Student loans in higher education

ЦБР Dissemination Programme Educational Forum Series, No.4 Student loans in higher education 4. Latin America and the Caribbean Report of an HEP educational forum by Maureen Woodhall Paris 1993 International Institute for Educational Planning (Established by UNESCO)

Student loans in higher education

The views and opinions expressed in this volume are those of the authors and do not necessarilyrepresentthe views of UNESCO or of 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 IIEP concerning the legal status of any country, territory, city or area of its authorities, or concerning its frontiers or boundaries. The cost of the educational forum and of this report have been covered through a grant-in-aid 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. This volume has been typeset using IIEP's computer facilities and has been printed in IŒP's printshop. International Institute for Educational Planning 7-9 rue Eugène-Delacroix, 75116 Paris UNESCO November 1993 ПЕР/jn

Preface This booklet is the fourth of a series which is reporting on Educational Forums being organized by the 1ШР on the issue of student loans in higher education. Thefirstbooklet examined the situation in Europe and the USA; the second concentrated on Asian countries; and the third reviewed the status of student loans in the countries of English-speaking Africa. The present booklet reports on the fourth forum in the series, held for Latin American and Caribbean countries. The purpose of these meetings is to analyze the main issues raised by the introduction of student loans and discuss the ways these issues are being addressed both in industrialized and developing countries. Through open and candid discussion at the forums, and exchanges of experiences between countries, it is hoped to highlight the main implications for policy making in higher education and draw some conclusions concerning the management of student loans in the future. Each booklet in the series will normally include a report of the forum and summaries of the experiences of the countries represented. The HEP, in embarking on this new initiative, hopes that the series will stimulate further co-operation in the form of exchanges of experiences among UNESCO Member States. Jacques Hallak Director, IIEP v

Contents Preface Executive summary v I Report of an HEP educational forum 6 I. Introduction 6 IL Summary of forum discussion 12 III. Background paper 29 IV. Annexes 41 A. Summaries of student support systems 41 I. IL III. IV. V. VI. VIL VIII. IX. X. XL XII. XIII. XIV. XV. Extracts from opening address Extracts from the background paper on APICE's reflection on educational credit Bolivia Brazil Chüe Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Panama Peru Venezuela 43 48 57 63 68 73 81 86 93 100 104 109 115 123 130 B. Participants in the forum 134 vu

Executive Summary This report provides a summary of an educational forum held in Santo Domingo, Dominican Republic, in June 1992, to discuss experience of student loans in Latin America and the Caribbean, where there is a long history of using loans as a form offinancialassistance for students in higher education. Thefirststudent loan programme in the region was established in Colombia in 1950, when The Colombian Institute for Educational Credit and Technical Studies Abroad (ICETEX) was set up as a public foundation to provide loans for postgraduate study outside Colombia. Since then student loan or 'educational credit' programmes, as they are called in Latin America, have been set up in at least twenty countries to provide assistance towards tuition fees and/or living expenses of students in public or private universities. Student loan administrators from thirteen countries (Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru and Venezuela) came together, with staff and officials from the Asociación Panamericana de Instituciones de Crédito Educativo (ÁPICE), and the International Institute for Educational Planning (IIEP), to share experiences, examine the strengths and weaknesses of different types of loan scheme and exchange ideas about how to improve the design and management of educational credit programmes. The forum covered four main topics: 1

Student loans in higher education 1. Current patterns of finance for higher education and student support Higher education enrolments have increased rapidly in Latin America in the past three decades, with the average participation rate for the region increasing from 4 to 18 per cent between 1965 and 1988, but the last decade has seen increasing pressure on public budgets and real expenditures per student have declined as a result of economic crisis, high rates of inflation and external debt, which have led to severe reductions in public spending. Most universities are highly subsidised, but private higher education is very important in some countries, particularly Brazil, Colombia and the Dominican Republic, where more than 60 per cent of students are in private institutions, and since 1980 the private sector has grown very rapidly in Chile and now accounts for 50 per cent of enrolments. All private institutions charge tuition fees, and in some countries public universities also charge fees, but at a much lower level than private institutions. Some private universities have their own scholarship or loan programmes to assist needy students, and all the countries represented at the forum have established national programmes of student aid; some offer both scholarships and loans, while others rely mainly on loans, but all thirteen countries provide support for some students in the form of loans, though often for only a small minority. 2. Arguments for and against loans in Latin America and the Caribbean There is widespread acceptance of the idea of student loans in Latin America and the Caribbean, even though there is recognition of the fact that they do not always work well. The participants agreed that support for student loans in their countries rested upon three factors: strong popular demand for higher education, and the belief that it represents a sound investment, both for governments and individuals; the need to democratize entry to higher education by ensuring that those from low income families are not denied access to public or private universities; 2

Executive summary the declining capacity of state budgets to finance public higher education of sufficient quantity and quality, and the need to diversify sources of funding, to include private as well as public finance. Arguments in favour of loans include increased efficiency, through reductions in drop-out, improved equity, if loans are targeted on low income students, and greater responsiveness. However problems encountered include low rates of loan recovery due to unemployment, decapitalization of loan funds due to high rates of inflation and low rates of interest, and fears of excessive burdens of debt. Participants believed that these problems can be reduced by effective design and management of loan programmes. 3. Design and management of loan programmes Financial aid provided for students in Latin America and the Caribbean varies considerably in its scope and coverage, terms and conditions of loans and the type of agency responsible for their administration. Some countries have established public agencies such as ICETEX in Colombia and CONAPE in Costa Rica, but others rely on private foundations such as FUNDAPLUB in Brazil and FUNDAPEC in the Dominican Republic, while some countries have a 'mixed model' of administration, with both public and private aspects. It was agreed that the important question was not whether a student loan agency was public or private, but whether it was independent, free from political interference and efficiently managed. Student loan programmes in Latin America and the Caribbean range from relatively large programmes, such as FUNDAPLUB in Brazil, which provides over 100,000 loans each year and ICETEX in Colombia, which gave 33,000 loans in 1990, and which both cater for about 10 per cent of students, to small programmes such as CIDEP in Bolivia, which provides only 170 loans a year, for less than 1 per cent. Selection of recipients is based onfinancial need, academic ability and the type of course or institution attended. All loans are highly subsidized, with interest well below market rates and in many cases below inflation. There have been proposals that all loans should charge positive real interest, though possibly with longer periods of repayment in order to avoid unreasonable burdens of debt. In 3

Student loans in higher education general the rate of loan recovery has been higher in this region than in Africa or much of Asia, but inflation and unemployment have caused problems and there have recently been efforts in several countries to improve loan recovery. It was agreed that requirements for efficient loan recovery include: an adequate legal framework to enforce repayment; strong incentives for the collection agency, whether public or private, to maximize the recovery of loans; counselling of borrowers to ensure that they understand their obligation and their repayment schedules; opportunities for renegotiation of repayments for those facing difficulties such as unemployment. 4. Evaluation of student loan programmes and prospects for future reform and development Participants were in no doubt about the feasibility of loans in Latin America and the Caribbean, since programmes exist in twenty countries and some have been operating for 25 or even 40 years. There was general agreement that while student loans had served a useful purpose in the region, by helping to extend access to higher education, diversifying sources of finance and by contributing to the development of the private sector in some countries, it was necessary to increase their coverage, improve efficiency, particularly in loan recovery, and make their funding more secure. Loans should also be supplemented by grants for the most needy students, who are unable to provide guarantees and are therefore excluded from many existing loan schemes. The forum considered a number of options for future reform or development of student loans, including: increases in interest rates, to ensure positive, though subsidized, real interest; improved targeting of subsidies so that they are concentrated on students with the greatestfinancial need or courses which meet the most urgent manpower needs; increased efficiency of loan recovery and reductions in default; 4

