the use of net-based customer contact has become part of Lånekassen s profile. Students at an institution of higher education may now enter an application electronically. In addition, all customers may have their own personal page with personal Lånekassen information. This page enables electronic applications, and a full review of last year s accounts and future repayment plan. Lånekassen s home page also enables the simulation of various loans and repayment schemes, access to lists of institutions abroad, and the possibility of ordering many kinds of information material. Lånekassen is planning major investments in the renewal of its ICT systems, to improve information, flexibility and efficiency in customer affairs. 33

33 Student finance schemes in Norway A case study Budget and finance Finance Overall, the system is financed by the state. In state budget terms, this means that grants, interest subsidies and write-off schemes and other losses are financed through yearly budget grants. New loans each year are financed through incomes from the repayment of loans, and new loans that Lånekassen will obtain from the National Bank. In the year 2001 the actual figures for these transactions (in million NOK) are as follows: Expenditure Total grants 4,993 Total grant to cover interest subsidies** 1,444 Write-off schemes 427 Other losses from default repayment 452 Administrative costs 237 Loans New loans to clients* 6,842 Loans re-paid by debtors 3,559 Incomes Interest paid by clients** 3,035 Fees on repayment 125 Some balance figures Outstanding loans 66,050 Outstanding interest 3,009 * Figures relates to the study year ** Interest subsidy is a calculated difference between interest charged Lånekassen by the National Bank and the calculated income from outstanding loans. Source: State educational Loan Fund: Annual report 2001, Oslo, The budgeting routine The budget follows a proposal from Lånekassen, based on the latest observed utilization patterns for the different schemes, demographic changes, policy decisions following changes in the number of students taking studies, observed trends in repayment patterns and the proposals of the Board on changes to the rules. The proposal always contains an alternative prolonging the existing rules. Lånekassen has developed 34

34 The administration of the system computer models for simulating the effects of changing different parameters. During the budgeting process, this proposal is adjusted to the overall budget decisions, to the final decisions on student numbers, and to the government decision on rule changes. Parliament makes a final decision by the end of the fiscal year, ahead of the budget year. New rules regarding loans and grants come into effect from the next academic year (1 August). Changes in rules on repayment will follow fiscal year. The budget frame may be adjusted during the year, according to the number of eligible applicants, their actual use of the system, and unforeseen changes. These changes will in most cases be considered a technical issue. The rules normally stay for the upcoming budget/academic year, since they are considered as generating individual rights for the applicants. In view of any developments, the budget frame is normally technically updated by the end of June, taking into account the revised prognosis for student attendance and then, based on revisions due to observed changes, finalized in October. The administrative budget follows the ordinary budget routine for state institutions. 35

35

36 Chapter 6 The Norwegian student finance system and private returns on education To some countries, it may look paradoxically that beneficiaries of higher education should be subsidized to the extent of that done in Norway. Normally, graduation from higher education gives considerable private returns through better-paid jobs. This is, however different in Norway. A recent survey from the Frisch Centre of the University of Oslo (Raaum et al., 1999) deals with the level of education and individual life income. The survey shows changes in life income depending on the number of years of formal education, and on gender. Three cohorts were studied, those born in 1936, 1944 and The main results may be summarized in this way: Longer education does, in general, have a small effect on individual life income. Though life income increases with the length of study, groups with the longest period of education do not earn over 1.5 times the reference group of those with twelve years of education. The premium with studies of more than 12 years is not linear; for example, there is a relatively better pay-off after one or five years extra education than two, three or four years. The premium is better for women than for men. This is probably due to the fact that higher educational levels for women result in a higher degree of employment, both concerning the number of years and type of full-time job. A similar effect is not observed in the male cohort. However, the study underlines that income levels are still generally lower for females than for males, even when compared to males with considerably lower educational achievements. 37

