How To Make A Student Loan Scheme Work

Transcription

1 Key elements of the Hungarian Student Loan Scheme Budapest, 9 November 2010

2 Balázs Havelda Head of Treasury Department Student Loan Centre havelda.balazs@diakhitel.hu

3 The Loan Scheme The Loan and the Student Loan Centre Funding of the Scheme Improvement and Future Developments

4 Higher education is a key factor of social mobility. A HE degree has significant advantages for the individual and for the society as well, therefore it is fair to share its costs. Higher education places significant burdens on the individuals and the families.

5 General access, universal Considerable but easily repayable loan size with free use Self-sustaining and self-financing

6 No credit scoring, no collateral Wide eligibility Income contingent repayment, no fixed tenor Optional but maximized loan amount Grace period for repayment, free prepayment No general interest subsidy Can be collected as taxes Single risk pool with single interest rate

7 Covers all expenses of the scheme, but no more Three elements of the interest rate: average cost of funding risk premium operation premium Current rate: 8.50 %

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9 100% state-owned institution Single activity: managing the student loan scheme Not-for-profit operation Financial activity in non-bank company form Main partners: Hungarian Development Bank, Ministries HE institutions, commercial banks, Hungarian Post Hungarian Tax and Financial Control Administration, BISZ (Central Credit Information) Government Debt Management Agency, State Treasury, banks and investors, Budapest Stock Exchange

10 Aggregate number of student loans taken out by students (300,000 by October 2010)

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12 The impact of loan on students revenue WITH student loan WITHOUT student loan Earning 33% 48% Family support 25% 38% Study scholarship 4% 7% Support from institute 2% 2% Grants from the state 2% 2% Other revenue 2% 2% Student loans 32% 0% Total: (HUF 90,427) EUR 321 Based on TÁRKI Social Research Institute s data (HUF 70,476) EUR 250

13 Repayment figures In repayment phase: 120,000 Non-payers: 2-3% In arrears: 25-30% Handed over to tax authority (to date): 16,000 Collected by tax authority (to date): 7,000 Crisis: Repayment is % of compulsory Signs in soft collection (efficiency)

14 Principles State guarantee on the liability side, financing plan approved by the Minister No financial burden on the central budget Funds raised from money and capital markets All funding costs charged on the borrowers Built-in mechanisms for avoiding interest rate volatility Optimization of cost-risk trade-off

15 Instruments Return on investing free assets Repayments and prepayments of the borrowers Stand-by liquidity facilities Mid and long term loans from commercial banks Loans from special purpose financing institutions (EIB, Hungarian Development Bank) Domestic bond issue

16 Risk management No exchange rate risk Interest rate risk all risks passed through to borrowers due to not-for-profit operation exact duration matching impossible government debt management benchmarks for fixed/variable ratio and maturity structure Operational risk

17 On the way to self-financing Expected 2010 figure: 90% 3 levels of self-financing Main task: debt management

18 Funding in numbers (EUR million) Renewing the portfolio in every 3 years

19 Impacts of the crisis frozen capital markets in 2008 lack of liquidity and jumping costs of funding rising student loan interest rate Handling of the crisis new funding strategy (focus on liquidity and flexibility) proactive crisis management Result no damage to the system

20 Adjusted loan amounts Widening the eligibility (PhD, EEA) Increased age limit (40) Increased loan amount (crisis) Repayment relief for clients with difficulties Assignment of disbursements

21 The Hungarian Development Bank exercises ownership rights New strategy to be prepared

22 Thank you for your attention! Budapest, 9 November 2010