Executive summary improved counselling and follow-up of borrowers, particularly in the period immediately after graduation, which is regarded as crucial in establishing regular repayment patterns; diversification of sources of finance for loan programmes. The range of options being considered reflects the optimism and vitality of student loan institutions in Latin America and the Caribbean. A factor contributing to this has been the regional co-operation fostered by APICE, and the forum concluded with a proposal that this regional network could serve in the future as a model for worldwide co-operation and the development of an international network for the exchange of ideas and experience on student loans. 5

Student loans in higher education 4. Latin America and the Caribbean Report of an ПЕР educational forum by Maureen Woodhall L Introduction This report provides a summary of an educational forum held in Santo Domingo, Dominican Republic, from 11-12 June, 1992, to discuss experience of student loans in Latin America and the Caribbean. This formed one of a series of meetings organized by the 1ШР on the subject of student loans as a means of financing higher education. Previous meetings covered Western Europe and the USA (1989), Asia (1990) and English-speaking Africa (1991). Reports of these have already been published by 1ШР. 1 The forum took place in conjunction with the XlVth Extraordinary Meeting of the Pan American Congress of Educational Credit Institutions, (Asociación Panamericana de Instituciones de Crédito Educativo, ÁPICE) and IIEP is grateful for the co-operation of APICE and the Fundación APEC de Crédito Educativo (FUNDAPEC) of the Dominican Republic, for their co-operation in the organization of this Forum, which enabled us to draw on the experience and expertise of student loan institutions from thirteen countries in Latin America and the Caribbean. 1. Woodhall, M. (1990) Student loans in higher education: 1. Western Europe and the USA. Educational Forum Series No.l., IIEP, Paris. Woodhall, M. (1991) Student loans in higher education: 2. Asia. Educational Forum Series No.2., IIEP, Paris. Woodhall, M. (1991) Student loans in higher education: 3. English-speaking Africa. Educational Forum Series No.3, IŒP, Paris. 6

Report of an ПЕР educational forum The purpose of the meeting was to examine and evaluate experience of student loan programmes in Latin America and the Caribbean, to explore the strengths and weaknesses of loans as a means of providing financial support for students in higher education, and to share ideas about the future development of student loans and ways of improving the effectiveness of existing programmes and institutions. More than twenty participants and observers attended the forum, including student loan administrators or specialists from thirteen countries: Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru and Venezuela, together with senior officers and staff of APICE, the International Institute for Educational Planning (IIEP), Economic Commission for Latin America and the Caribbean (ECLAC), the Overseas Development Administration (British Development Division in the Caribbean) and the World Bank. A full list of participants and observers is given in Annex B. All national participants provided background papers describing the system of student financial aid in their countries, and also completed a short questionnaire, giving factual information and statistics on higher education and student loans. Summaries of these background papers are provided in Annex A together with edited extracts from background papers provided by Gabriel Betancur Mejfa and Jorge Tellez Fuentes of APICE. The full documents (in Spanish) are available, on request, from IIEP in Paris. Student loans are widely used in Latin America and the Caribbean to provide financial support for tuition fees and/or living expenses of students in higher education. Not only are there more student loan programmes in Latin America and the Caribbean than in any other region, with at least twenty countries having one or more programmes, but there is now more than forty years experience of student loans in the region. The first programme was established in Colombia, in 1950, when the Colombian Institute for Educational Credit and Technical Studies Abroad (ICETEX) was created to provide financial assistance for students undertaking postgraduate study outside Colombia. The forum was addressed by the originator of the concept of student loans in Colombia, Gabriel Betancur Mejfa, who was appointed as thefirstdirector of ICETEX in 1950, and who is an enthusiastic advocate of the idea of investing in higher education through student loans. He has developed a slogan which represents the fundamental philosophy of an educational 7

Student loans in higher education credit institution: 'We lend to the student and the professional pays us back'. The idea of providing financial support through repayable loans, which in 1950 was the practice in a few European countries, notably Scandinavia, was adopted not only in Colombia but, within a few years, in several other Latin American countries. By 1992 student loan programmes had been established in Argentina, Bolivia, Barbados, Brazil, Colombia, Costa Rica, Chile, the Dominican Republic, Ecuador, El Salvador, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru, Trinidad and Tobago and Venezuela, and the Caribbean Development Bank operates a student loan scheme for eleven small island countries. The Latin American region not only welcomed and adopted the idea of student loans, it created its own terminology for the concept. The term 'educational credit' is widely used throughout the region to describe student loans, and many of the programmes and institutions that were established to provide financial support in this way have the term 'educational credit' in theirtitle,for example ICETEX in Colombia, Fundaçâo APLUB de Crédito Educativo in Brazil, EDUCREDITO (Instituto de Crédito Educativo) in Honduras and FUND APEC (Fundación APEC de Crédito Educativo) in the Dominican Republic. A unique regional association has been established, the Asociación Panamericana de Instituciones de Crédito Educativo, ÁPICE, which includes student loan institutions from most of the countries in the region, and whose members share information and expertise through regular meetings, conferences and the newsletter and other publications of APICE. There is, therefore, a more extensive network of information about student loans in Latin America and the Caribbean than exists in Europe, Asia or Africa, but since it is almost entirely in Spanish it is relatively unknown outside the region. This forum therefore provides an opportunity to bring to a wider audience, from developing countries throughout the world, the range of experience with student loans in Latin America and the Caribbean. The forum took place at a time when there is increasing interest in student loans as a means offinancinghigher education. The previous three forums organised by HEP collected and disseminated information about student loans and other forms of financial support in five European countries (Denmark, Germany, Netherlands, Sweden and the United Kingdom), the United States, Australia, ten Asian countries (China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore 8

Report of an HEP educational forum and Thailand) and eight African countries (Botswana, Ghana, Kenya, Lesotho, Malawi, Nigeria, Uganda and Zimbabwe). All these either have or are currently considering the introduction of student loan programmes. The reasons why loans are increasingly being adopted or considered as a form of student support in many countries include: the need to reduce public expenditure as a result of falling government revenues, economic crisis and structural adjustment; a wish to expand higher education and improve its quality, without imposing excessive burdens on taxpayers and the public exchequer, changing priorities within the education sector, which have resulted in some developing countries wishing to reallocate resources to expand or improve basic education; concern about the equity of current patterns of financing education. All these pressures and concerns are to be found in Latin America and the Caribbean, as in other regions, and they help to explain why there is now such widespread interest in student loans, in the strengths and weaknesses of current programmes and in possibilities for improving their effectiveness. The forum not only provided an opportunity for the exchange of ideas and experiences in the thirteen countries represented, but also drew on recent research and analysis of student loans in other developing countries, including the three previous 1ШР forums; a special issue of the journal Higher Education (June 1992) on student loans in developing countries, which covered mainly experience in Asia and English-speaking Africa. 2 ; a recent study for the World Bank of student loans and their alternatives (including graduate tax and other forms of deferred payment of tuition fees) 3 ; a study for the World Bank of private 2. Higher Education, Vol. 23, No. 4, June, 1992 (Special Issue on Student Loans in Developing Countries), Dordrecht: Kluwer Academic Publishers. 3. Albrecht, D. and Ziderman, A. (1992) Cost Recovery and Financial Aid for Higher Education. Washington, D.C.: The World Bank (mimeo); Albrecht, D. and Ziderman, A. (1992) "Student Loans and their alternatives: improving the performance of deferred payment programs", Higher Education, Vol. 21, No. 4, June 1992, pp. 357-74; Albrecht, D. and Ziderman, A. (1991), Deferred Cost Recovery for Higher Education: Student Loan Programs in Developing Countries. Washington, D.C.: World Bank Discussion Paper No. 137. 9