37 Student finance schemes in Norway A case study The later cohorts seem to have reduced benefits from extra education. The survey gives some indications, however, to a recent increase, without showing firm results in this respect (Figures 6.1, 6.2 and 6.3). In addition, there is a strong political will in Norway to keep income differences as low as possible. It is generally considered that without a favourable student finance scheme, it would be difficult to defend such a policy. The higher educated would have a stronger case than other groups in wage negotiations for an increase in their salaries. Parents might have a stronger case in arguing for tax schemes to be able to pay for higher education for their children. The result would be less equal distribution of income, both between generations and between different personnel groups. A generous student finance scheme is underpinning narrow distribution of incomes. The modest individual premium for taking long and expensive studies is used as argument for further improvement of the student finance scheme. To illustrate the findings see the figures below. Figure Life income in relation to length of education: males born in 1936, 1944, 1953 Life income in relation to 12 years' education Education Note: The chart illustrates the increase in actual life income, dependent on the length of education. The X-axis represents the length of education, the Y-axis a relative scale of life income (12 years education having the value of 1.0). Source:Raaum, Aabø and Karterud, 1999:

38 The Norwegian student finance system and private returns on education Figure 6.2 Life income in relation to length of education: females born in 1936, 1944, Life income in relation to 12 years' education Education Note: The chart illustrates the increase in actual life income for females, dependent on length of education. The X-axis representing length of education, the Y-axis a relative scale of life income (12 years education having the value of 1.0). Source:Raaum, Aabø and Karterud, 1999:

39 Student finance schemes in Norway A case study Figure 6.3 Life income in relation to length of education with 3.5 per cent discount rate: men and women before and after taxes 1.8 Life income in relation to 12 years' education Men, before tax Men, after tax Women, before tax Women, after tax Education Note: The graph shows the average of the three cohorts, separately for male and female, before and after taxes, and using a discount factor of 3.5 per cent. This takes into account the presumption that income earlier in life has a higher value than income later. X and Y axes are the same as in Figure 6.1. The lines represent (from top to bottom at the right): female before taxes and after, male before taxes and after. It shows both the effect of taxes and the reduced value of education, when discount is applied. It also shows that females earn more from longer education than males. Source:Raaum, Aabø and Karterud, 1999:

40 Chapter 7 Alternative objectives of student finance schemes and the Norwegian model Student finance systems tend to increase in complexity during their development. As shown, the Norwegian system has many different elements working in different ways, and with different objectives. In this chapter it is intended to relate the different schemes to the many objectives that may be seen as part of the total student finance concept in Norway. To that end, Adrian Ziderman s model has been developed as a startingpoint. The model is drawn from his article in the Welsh Journal of Education (2002), and offers a group of alternative objectives of student loans schemes (Tables 7.1 and 7.2). He presents a matrix to analyze the objectives of student loans schemes. One of his points is to identify how student loans are used in the context of cost-sharing/income-generating on the institutional side. This point is not that relevant in Norway where loans are used to this end to a very small extent. Loans are only one of the main features of the Norwegian model. Ziderman s table also gives a method for analyzing the Norwegian system, given that some objectives are added. Below, based on Ziderman, is an analysis of the extent that the different student finance tools are contributing to the achievement of goals and objectives in the Norwegian system. The objectives in the Norwegian system are broader than in the original model. In general, the listing is based on the objectives put down in the Norwegian law on the student finance system, in the government budget proposal, and in the documents preparing the Quality Reform (Norwegian Ministry of Education and Research, 2002). The relevance of the different objective groups in the Norwegian context, with an explanation of the rationale behind the revised list, is given below along the effects of the different actions taken, related to the different goals. Finally, there is a summary in a table format. 41