Student loans in higher education financing of higher education in Latin America and the Caribbean, with a section on student loans which was summarized at the forum, 4 and a recent study of student loans for postgraduates, conducted for APICE. 5 The discussion at the forum concentrated on four main topics: (i) current patterns of finance for higher education and support for students by means of loans, scholarships, fellowships and other financial aid; (ii) arguments for and against loans as a means of student support; (iii) the design and administration of student loan programmes, including particularly: the type of agency responsible for administering loans, whether public or private, and its constitution and powers; the selection of students forfinancialaid and criteria determining eligibility; terms and conditions of loans; collection of loan repayments and ways of reducing default, (iv) evaluation of experience with student loans and prospects for future development and improvement of loan programmes to expand their coverage and improve their efficiency. 4. Carlson, S. (1992) Private Financing of Higher Education in Latin America and the Caribbean. Washington, D. C: World Bank LAC Technical Department Regional Studies Program, Report No. 18. 5. Oróstegui, Francisco Rodríguez (1992) Análisis del Crédito Educativo Para Postgrados: El Caso de América Latina. Bogotá: ÁPICE. 10

Report of an HEP educational forum Thisreportincludes: Summary of forum discussions. Background paper. Annex A. Edited extracts from background papers by Gabriel Betancur Mejia and Jorge Tellez Fuentes of APICE and summaries of Student Loan Schemes in Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Guatemala, Honduras, Panama, Peru and Venezuela. These summaries are based on the background papers prepared by the participants of the forum. Annex B. List of participants. 11

П. Summary of forum discussions 1. Current patterns of finance for higher education and student support in Latin America and the Caribbean Higher education has a high priority in Latin America; enrolments in higher education have increased rapidly in the past three decades, with the average participation rate for the region increasing from 4 to 18 per cent between 1965 and 1988. A recent study concluded thatrelativeto other developing regions, Latin America spends a greater share of the government budget on education and a larger proportion of the education budget (over 25 per cent) is allocated to higher education 6. Nevertheless the last decade has seen increasing pressure on public budgets and real expenditures per student have declined as a result of economic crisis, high rates of inflation and external debt, reductions in public spending due to declining government revenues and structural adjustment programmes. The private sector is very important in some countries in the region. In Brazil and Colombia more than 60 per cent of students are in private universities, while in the Dominican Republic there are 26 private universities and only one public university. In most other countries in Latin America public universities dominate, but there are significant private enrolments in Costa Rica, Ecuador, Peru and Venezuela and there was a very rapid expansion of the private sector in Chile, after the 1980 reform of the higher education system allowed the establishment of private institutions. Of the 374 higher education institutions that now exist in Chile, the majority of non-university institutions (professional institutes 6. Winkler, D. R. (1990), Higher Education in Latin America: Issues of Efficiency and Equity. World Bank Discussion Paper No. 77, Washington D.C.: The World Bank. 12

Summary of the forum discussions and technical training centres) are private, nine of the country's 23 universities are private, and about half of total enrolment is in the private sector. All private universities and institutions charge tuition fees, and in some countries public universities also charge fees, but at a much lower level than in private institutions. Some private universities have their own scholarship or loan programmes to assist needy students, and all the countries represented at the forum have established national programmes of student aid, with the exception of Bolivia, which operates a series of regional schemes. The extent of coverage of these programmes, the type and level of support offered and the terms and conditions vary considerably. Some programmes offer both scholarships and loans, while others rely mainly on loans, but all thirteen countries provide student support in the form of loans. In Brazil there are different loan programmes for students at public and at private universities. A public programme is run by the Federal Savings Bank (Caixa Económica Federal), and a private agency or foundation, Fundaçào APLUB de Crédito Educativo (FUNDAPLUB), which was originally set up by a professional association, the Associaçâo dos Professionais Liberais Universitarios do Brasil (APLUB), offers educational credit to students at private universities. The scheme operated by FUNDAPLUB is, strictly, a deferred payment, rather than a loan scheme; eligible students who are unable to pay tuition fees at a private university are allowed to postpone payment until after graduation, when they must pay the deferred fee plus interest, and FUNDAPLUB collects these deferred fees on behalf of the university. The programme was established in 1972 and FUNDAPLUB now collects deferred tuition fees on behalf of thirteen private universities. In Bolivia there is also a private agency, the Centro Impulsor de Educación Profesional (CIDEP) which provides student loans and also operates a Family Savings Fund which enables parents to save regularly in a fund specifically intended for the financing of higher education expenses. CIDEP wasfirstestablished in 1969 as a regional, rather than a national scheme, and CIDEP still provides only for students from one region of Bolivia. The oldest programme in Latin America is Instituto Colombiano de Crédito Educativo y Estudios Técnicos en el exterior (ICETEX) established in Colombia in 1950 to provide loans for study abroad. The forum 13

Student loans in higher education heard from the original founder of ICETEX, Gabriel Betancur, that the first educational credit programme in Latin America was founded with limited capital but with deep and enthusiastic commitment to the idea of education as a sound national and personal investment. That enthusiasm and commitment remains strong, after more than forty years of experience of lending to finance higher education both in Colombia and abroad. ICETEX now operates a range of programmes with different levels of support for students who study in public or private universities, in Colombia or overseas, and with very diversified sources of funding, both public and private. Public funds include allocations both from the Central Bank and from Regional Development Funds, while private funding comes from a variety of trust funds, under which ICETEX administers funds for various trade and professional associations, universities, private companies and corporations, and also from the sale of Education Savings Bonds, which enable parents to save, in order to pay their children's higher education expenses in the future; the bonds have a maturity of 15 years and offer protection against inflation. In addition, more than 20 per cent of ICETEX resources now come from repayment of loans, and past beneficiaries of student loans are among the most enthusiastic advocates of educational credit in Colombia. The educational reforms introduced in Chile in 1980 included the introduction of tuition fees in public universities, together with a student loan programme for low-income students, and encouragement for the development of private institutions, which have grown rapidly in the last decade, so that the private sector now accounts for half of all enrolments. Students may receive either loans or scholarships, depending on both financial need and academic merit. Loans are available both through a government programme and through a private University Credit Fund, established in 1987 to provide loans and deferred payment opportunities for students in private universities and professional institutes. In Costa Rica a national agency, the Comisión Nacional de Préstamos para Educación (CONAPE), provides student loans for study both at home and abroad, and also administers a scholarship programme. C O N A P E derives its funds from a variety of sources including commercial banks, which are legally obliged to contribute 5 per cent of their net profits to the student loan fund, as well as the government and private universities. The Dominican Republic has a private agency, Fundación APEC de Crédito Educativo (FUNDAPEC), which was established over twenty-five 14