41 Student finance schemes in Norway A case study Main group of objectives Objectives 1 and 2: Budgetary and the financing of university expansion. This is of little relevance in Norway due to tuition fees not being allowed for state-financed provision in public institutions. 15 There are, however, some possibilities for public institutions to take fees related to education. Two alternatives should be mentioned: Public higher education institutions may offer courses for students, payment being considered as part of adult education and/or further education. The provision must be given in addition to the provision they are obliged to give within their base budget. Students have the right to present themselves for examination, even if they are not enrolled at the university. They may, in these cases, be charged fees for examination costs. The question of making special loans schemes available to cover these costs has not been brought up. Private higher education institutions have, however, the right to charge fees from their students, even if institutions are partly subsidized from the state. There is a loans scheme established for this purpose, being relevant to this objective. Objective 3: To enhance equity through increasing access for the poor. This has relevance to the overall system, and is one of the major objectives mentioned in the law. As we will see later, the system today is not designed in a way that gives special advantages for the less privileged groups. Objective 4: Manpower needs. This is specifically mentioned in the law on student finance. Objective 5: Student assistance. This will, in practice, be the main objective in the Norwegian system. 15. The arena for financial and budgetary discussions on the maintenance, development and expansion of higher education provision clearly exists in Norway, but has, up to now, been placed outside the debate on student finance. 42

42 Alternative objectives of student finance schemes and the Norwegian model In addition, the following objectives have been added: Objective I: Individual social needs. This refers to central features within the Norwegian system, being a reflex of the welfare-thinking penetrating society. Instead of relying solely on general systems for subsidizing student s individual needs, the student finance system will also be used to meet special economic needs, deriving from birth, family responsibilities, illness, unemployment and so on. In some cases the student finance system is the only welfare arrangements available for the person in question. Objective II: Contribute to regional development. This is partially reflected in the law, but has become a central parameter in the design of some of the schemes in operation for a long period. It may therefore be argued for this to be considered as a separate objective. Objective III: Internationalization. The government has, in its budget proposal for 2003 regarding student finance systems, highlighted the internationalization objective (Norwegian Ministry of Education and Research, 2002). Objective IV: General income distribution goals. This is discussed in a green paper (NOU, 1999), which constitutes part of the base for the Quality Reform. The report states that repayment of study loans... should be part of the general income distribution in society. The tables below show Ziderman s listing (Table 7.1) and the additional objectives relating to the Norwegian system (Table 7.2). They are unified in Table 7.3. Effects of schemes on the achievement of objectives For the sake of this analysis the schemes are grouped in seven different categories. This categorization is related to the Norwegian situation, but takes inspiration from the work done in the Eurydice publication Financial support for students in higher education in Europe Trends and debates (Eurydice, 1999). Two important finance measures discussed in the Eurydice publication, are not discussed further here: 43

43 Student finance schemes in Norway A case study Regarding students in higher education, benefits available to families with student children were removed from the Norwegian system some years ago, after playing a minor role for some years. As mentioned earlier, families are not expected to help financially students who have left upper secondary school. Traditionally, subsidizing services has played a minor role in the Norwegian system. Some subsidies do exist, mainly for housing and to students with children. But only a minority of students will receive such support. Apart from reserving housing for foreign students and scholars, no general system exists for the distribution of subsidized housing to groups with a less favourable background. Student loans Considering subsidies through loans schemes separately, we should here look at the effect of state loans being available for students who themselves cannot provide security for such loans. The provision of loans directly to the student, with no means-testing to family income, is closely related to the notion of students being economically independent of their parents. It thus enables them relative reasonable living conditions during study by reducing future disposable income from working life. In today s developed societies, there seems to be little tolerance to the postponement of realization of dreams and ambitions to later stages of life. Research done in Norway concerning reasons for delays in studies, shows that lack of finance is the most frequently mentioned. Even with a comfortable level of total support, students need additional income. Half of the students in 1998 had income from paid work in addition to student finance, working an average of 12 hours a week. Students not having maximum loans are likely to compensate by increased paid work. 44

44 Alternative objectives of student finance schemes and the Norwegian model Table 7.1 Alternative objectives of student loans schemes Objective 1: Objective 2: Objective 3: Objective 4: Objective 5: Budgetary objectives (income generation) Income generation to maintain university enrolment levels and output/quality, in response to rising public university unit costs (additional government funding not available) Funding replacement: in response to reduction in overall government expenditures, including the education sector Funding replacement: in response to reallocation of public education budgets, from universities to sub-sectors with higher societal rates of return (e.g. basic education) University system expansion Generation of additional revenues to partially finance expansion of the public university sector University expansion through growth of private university sector (to minimize the state s role in financing expansion) Social objectives (equity/access for the poor) Loans targeted on needy students Cross-subsidization: grants for needy students financed by income from higher fees Manpower needs Meeting specific occupational/regional manpower needs Student assistance Easing student financial difficulties during study Increasing student commitment Financial independence for students 45