Summary of the forum discussions years ago to provide loans for students in the predominantly private universities. The agency is now extremely active, not only in providing financial assistance for students, but in carrying out labour force surveys, to assess the demand for different types andfields of higher education. Originally FUNDAPEC provided loans mainly for study abroad, but increasing costs, together with the growth of universities in me Dominican Republic, has meant a change of policy and most loans are now for students in domestic private universities. Students taking subjects judged to be in 'over-supply', such as medicine and law, are much less likely to receive loans than students taking shortage subjects such as engineering. In Ecuador, the Instituto Ecuatoriano de Crédito Educativo y Becas (ГЕСЕ) provides a range of educational credit programmes, including 'Family loans' to help parents to meet the costs of essential educational equipment and materials for their children, as well as loans to students for undergraduate or post-graduate studies at home or abroad. The loan fund is partially financed from oil revenues and payroll taxes, and the feasibility of new sources of finance, such as the Education Savings Bonds operated by ICETEX in Colombia is currently being explored in Ecuador. A national scholarship fund has recently been established, for the poorest students, but loans account for the bulk of student aid, which is given both for tuition fees and living expenses. In El Salvador an Educational Collateral Fund EDUCREDITO was established in 1973, jointly funded by the government and by commercial banks, and this form of co-operation continues today, although economic crisis and the collapse of the government caused severe problems and the new government elected in 1989 had to introduce reforms torestore sound financial management. The central bank now allocates funds from the Fund for Economic Development, and commercial banks also provide loans to students, backed by a government guarantee and a 'collective insurance policy' against default, to which all borrowers are obliged to contribute. An unusual feature in Guatemala is that the agency which administers student loans is responsible to the Ministry of Labour, rather than the Ministry of Education, and the main source of funding for the agency is a payroll tax, levied on all companies and enterprises which hire foreign workers. Any company which employs foreign labour is obliged either to train a national who can eventually replace the foreign worker, or contribute to the training fund: Dirección para el fomento de becas 15

Student loans in higher education (DIFOBE) operated by the Ministry of Labour. The programme is small, but there are currently proposals before the government of Guatemala to expand it by imposing a payroll tax on all employers. In Honduras, the Instituto de Crédito Educativo (EDUCREDITO) was originally private, set up to provide loans for students at both the national and private universities, but it later became a public agency, partly in order to obtain bi-lateral and international aid which was available only for public, rather than private agencies. The question of whether the agency should be public or private remains controversial in Honduras, and there are currently proposals once again to privatize the administration of student loans. In Panama there is a compulsory Education Tax, paid by both employers and employees, and this is used to finance student loans, administered by the Instituto para la Formación y Aprovechamiento de Recursos Humanos (IFARHU), which wasfirstestablished in 1965. The institute provides both loans and fellowships, awarded on grounds of merit. Under the previous political regime the programme faced severe problems of default and by 1989 the fund was bankrupt. The new government recapitalized the loan fund, restored confidence and improved the administration of IFARHU which now administers loans, scholarships and fellowships for study abroad. There are two student loan programmes in Peru, one operated by a private agency, the Instituto Peruano de Fomento Educativo (IPFE), which was founded in 1962 and a small programme run by a national agency set up in 1972, but now practically discontinued due to declining government revenues. IPFE offers both loans and scholarships to needy students, to cover both tuition fees and living expenses. There are also several different loan programmes in Venezuela. The first programme was established in 1965, by a private agency, EDUCREDITO, and there are now six different agencies offering student loans, including SACEUDO and В ANAP, but the largest is the Fundación Gran Mariscal de Ayacucho (FGMA) which was set up in 1975 and originally provided mainly scholarships, but has recently considerably expanded its student loan programme. In June 1992, the World Bank approved a student loan reform project which will provide funds to expand the FGMA loan programme, while introducing a number of 16

Summary of the forum discussions reforms designed to improve its efficiency, particularly in the collection of loan repayments 7. Table 1 provides a brief summary of the main features of the student loan programmes in twelve countries in Latin America and the Caribbean. More detailed summaries of the loan programmes are given in Annex A. In view of the wide variations that exist in the size and type of student loan programmes in Latin America and the Caribbean, and in their range of experiences, there was lively discussion at the forum on the strengths and weaknesses of different models, particularly on whether loans should be administered by public or private agencies. There was eventual agreement that there was no single answer to this question, but that the choice between a public or private agency would depend on the conditions in a country, and that in some cases a 'mixed model', involving both public and private elements may be desirable. There are examples of successful public agencies in Latin America, including ICETEX in Colombia and CONAPE in Costa Rica, and also well established and successful private agencies, including FUNDAPLUB in Brazil and FUND APEC in the Dominican Republic. Some participants believed that private agencies were likely to be moreflexible,but other favoured public agencies, on the grounds that their funding might be more secure. In the past, some public agencies have been subject to political pressure, patronage and corruption, but it was agreed that the important question was not whether a student loan agency was public or private, but whether it was independently free from political interference and efficiently managed. 7. See Carlson, S. (1992) Private Financing of Higher Education in Latin America and the Caribbean. Washington, D.C.: The World Bank LAC Technical Department Regional Studies Program Report No. 18 for a discussion of the reforms and Reimers, Fernando (1990) The Feasibility of Introducing Loan Schemes to Finance Higher Education in Latin America: The Case of Venezuela. Washington: The World Bank. 17

Student loans in higher education я о la Ri и 1.000 r- 2.000 ~* 1.000 «/э 19% years c- g s olo и 000 es о 000 en en 400 es S TI CS 'ear «n ел en с га d 255 000 000 8 я С с tua g S 4 lorep da # * Bra 519.000 000 100.800/yea ел с Elatio.S + «с я xed peri IM # О ïolivia 21.000 70/year 400/yea 12% in durati studies VO CS S'S с..»minica epublic Q * 000 S 000 CS es 000 in «Л es «4-1 О с О tn 2 ^ я g "O tí es S О ^ Number studen О Number loans 6 Maximu loans rate Interest ent Repaym period о 1) 'я ОО Q, Percenta not re 18

Venezuel Peru Я 442.0 750.000 Q 2.3( 500 n.a. $15.300 «S TT Summary of the forum, discussions О ел * С ccording ze of loa ее 3 years g «a CS V anama fr o 2.00 \o 400 16.000 69 VI S >> со n.a. ee 3 о ас с с с «# CS Si.s: ccorc ize о ce и S V ala i 3 Ü o tn CT\ o 5? о о rt <л «VÛ, О years r- ~ í ^н Ecuadon 195.000 o 2.30 о $2.70 33% S - 10 y g ber of l dents ber of ans S Я Е э CJ est rat Inter Repayment period entage repaid Perc not ä 19

Student loans in higher education In the light of the very varied experiences within APICE it was concluded that the choice between public and private administration of student loans depended on three issues: the legal framework within a country; in some cases this may favour public or private agencies, or permit a mixed model, under which the government provides funds and guarantees for a private agency or even commercial banks; the strength or weaknesses of an agency's powers of negotiation visà-vis the government; it is essential that student loan programmes should be recognized as independent and free from excessive political control; the capacity for long-term planning andfinancialstability, which is likely to be enhanced when a student loan programme is financed from a variety of sources, rather than depending on a single, public source of funds. There are also considerable differences between loan programmes in different countries in the way in which borrowers are selected, the terms and conditions of loans, and the mechanisms for collecting repayments. Most of the discussion focused on these differences, together with the arguments for and against loans and the prospects for future reform and development. 2. Arguments for and against loans in Latin America and the Caribbean Unlike the regions covered in the previous HEP forums: Europe, Asia and Africa, there is widespread acceptance of the idea of student loans in Latin America. Indeed, one writer (Dominguez, 1973) has described the idea of national educational credit institutions as 'indigenous to Latin America - an original answer to a genuine national problem' 8. There is less evidence than in other regions of opposition to Se idea of student loans, and indeed all participants at the forum reported strong demand for student loans, often far in excess of the funds available for 8. Dominguez-Urosa, J. (1973) Student Loan Institutions in Developing Countries. Harvard University. 20