45 Student finance schemes in Norway A case study Table 7.2 Additional objectives of student finance schemes in Norway Objective I: Objective II: Objective III: Objective IV: Individual social needs Needs during study period Needs during repayment period Contribute to regional development Increase education opportunities in regions with low attainment Increase recruitment of experts to remote regions Internationalization of higher education Increase opportunities to study abroad Increase opportunities for foreigners to study in host country Underpin general income distribution goals Contribute to a more equal income distribution between generations Contribute to maintain narrow income span in general In a country such as Norway, the availability of student support at a high level appears to be decisive in young people s choice to take higher education at today s level. Given the existing level of total support, grants cannot be an alternative to a loans scheme. It thus appears evident that loans contribute positively to the general access of higher education. The increased total level of support introduced as part of the Quality Reform, was also considered a necessary tool to increase student commitment by reducing the need for supplementary income from paid work. If this happens, it must be left to the judgement of future evaluations. 16 There are, however, indications that loans may be less positive to fight inequalities in access. According to the report of a former commission reporting on student finance (NOU, 1992), there are no indications that students from less favoured social groups use student loans to a higher extent than those from the most favoured groups. On the contrary, students from the highest social group are utilizing the loans system to a higher degree than other social groups, though the differences are small. The commission discussed ways of promoting equity through changes in the loans scheme. However, it found that to reintroduce means-testing, and then give a relative advantage to the less favoured groups, would unlikely have any positive effects. 16. See footnote 9. 46

46 Alternative objectives of student finance schemes and the Norwegian model The existence of a loans system without means-testing may thus be positive for general access to education for all groups, but is unlikely to serve as an instrument, especially favouring the poor. The loans scheme is obviously a precondition for the reality that Norwegian parents do not have to save for their children s future higher education. It thus puts forward arguments for maintaining an equal income distribution, and a fairly high taxation of medium and higher incomes. On the other hand, the burden from the repayment of loans can be used as an argument for a wage premium for candidates with higher education qualifications. This was also used frequently during the 1990s, and has to some extent contributed to a transformation of the union structure among academics and public employees. Additionally, loans are also given to students in Norwegian private higher education institutions to cover their tuition fees. This is part of a policy aimed at giving students some freedom of choice, and to enable the existence and development of institutions with a different background, purpose and pedagogy than public institutions. The existence of a public loans scheme is probably decisive both for the level of student enrolment in those institutions, and for equity in access to them. Grants Grants are, to a certain extent, tailor-made to achieve specific objectives. Most important, however, is the amount of the general grant as part of the total support. As mentioned, grants are not means-tested on the parent s income, and will only be given to students not living with their parents. The reason behind this is that students living with their parents are considered to be part of their household, and receive substantial support in other ways. The level of grants rose considerably during the 1990s, from 13 per cent for single students living away from home, to 40 per cent today. 17 The main objective of the rise is to reduce debt-fear (expression used by students in the debate), and thus increase recruitment to studies and the ability to complete long studies. It may be argued that this could have a favourable effect on low-income groups, due to lengthy education being 17. Including that which depends on the completion of the actual study course. 47

47 Student finance schemes in Norway A case study less risky. However, in general, a grants increase means a redistribution of public funds from those not wishing for higher education, to those that do. If a grants rise really does have an effect on the completion of studies, it remains to be proven. The authorities decided to link the rise to an incentive-model, in a kind of stick and carrot reform, as discussed later. Travel grants are meant to increase participation in remote areas, by subsidizing travel to and from home. It is generally considered to have an effect, reducing the economic burden put on those who do not have a relevant higher education institution close by. Grants for children of student parents, and grants during study leave after giving birth, must be looked upon mostly as a family policy mechanism, but it is also seen as a way of increasing the possibilities for students, especially female, to complete their studies. Grants in case of illness are a substitute for students not being part of the general social security system offering paid leave during periods of illness. Grants to refugees and others with asylum will not be discussed in this context. Incentive-based grants A system making parts of the grant dependent on the completion of the study course or programme has just been introduced; no experiences are yet available. The scheme was, as mentioned earlier, a combination of increased support and improved student achievements, thus being a classical stick and carrot approach. The political context was of low student achievement, and thus reduced cost-effectiveness from investments in education. It was also combined with incentives in the financing of institutions. The debate reflected both optimism regarding a possible improvement of student commitment, and fears that this might create an increased financial risk for students, putting restraints on their willingness to make use of public finance. The combination of non-achievement and increased debt might have negative effects. It can also be argued that this may have 48

48 Alternative objectives of student finance schemes and the Norwegian model a negative effect on students with special needs during their studies, students from regions or milieus not acquainted with higher education, and on maintaining an interest in a demanding study environment, e.g. studies abroad. This point has been taken into consideration through a change in by-laws. Finally, the potential positive effects were considered politically decisive, but the proportion of incentive grants to guaranteed grants was reduced during the decision-making process. Zero interest rate during the study period This is one of the most debated types of subsidy in the Norwegian system. It is a very costly subsidy, and not targeted. Two Royal Commissions during the last decade have discussed alternatives, but they have both as with the government concluded that no changes should be made. No substitutes have been found practicable, and the arrangement has also been found too strongly embedded in the Norwegian system to be changed without broad consensus. Even if the scheme is not very targeted, it is considered as having positive effects related to a number of the goals in the system. First of all it reduces the cost of loans in general. It is of special significance to those having high loans, e.g. students studying over a long period, students in private institutions and students abroad. Depending on the length of the study period, it reduces the effective interest rate from 1.8 per cent to 2.4 per cent (NOU, 1999). It eases student financial difficulties during the study by keeping the total debt down. This effect may be more significant for marginal student groups, than for the average student. It also adds to the total subsidies in the system, and thus contributes to more equal income distribution between generations. There are disputes to which extent the scheme has a positive effect on student commitment. On the one hand it is argued that since the value of the subsidy increases with the length of study, students motivation to finish studies quickly might be hampered. On the other hand, unnecessary prolongation of studies is not economical for the individual in a life-income prospective. The net effect might as well be neutral. 49

49 Student finance schemes in Norway A case study Interest subsidies in repayment period For a long period following the establishment, in 1947, of state student loans schemes, loans were generally subsidized throughout the period of repayment. The effective interest rate was negative as recently as Before 1998 the interest rate was politically decided. It had, since the beginning of the 1980s, tended to follow the general interest level, somewhat belated. Until 1998, it was difficult to calculate the level of subsidy in an undisputed manner. The present system has no element of general subsidy regarding interest rate during the repayment period. There are, however, several targeted subsidies during the repayment period. These subsidies are related to applications that must be documented. In general, they are considered to reach the relevant groups, and constitute an important social element of the support scheme. They may also have positive implications during the study period, by reducing the risk for marginal groups to finance their studies through loans. It might also be argued that the subsidies could have contributed more to an efficient study situation if targeted as grants during the study period. A system of income-related postponement of repayment has existed for some years, but was abolished in 2002 due to minimal interest. The system had familiarities with the discussion on repayment through the tax system, or as a fixed proportion of income, but had very limited subsidies. There has also been a discussion on an income-dependent repayment scheme (as in Sweden), but this has been dropped, due mainly to uncertainty regarding the future level of subsidy. The subsidy given through deduction of paid interest from income is not discussed here, since this is a general scheme, covering all types of paid interest. Debt write-off schemes This category includes a range of schemes, of which the following will be discussed: (a) debt reduction through the completion of certain long study programmes; (b) gradual write-off for re-payers living and working in certain areas; and (c) debt write-off due to working inability, and death. Both commissions looking into the write-off scheme for completion of long studies found that it probably had an effect in the way that students 50