Summary of the forum discussions lending. Nevertheless, there have been severe problems with loan programmes in some countries, and Argentina has currently virtually abandoned student loans because of the problems of decapitalization due to high rates of inflation and low debt recovery. All participants agreed that support for student loans in their countries rested upon three factors: e strong popular demand for higher education, and the belief that it represents a sound investment, both for governments and individuals; the need to democratise entry to higher education by ensuring that those from low income families are not denied access to public or private universities; the declining capacity of state budgets to finance public higher education of sufficient quantity and quality, and the need to diversify sources of funding, to include private as well as public finance. A wide variety of arguments have been put forward in favour of student loans in Latin America, including: improved efficiency: loans can help to reduce drop-out and encourage students to choose courses and careers in the light of labour market needs; increased equity: it is recognized that access to higher education is highly inequitable, in most countries of the region, but free tuition or highly subsidized public institutions generally benefit the rich, rather than the poor, and loans are therefore more equitable than grants, although there m a y be a need for carefully targeted scholarships for those from very poor families; greater responsiveness: it is suggested that students with loans may be more highly motivated, and that loan schemes can be more flexible than other forms of student aid. On the other hand, loan programmes have certainly encountered major problems in some countries, including: high rates of inflation, and negative real interest rates in countries such as Argentina and Bolivia, have led to decapitalization of loan funds; 21

Student loans in higher education default has been high in many cases, particularly where there are high levels of graduate unemployment; excessive burdens of debt, particularly when borrowers are expected to repay loans in a short period. Such problems can be minimized, however, by the careful design and management of loan programmes and many countries in the region have recently introduced reforms designed to improve loan recovery and overcome problems of inefficient administration. Participants were eager to share ideas about which features had proved most successful in the past, and what reforms were most likely to prove effective in the future. 3. The design and management of loan programmes Debate about the design and management of student loan programmes focused on four main issues: size and coverage; selection of borrowers; terms and conditions of loans; recovery and repayment. Size and coverage Student loan programmes in Latin America and the Caribbean range from relatively large programmes, such as FUNDAPLUB in Brazil, which provides over 100,000 loans each year, ICETEX in Colombia, which gave 33,000 loans in 1990 and FUND APEC in the Dominican Republic, which provides about 22,000 loans a year, to small or even tiny programmes such as CIDEP in Bolivia, which provides only 170 loans a year, and IFARHU in Panama, which provides only 427 loans, but concentrates mainly on scholarships. In terms of coverage there is also considerable variation. In Brazil and Colombia about 10 per cent of all students receive loans, whereas in Bolivia and Venezuela the proportion is less than 1 per cent. It is difficult to obtain comparable figures, since some loan programmes state the proportion of all students who receive loans or scholarships, while others state the proportion of apphcants. APICE intends to carry out a survey to obtain comparable data.using common definitions, but even without such information it is clear that the coverage 22

Summary of the forum discussions of most loan programmes is strictly limited at present, and demand for loans greatly outstrips supply. Selection of borrowers Most loan programmes select borrowers on the basis of three criteria: financial need, academic merit, and type of course or institution. In some cases, for example under the FUNDAPLUB programme in Brazil, preference is given to students who have already completed part of a course, since one of its main aims is to reduce drop-out and wastage by students unable to complete a course because offinancialdifficulties, and the scheme is confined to students in private universities. In most countries loans are available for students in both public and private institutions, although in Chile many private universities have their own loan programmes for their own students. Several countries take account of manpower needs in allocating student loans, both to maximise the chances of repayment and because the purpose of the loan programme is to contribute to national development by financing higher education and professional training. FUNDAPEC carries out its own labour force surveys, to assess manpower demand in the Dominican Republic, and the loan programme in Guatemala is run by the Ministry of Labour and is geared very closely to estimates of manpower needs. The main determinants of eligibility in most countries are financial need and academic merit, and several countries attempt to target student aid on the most needy, although there is general recognition that the poorest families are usually excluded, since their children are unlikely even to apply for a loan, having dropped out of school at the primary or secondary education, or failed to achieve the school grades necessary for entry into higher education. Many loan programmes require borrowers to provide two guarantors, and this will also eliminate those from the poorest families. This is undesirable on equity grounds, but the extreme shortage of funds means that loan institutions want to maximise the likelihood of repayment, so efficiency goals may clash with equity. Because of this, there was a general agreement that grants may be a more appropriate form 23

Student loans in higher education of financial assistance for students from the poorest families, with loans offered to those who are able to provide guarantees. Terms and conditions of loans There are wide variations in the rate of interest charged on student loans and the length of repayment period. Compared to other regions, where student loans charge interest as low as 2-4 per cent, or may even be interest free, rates of interest appear high in Latin America and the Caribbean: 12 per cent in Bolivia and Honduras, 19 per cent in Costa Rica and 24 per cent in Colombia. Compared with commercial rates of interest in Latin America, however, these rates are highly subsidized, and in many cases are below the level of inflation. In Colombia and Costa Rica, for example, where student loans charge 24 and 19 per cent, respectively, commercial rates of interest are 36 and 34 per cent, and the interest charged on student loans is below the rate of inflation. Some programmes, for example in Chile and the Dominican Republic, do link the rate of interest charged on student loans, with the price index or the rate of inflation to ensure a positive real interest rate. FUNDAPEC adjusts its interest rate every six months, in line with inflation and FUNDAPLUB in Brazil also links interest rates with the price index, while IPHE in Peru indexes interest rates to Central Bank rates. It is significant that all these loan programmes are private; public agencies are much less likely to link interest on student loans with inflation or market interest rates. In Panama, for example, the rate of interest has been unchanged, at 5 per cent, since the scheme was established, and in El Salvador interest is only 6.5 per cent. The World Bank has recommended that student loan programmes in Latin America should charge positive real interest rates, even if social objectives mean that some degree of subsidy is desirable 9. The student loan reform project recently approved in Venezuela involves a significant increase in interest charged on loans by FGMA, and several participants at the forum believed that such a change would be feasible, although in El Salvador an increase in the interest charged on student loans led to a marked fall in the number of applicants. 9. See Carlson op. cil and Albrecht and Ziderman, op. cil 24