50 Alternative objectives of student finance schemes and the Norwegian model finished long studies to a somewhat higher extent. The scheme was also applied to fields of study with no identified problem in this respect. For these, the only effect was a contribution to reduced payments after completing the studies. In 1999 it was considered that the number of candidates completing long studies was at a sufficient level, and the commission proposed to abolish the scheme. Since its introduction, the general grants support had also been considerably increased. As mentioned earlier, the scheme will now be removed. The gradual write-off scheme for re-payers living and working in certain areas has had a notable effect on the recruitment of personnel in these areas. This is confirmed by several studies referred to in the commission report from It is not proven to the same extent that the scheme is stimulating the recruitment of students from the same areas. In spite of lack of educational effects, the general effect on society has been considered so positive that the scheme has been maintained. Write-off due to disability and death is in effect a state guarantee for the repayment of the loan, meaning that the state pays the premium on behalf of the debtor. There has been little discussion on the relevance of such an arrangement which must be considered socially well targeted. There is also a more general debate on debtors failure to meet requirements, creating substantial losses in the system. This being more related to general problems with loan failures, will not be discussed further here. The administration of the student finance system There is an ongoing debate on the administration of the system. Until the 1990s, few questions were raised to the fact that the administration should be executed within the framework of a state welfare tradition institution, where rules and practice were developed within what might be called a social-conscious organization. During the 1990s, increased focus was placed on the service side of the institution, its ability to compete with private banks in developing consumer thinking, high service levels, advanced technology, and alternative repayment schemes aimed at meeting individual needs from customers. 51

51 Student finance schemes in Norway A case study On the other hand, it has been argued that this has cost little to the administration when compared to the size of the system. The high political attention linked to the operations has also favoured the chosen solution. The discussion has not been concluded, but it seems to centre around the following question: Is the state able to fine tune its requirements to a social system to such a degree that it may be outsourced to professional providers of financial services? In the table, some areas where the administration context plays an important role on the outcome have been pointed out. In most cases this has had a positive effect on the customer. Both individual judgements in a social institution, and the political context in which it is operating, is usually in the favour of the individual. In some cases, however, the rigidity of public laws and by-laws and, in consequence, the thinking embedded in public governance, may obstruct individual solutions being reached in a more pragmatic private banking context. This will most likely occur when considering individual repayment conditions. Steps have, however, been taken to increase the scope of individual handling of cases with repayment difficulties. 18 Overview Table 7.3 below provides an overview of the objectives of the financing schemes. 18. Individualization is an emerging demand from consumers and clients. If this value had been included in the objectives of the Norwegian student scheme, it probably would have resulted in a more negative score for the established administrative solution. 52

52 Table 7.3 Objectives and schemes for student finance support 53 Finance scheme Objectives Student Grants Incentive Zero Interest subsidies Debt Admin. type Specific loans grants interest repayment write-off (social or comments during study period schemes bank culture) Objective I: Budgetary Generate income to maintain enrolment in response to rising costs Funding replacement in response to overall cuts in government expenditures Funding replacement in response to reallocation in education spending Generate additional revenues to finance expansion in public university sector University expansion POS POS POS via growth of the private university sector NR NR NR NR Alternative objectives of student finance schemes and the Norwegian model

53 54 Finance scheme Objectives Student Grants Incentive Zero Interest subsidies Debt Admin. type Specific loans grants interest repayment write-off (social or comments during study period schemes bank culture) Objective II: Social greater equity (access for the poor) Loans targeted to needy students Cross-subsidization: grants for needy students financed through higher fees Objective III: Manpower needs To meet specific occupational (regional manpower needs) Objective IV: Student assistance To ease student financial POS POS NEG POS POS difficulties during study To increase student commitment POS/NEG POS POS NEG/POS Financial independence POS POS NEG POS POS POS POS NR NR Student finance schemes in Norway A case study