Summary of the forum discussions One possible way to increase interest rates without too damaging an increase in debt burdens is to extend the length of repayment, in order to reduce the burden of repayments for new graduates. Many loan programmes currently require borrowers to repay their loans within 3 to 5 years, although in several cases it depends on the size of the loan or the length of study period, for example in Bolivia the length of repayment is equal to the period of study, and in Colombia and the Dominican Republic it can be twice the period of study. Some participants were in favour of extending the period of repayment to reduce the burden of debt, but others feared that this would lead to greater risks of decapitalization of student loan funds. There is no general agreement about what constitutes a 'reasonable' burden of debt. In Colombia, ICETEX regards it as reasonable for graduates to devote 15 to 20 per cent of their income to loan repayments, in Peru 30 per cent of income is regarded as the maximum that should be devoted to loan repayments, whereas in El Salvador 10 per cent of income is regarded as the maximum for repayment purposes. There was considerable discussion of one of the basic dilemmas facing student loan administrators: how to avoid the twin dangers of decapitalization of the loan fund and excessive burdens of debt for young graduates. Everyone recognized that low interest rates, particularly if they are below the annual rate of inflation, will lead to a rapid depreciation in the capital value of a loan fund, which will severely limit the number of new loans that can be provided and, if not corrected, will eventually lead to bankruptcy. In order to avoid this danger, many programmes in Latin America demand a relatively short repayment period. However, this may result in a heavy burden of debt for young professionals, particularly where there is a danger of unemployment. Perhaps the most difficult task in the design of a student loan programme is to find an appropriate rate of interest that avoids excessive subsidy, which will result in de-capitalization of the fund or require frequent injections of new capital to maintain its value, and also avoids excessive burdens of debt, which will deter borrowers, particularly from low income families. This problem has been intensified by the high rates of inflation in Latin America in recent years. Participants agreed that no country has succeeded in establishing a truly revolving fund, and the search for an optimum combination of interest rates and repayment 25

Student loans in higher education periods to meet both efficiency and equity objectives remains a major preoccupation of student loan administrators. Recovery of loan repayments In the past several loan programmes suffered high rates of default, although in general the rate of loan recovery has been considerably higher in this region than in Africa or much of Asia, and several countries in Latin America have now reduced default rates to 10 per cent, or even less. Nevertheless, inflation, unemployment and political turmoil have caused problems in some countries, and there have recently been efforts in several countries, including Chile, Honduras, Panama and El Salvador, to improve loan recovery. Television campaigns have been conducted in Chile, to remind borrowers of their obligation to repay, there have been threats of legal action against defaulters and employers have been involved in collecting repayments in Ecuador and Guatemala. The influence of guarantors is regarded as very important in several countries, including Brazil, Colombia and the Dominican Republic, but guarantors are more likely to be used to apply 'moral pressure' or to give help in locating borrowers, than to actually repay the loan, though this is obviously the last resort in some cases. In Colombia ICETEX has a network of regional offices which administer student loans and organise recovery and there is a strong incentive for each regional office to maximise recovery in order to increase the availability of loans in that region in the future. It was suggested that requirements for efficient loan recovery include: An adequate legal framework to enforce repayment; strong incentives for the couection agency, whether public or private, to maximise the recovery of loans; counselling of borrowers to ensure that they understand their obligation and their repayment schedules; opportunities for renegotiation of repayments for those facing difficulties such as unemployment. 26

Summary of the forum discussions 4. Evaluation of student loan programmes and prospects for future reform and development The long history of educational credit institutions in Latin America and the Caribbean, and the existence of APICE, which serves as a network and mechanism for the exchange of information and ideas, means that student loans have been subjected to more scrutiny than in many other regions, and there is a greater enthusiasm and commitment to the idea of educational credit than in many other developing countries. Previous ПЕР forums have been concerned with the question of the feasibility of student loans as a means of financial aid for students. Participants at this forum were in no doubt about the feasibility of loans in Latin America and the Caribbean, since programmes exist in twenty countries and some of these have been operating for more than 25 years (FUNDAPEC in the Dominican Republic) or even 40 years (ICETEX in Colombia). Nevertheless the fact that coverage of loan programmes is still very limited and that problems of inflation and unemployment have reduced loan recovery in many cases means that there is still a degree of scepticism about the role of student loans as a means offinancinghigher education. The forum devoted some time to the question of how student loan programmes could be strengthened, made more effective and expanded in the future. There was general agreement that while student loans had served a very useful purpose in Latin America and the Caribbean, by helping to extend access to higher education, by diversifying sources offinance and by contributing to the development of the private sector in some countries, notably Brazil, Chile and Colombia, there was an urgent need to increase their coverage. Many loan programmes cater for only 1 to 3 per cent of the student body, which limits their effectiveness as a tool to promote equity, and their role in increasing cost recovery is also limited, since few countries, apart from Chile, have been willing to tackle the sensitive political issue of raising tuition fees in public universities. Many countries have taken steps to improve the efficiency of loan programmes, particularly the recovery of past loan repayments. There have been proposals to privatize some programmes and to reduce administrative costs in others. Computerization of records has helped to 27

Student loans in higher education improve efficiency, and improved training of staff in student loan institutions and is a high priority in several countries. APICE has been able to contribute to this by running workshops and sharing information on such questions as computer software and management techniques. The forum considered a number of options for future reform or development of student loans, including: increases in interest rates, to ensure positive, though subsidized, real interest; improved targeting of subsidies so that they are concentrated on students with the greatest financial need or courses which meet the greatest manpower needs;» increased efficiency of loan recovery and reductions in default; improved counselling and follow-up of borrowers, particularly in the period immediately after graduation, which is regarded as crucial in establishing regular repayment patterns; diversification of sources of finance for loan programmes, for example through development of new services, new types of programme such as the Education Savings Bonds being developed in some countries, or new payroll taxes or collective insurance schemes which have been introduced or proposed in others. The range of options being considered reflects the optimism and vitality of student loan institutions in Latin America and the Caribbean. One factor contributing to this has been the regional co-operation fostered by APICE, and the forum concluded with a proposal that this regional network could serve as a model for worldwide co-operation, so that the Panamerican Congress of Educational Credit Institutions might develop, in the future, into a World Congress. It is hoped that this series of HEP forums on student loans can contribute to this goal of improving the effectiveness of educational credit programmes by disseminating more widely the result of this sharing of ideas, experiences and lessons learned, and by developing the nucleus of an international information network. 28

III. Background paper Student loans in developing countries: feasibility, experience and prospects for reform by Maureen Woodhall Introduction Student loans have been widely advocated as a way of financing the private costs of investing in higher education and more than 50 countries now have loan schemes which enable students to borrow from government agencies or commercial banks in order to finance their tuition fees or living expenses, and to repay the loans after graduation. Most loan schemes offer government guarantees and some form of interest subsidy, and in many countries students receive financial support through a combination of loans, grants, scholarships or bursaries. In some countries small-scale loan schemes were introduced 60 or 70 years ago but loans were established on a significant scale in the 1950s and 1960s in many developed countries (Canada, Denmark Sweden and the USA, for example) and in a few developing countries (Colombia and India both set up loan schemes in the 1950s). A review of international experience with student loans (Woodhall 1983) found examples of student loan programmes in Western Europe, North America, Japan, Latin America and Asia and a few in Africa. More recently there has been a new upsurge of interest in student loans in both developed and developing countries and significant changes have been introduced in several countries with established loan programmes (Sweden, Germany and the Netherlands, for example); a new loan scheme has been established in the United Kingdom and Australia has introduced a Higher Education 29