54 Finance scheme 55 Objectives Student Grants Incentive Zero Interest subsidies Debt Admin. type Specific loans grants interest repayment write-off (social or comments during study period schemes bank culture) Objective V: Individual social needs Needs during study period NEG POS NEG POS POS Needs during repayment period NEG POS POS POS POS POS/NEG Objective VI: Contribute to regional development Increase education opportunities in regions with low attainment POS POS NEG POS POS POS POS Increase recruitment of experts to remote regions POS POS Objective VII: Internationalization of higher education Increase opportunities for nationals to study abroad POS POS NEG POS POS Increase opportunities for POS POS NEG POS POS POS POS foreigners to study in host country Objective VIII: Underpin general income distribution goals Contribute to more equal income distribution between generations POS POS Contribute to maintain narrow income span in general POS POS POS POS Note: POS: contribute positively to the objective NEG: may have negative effect to the objective NR: not relevant for the Norwegian case, no remark, no conclusive effect Alternative objectives of student finance schemes and the Norwegian model

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56 Chapter 8 Some general experiences and possible lessons from the Norwegian model Based on some observations in this study, and general experiences from dealing with the Norwegian student finance system, following are some points that might be taken into account when strategic choices regarding development of student finance systems are being made. When establishing a system for student finance, the state enters into a long-term political commitment. Even if the initial objectives are specific and concrete, e.g. the loan financing of fees to increase higher education capacity, the objectives and the scope of the system will tend to increase, and make the system more general. The general conditions when introducing loans schemes should therefore be considered thoroughly. This relies especially to the interest-rate terms and the general repayment conditions. Most systems have started as schemes targeted to those not affording higher education. When access to higher education increases, there will be, however, increased pressure for making the schemes more general, also meeting the needs for students from middle-class families. Student loans schemes may be used regardless of how tuition is being financed. Rules on means-testing have implications on general family policies, family taxation, saving policies and so on. General policies regarding income distribution, families and savings have bearings on policies on means-testing. The establishment of grant and loans systems should be discussed in connection with the use of direct subsidies towards student s housing, food, books, etc. Loans schemes have costs that may be hidden initially, linked to the fact that most loans are given without additional security. The 57

57 Student finance schemes in Norway A case study Norwegian model hardly gives any clues on how to develop a selfsustainable loans scheme. Schemes making repayment of loans directly dependent on future income introduces increased uncertainty of the level of subsidies in the system, and may change the main target of subsidies from the student to the elderly debtor. System design should carefully discuss if and how finance schemes may be used for supporting studies abroad. Student finance systems may or may not be used for the achievement of societal objectives other than the financing of studies, such as regional development, and to meet special demands from the labour market. Student finance systems will also require development of quality assurance systems, to ensure efficient use of public subsidies, and student protection against non-recognized institutions. A developed student finance system will have a magnitude making it an important part of general income distribution policies. A student finance system should be developed in dialogue between a specialized institution and the government. It is difficult to comprehend how such a development can take place without having a socially based institution in one form or another. In developed systems, this may be considered differently. The generic lesson may be that decisions regarding student finance systems have substantial implications, even if choices are only being taken implicitly. This is calling for thorough analysis prior to the decisions. Experiences from a mature system like that in Norway, may thus be of more general interest, even to countries only starting with a minor loans or grants scheme, with a specific purpose. As we have seen, student finance systems will undergo substantial development and changes over time. The objectives will also change, to meet emerging challenges. The development of student finance systems, when reaching maturity and almost universal use, tends to be an important contributor to the achievement of broader societal goals, and also to include these goals implicitly into the student finance system. 58

58 References Eurydice Key topics in education (Vol. 1). Brussels: European Commission. Lånekassen Annual report Oslo: Lånekassen. Lånekassen. By-laws for 2003 and for 2003/2004. Retrieved from Norwegian Ministry of Education and Research. Law on educational financing to pupils and students. Retrieved from: Norwegian Ministry of Education and Research St prp nr Budget proposal. Oslo: Norwegian Ministry of Education and Research. Norwegian Ministry of Education and Research The Quality Reform. Oslo: Norwegian Ministry of Education and Research. Norwegian Ministry of Church, Education and Research Leve og lære om utdanningsfinansiering og studentvelferd. In: Norges offentlige utredninger, 1992(33). Norwegian Ministry of Church, Education and Research Nyttige lærepenger om utdanningsfinansieringen gjennom Lånekassen. In: Norges offentlige utredninger, 1999(33). OECD. 2002a. Lifelong learning in Norway. Paris: OECD. OECD. 2002b. Main economic indicators Paris: OECD. OECD. 2002c. Education at a glance. Paris: OECD. 59

59 Student finance schemes in Norway A case study Raaum, O.; Aabø, T.E.; Karterud, T Utdanning og livsinntekt i Norge. Rapport 5/1999. Oslo: Ragnar Frisch Centre for Economic Research. UNESCO; PROAP Comparative study of student loans schemes in Asia: project concept paper. Working document. World Bank Constructing knowledge societies. Washington, DC: World Bank. Ziderman, A Alternative objectives of national student loans schemes: implications for design, evaluation and policy. In: Welsh Journal of Education, 11(1). 60

60 IIEP publications and documents More than 1,200 titles on all aspects of educational planning have been published by the. A comprehensive catalogue is available in the following subject categories: Educational planning and global issues General studies global/developmental issues Administration and management of education Decentralization participation distance education school mapping teachers Economics of education Costs and financing employment international co-operation Quality of education Evaluation innovation supervision Different levels of formal education Primary to higher education Alternative strategies for education Lifelong education non-formal education disadvantaged groups gender education Copies of the Catalogue may be obtained on request from: IIEP, Communication and Publications Unit [email protected] Titles of new publications and abstracts may be consulted at the following website:

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62 The The (IIEP) is an international centre for advanced training and research in the field of educational planning. It was established by UNESCO in 1963 and is financed by UNESCO and by voluntary contributions from Member States. In recent years the following Member States have provided voluntary contributions to the Institute: Denmark, Finland, Germany, Iceland, India, Ireland, Norway, Sweden and Switzerland. The Institute s aim is to contribute to the development of education throughout the world, by expanding both knowledge and the supply of competent professionals in the field of educational planning. In this endeavour the Institute co-operates with interested training and research organizations in Member States. The Governing Board of the IIEP, which approves the Institute s programme and budget, consists of a maximum of eight elected members and four members designated by the United Nations Organization and certain of its specialized agencies and institutes. Chairperson: Dato Asiah bt. Abu Samah (Malaysia) Director, Lang Education, Kuala Lumpur, Malaysia. Designated Members: Carlos Fortín Assistant Secretary-General, United Nations Conference on Trade and Development (UNCTAD), Geneva, Switzerland. Thelma Kay Chief, Emerging Social Issues Division, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), Bangkok, Thailand. Jean Louis Sarbib Senior Vice-President, Human Development, World Bank, Washington DC, USA. Ester Zulberti Chief, Research, Extension and Training Division, Food and Agriculture Organization (FAO), Rome, Italy. Elected Members: José Joaquín Brunner (Chile) Director, Education Programme, Fundación Chile, Santiago, Chile. Zeineb Faïza Kefi (Tunisia) Philippe Mehaut (France) LEST-CNRS, Aix-en-Provence,France. Teboho Moja (South Africa) Professor of Higher Education, New York University, New York, USA. Teiichi Sato (Japan) Ambassador Extraordinary and Plenipotentiary and Permanent Delegate of Japan to UNESCO. Tuomas Takala (Finland) Professor, University of Tampere, Tampere, Finland. Raymond E. Wanner (USA) Senior Adviser on UNESCO Issues to the Senior Vice-President for Programs, The United Nations Foundation, Washington, DC, USA. Inquiries about the Institute should be addressed to: The Office of the Director,, 7-9 rue Eugène Delacroix, Paris, France.