Student loans in higher education Contribution Scheme (HECS) which allows students to defer payments until after graduation, and these deferred payments are then collected through the tax system. (See Woodhall 1989 for a discussion of recent changes in Australia, Sweden, Japan and the United Kingdom). At the same time a number of developing countries are now seriously considering student loans as a means offinancinghigher education. The World Bank has advocated loans on grounds of both efficiency and equity (World Bank 1986 and 1988) and the Commonwealth Secretariat and the World Bank have published guidelines for developing countries considering how to design a student loan programme (Woodhall 1987 a and b). The subject of student loans is therefore very topical at present, and the International Institute for Educational Planning is therefore holding a series of Education Forums on student loans. The fourth of these Education Forums is being held in Santo Domingo, Dominican Republic, in June 1992, and is devoted to student loans in Latin America and the Caribbean. 2. Research on student loans Thefirstof the 1ШР "Educational Forums" on student loans was held in Paris in 1989 and was concerned with recent experience in Western Europe and the USA. (For a summary of the discussion see Woodhall 1990). Similar forums were held on Asia, (in Malaysia in November 1990) and on English-speaking Africa (in Kenya in June 1991). (See Woodhall 1991 a and b for summaries of the forums on Asia and Englishspeaking Africa). The purpose of these forums is to share experience on student loans, to analyze the main issues raised by the introduction and use of loans and to discuss ways of overcoming problems and difficulties and improving the management of loan programmes in the future. Participants in the forums have exchanged information and ideas in a very frank and open way. Discussions have raised both positive and negative issues, and the countries represented at the seminars include countries where loan programmes are regarded as successful (Japan and Hong Kong), countries which have encountered major problems, but which are embarking on attempts to improve and reform loan programmes (Kenya and Nigeria), countries which have already introduced major changes to reform student loans (Sweden and Ghana), countries where loans are 30

Background paper regarded as unsuccessful (India) or which have abandoned government financed student loans (Indonesia), and finally countries which are currently considering introducing loans (Botswana and Uganda). The World Bank is currently conducting a major review of higher education policy, which involves a programme of research and studies, regional and international seminars. As part of this programme Albrecht and Ziderman (1992) have carried out a study of the role of student loans in financing higher education which examines experience in both developed and developing countries and proposes a number of reforms designed to improve the effectiveness of loans as a means of cost recovery. 3. Summary of issues and experience in Asia and English-speaking Africa The HEP forums on Asia and English-speaking Africa both covered four main issues: existing patterns of finance for higher education and systems of student support; reasons for interest in student loans; design, management and administration of student loan programmes; the feasibility of student loans in developing countries. Higher education is highly subsidized throughout Asia and Africa and in many countries students receive not only free tuition but also grants or bursaries covering living expenses. Many countries now have loan schemes to provide financial support for students" living expenses, books and, in a few cases, tuition fees. In Asia loan schemes now exist in China, Hong Kong, India, Japan, Malaysia, Philippines, the Republic of Korea and Singapore; Indonesia had a student loan programme from 1982, but it was abolished in 1990, while Thailand is planning to introduce student loans shortly, as part of a reform of higher education finance. In Africa there are now student loan schemes in six English-speaking countries: Ghana, Kenya, Lesotho, Malawi, Nigeria and Zimbabwe. The governments of Botswana and Uganda are currently considering introducing student loans and Tanzania, 31

Student loans in higher education which had a short-lived programme, is once again considering the feasibility of loans as one element of a cost-sharing programme. Brief details of the current systems in all these countries are given in the reports of the HEP forums (Woodhall 1991 a and b) and more extended descriptions and analysis are included in Higher Education (June 1992) in articles on China (Shouxin and Bray), India (Tilak) and Singapore (Shantakumar), Botswana (Mokgwathi), Ghana (Kotey), Nigeria (Chuta) and Uganda (Kajubi). 4. Reasons for interest in student loans Both in Africa and Asia student loans have been justified on grounds of financial stringency, increasing efficiency or improving equity. Four main reasons were identified at the forums for the renewed interest in student loans in developing countries: e financial pressures on public budgets, which mean that many governments are seeking ways to increase private contributions to the costs of higher education; changing educational priorities have resulted in several governments giving higher priority to primary and secondary education, and trying to increase cost recovery in higher education, in order to free resources for lower levels of education; attempts to improve the efficiency of higher education; concern about equity leads advocates of loans to argue that loans will result in a more equitable sharing of the costs of higher education than a system of grants, scholarships and free tuition, financed from government revenue, which mainly benefits students from upperincome families, who in the future are likely to enjoy higher than average incomes. 5. The design and management of student loan programmes Student loan schemes differ widely in their design, form of administration and management, extent of public subsidy and methods of collection. Although loans are advocated on the grounds that they will help overcome the severe financial constraints facing governments, by 32

Background paper shifting part of the financial burden of higher education from public to private funds, Albrecht and Ziderman (1992) conclude that the high degree of subsidy and default in most loan programmes in developing countries mean that "the government continues to bear the cost burden of higher education and/or student maintenance expenses... and in some instances, loans have been more expensive than outright grants". In Asia, default rates are high and cost savings are minimal in India (Tilak 1992); financial problems caused the government to abandon student loans in Indonesia and in Sri Lanka, but in Hong Kong and Singapore default rates are low (see Bray 1986 and 1991 and Shantakumar 1992). In Africa high default rates have plagued loan schemes in Nigeria, Ghana and Zimbabwe and Albrecht and Ziderman calculate that in Kenya the high costs of interest subsidies combined with default rates of over 80 per cent mean that loans are actually more costly to administer than grants. Although there are considerable differences between countries in the way student loan programmes are administered, there was general agreement at the forums that conditions for the effective management of student loans include: sound financial management to ensure that the purchasing power of the capital of a student loan fund is maintained, and the costs of administration of loans are adequately covered; this means that realistic interest rates must be charged on student loans; a sound legal framework for student loans, to ensure that loan recovery is legally enforceable; e effective machinery for targeting financial support and selecting recipients of subsidies on grounds offinancial need or manpower priorities; effective machinery for loan recovery, to minimize default; publicity campaigns to ensure widespread understanding and acceptance of the principles of student loans and the importance of the obligation to repay loans. 33

Student loans in higher education 6. The feasibility of student loans in developing countries Critics of student loans question whether loan schemes are feasible in developing countries which lack the financial and administrative infrastructure needed to ensure effective management and loan recovery. High rates of default, problems of graduate unemployment, inadequate banking mechanisms and political opposition and public hostility to the idea of loans are all cited as reasons why loan programmes would not work in developing countries. Certainly many programmes have faced formidable problems. Student loans have been abandoned in Indonesia and Sri Lanka. One of the first schemes in Africa, the Ghana University Students" Loan Scheme, was introduced in 1971 but abandoned after less than a year due to political opposition and the fall of the government that had introduced loans. The initial failure of loans in Ghana is often cited as evidence that student loans are unworkable in Africa, but in fact this early experience offers some interesting lessons. Williams (1974) analyzed the case for the introduction of loans in Ghana, and the reasons for their failure. Detailed proposals werefirst put forward in 1970 by a Committee which advocated a "modestredistribution" of the cost burden of university education on grounds of social justice: "It is partly to reduce the burden of educational costs on the tax paying community, and partly to achieve greater social justice that the Committee feels that students and/or their families should themselves contribute something directly to the public cost of education at university institutions. In this way, the beneficiaries will partially repay the generosity of the community in educating them and thus make it possible for educational facilities to be expanded more widely and more quickly to others." (Republic of Ghana, 1970, p. 10) This is remarkably similar to the argument put forward twenty years later in Australia by the Committee that proposed the introduction of the Higher Education Contribution Scheme on grounds that it would represent: 34

Background paper "a funding partnership in which the beneficiaries make a direct and fair contribution to the cost of higher education, to supplement the funds provided by taxpayers... Australian taxpayers should not be expected to carry the burden of financing the growth envisaged in higher education, particularly since few directly enjoy its financial benefits." (Committee on Higher Education Funding, Australia 1988) Similar arguments have been used in several other countries to justify the introduction of loans; for example Shantakumar (1992) quotes just such an argument for Singapore. Despite the fact that loans were advocated in Ghana on grounds of social justice there was widespread hostility to the scheme, particularly from the politically vocal student body. In fact Williams suggests that the failure to mobilize public opinion on the advantages of loans, and a feeling among students that they were being made "scapegoats of the country"s failure to control higher education costs" were among the reasons why the student loan scheme ran into such immediate difficulties, although he believes that loans "seemed to have been accepted by the public at large and even student opposition was less vocal once the scheme was in operation." His final verdict on this experience is still worth quoting today: "Student loans are not a soft option for African Governments, an easy alternative to difficult policies. They can usefully contribute to the improvement of higher education in Africa and to fairer African societies. But if they are to be fully accepted they must be part of a programme of common endeavour with equality of sacrifice by leaders as well as led." (Williams, 1974, p. 343) In fact loans were re-introduced in Ghana in 1975 but still faced problems of massive default. Kotey (1992) describes the latest attempts to reform loan recovery, by linking it with the social insurance system and giving to the Social Security and National Insurance Trust (SSNIT) the responsibility for collecting loan repayments. It is believed that this will 35

Student loans in higher education help to increase loan recovery significantly, and a similar experiment in Singapore is described by Shantakumar (1992). Other measures to improve loan recovery include the use of employers who can deduct loan repayments at source, which is being tried in China and proposed in Kenya. Both Nigeria and Zimbabwe are currently designing improved mechanisms for data management and loan recovery. Several countries are also trying to develop means tests, to identify financially needy students in order to target student aid more effectively, which is one of Albrecht and Ziderman"s recommendations for improving the efficiency of student loan programmes. Both Malawi and Uganda give universities the responsibility for selecting students from the lowest income families to receive loans in Malawi and subsidized employment in Uganda. Selection on the basis of family income is also attempted in Nigeria and Zimbabwe, Indonesia and the Philippines. In India, also, student loans are intended for low-income students, but Tilak argues that a system of discriminatory pricing (under which students from wealthy families would pay higher fees than those from low-income families) would be more equitable than student loans. However, this would require accurate and sensitive tests of family income which are difficult to devise and administer. Very elaborate assessment of family income is used to determine eligibility for student loans in Hong Kong, but accurate data on family income is very difficult to obtain in most developing countries. This problem also arises in the case of proposals for incomecontingent loans, which are advocated by Barr (1989 and 1991) and discussed by Albrecht and Ziderman (1992). Developing countries in Africa and Asia have not yet attempted to devise variable repayment schedules or repayment based on income levels, nor to offer automatic postponement of loan repayments for the unemployed or those with low incomes, as is the case in Australia, Sweden and the United Kingdom. Despite the administrative problems and low levels of loan recovery that have been a feature of many student loan programmes in developing countries in the past, there was a general recognition at the forums of the need to find new sources of finance for higher education and to promote wider cost-sharing, a belief that student loans do have a part to play in achieving these objectives, and optimism about the scope for improving management and efficiency of existing loan programmes. Other options 36

Background paper should also be considered, for example compulsory payment of a proportion of graduates" incomes, which is currently adopted in Botswana, graduate payroll taxes, which have been advocated by Colclough (1990) who argues that they would generate more income for higher education than a student loan scheme, or community service schemes, as suggested by Albrecht and Ziderman. 7. Conclusion The general conclusion of the forums on student loans in Asia and English-speaking Africa was that student loans can make a contribution to relieving thefinancialpressures facing higher education, provided that loan programmes are properly designed, effectively managed and a high rate of loan recovery is achieved. They are not, however, a simple solution to thefinancial problems facing higher education in developing countries, and in many countries reforms and improvements in the efficiency of existing programmes are urgently needed. Similarly, Albrecht and Ziderman (1992) conclude that: "while [student loans] have not always worked well, we have argued that suitably reformed, they can constitute a productive, though limited mechanism for cost recovery." It is hoped that this Educational Forum on student loans in Latin America and the Caribbean will contribute to the debate on how to design or reform student loans in developing countries. Student loans are widely used throughout the region of Latin America and the Caribbean to provide financial support for students in higher education. An analysis of this experience will therefore be very valuable in showing how student loan programmes can be designed and managed in order to maximize their contribution to efficiency and equity in higher education finance. 37

References Albrecht, D. and Zideiman, A. (1992) "Student loans and their alternatives: improving the performance of deferred payment programs" Higher Education, Vol. 23, No. 4, June 1992. Barr, N. (1989) Student loans: the next steps. Aberdeen: University Press for the David Hume Institute, Edinburgh. Barr, N. (1991) "Income-contingent student loans: an idea whose time has come" in G.K. Shaw (Ed) Economics, culture and education: essays in honour of Mark Blaug. Aldershot: Edward Elgar, pp. 155-70. Bray, M. (1986) "Student loans for higher education: the Hong Kong experience in international perspective", Higher Education, Vol. 15, pp. 343-354. Bray, M. (1991) "Strategies forfinancinghigher education: perspectives from Hong Kong and Macau", Higher Education, Vol. 21, pp. 11-25. Chuta, E. J. (1992) "Student loans in Nigeria" Higher Education, Vol. 23, No. 4. Colclough, С (1990) "Raising additional resources for education in developing countries: are graduate payroll taxes superior to student loans?", International Journal of Educational Development, Vol. 10, pp. 169-180. 38

References Committee on Higher Education Funding, Australia (1988) Report of the Committee on Higher Education Funding, Canberra: Australian Government Publishing Service. Johnstone, B. (1986) Sharing the costs of higher education: student financial assistance in the United Kingdom, the Federal Republic of Germany, France, Sweden and the USA. New York: College Entrance Examination Board. Kajubi, W. S. (1992) "Financing of higher education in Uganda" Higher Education, Vol. 23, No. 4 Kotey, N. (1992) "Student loans in Kenya" Higher Education, Vol. 23, No. 4. Li Shouxin and Bray, M. (1992) "Attempting a capitalist form of financing in a socialist system": student loans in the People"s Republic of China" Higher Education, Vol. 23, No.4. Mokgwathi, G. (1992) "Financing higher education in Botswana" Higher Education, Vol. 23, No. 4. Republic of Ghana (1970) Report of the Committee appointed to advise the Government on the future forfinancialsupport for university students in Ghana. Shantakumar, G. (1992) "Student loans for higher education in Singapore" Higher Education, Vol.23, No.4 Tilak, J. (1992) "Student loans infinancinghigher education in India" Higher Education, Vol. 23, No. 4. Williams, P. (1974) "Lending for learning", Minerva, Vol. XII. 39

Student loans in higher education Woodhall, M. (1983) Student loans as a means offinancinghigher education: lessons from international experience. Washington DC: The World Bank. (World Bank Staff Working Paper No. 599). (1987a) Lending for learning: designing a student loan programme for developing countries. London: Commonwealth Secretariat. (1987b) "Establishing student loans in developing countries: some guidelines" Washington DC: The World Bank. (World Bank Report No. EDT85). (1989) (Ed), Financial support for students: grants, loans or graduate tax? London: Kogan Page, with the Institute of Education, University of London. (1990) Student loans in higher education: 1. Western Europe and the USA. Paris: International Institute for Educational Planning. (Educational Forum Series, No. 1). (1991) Student loans in higher education: 2. Asia. Paris: International Institute for Educational Planning. (Educational Forum Series, No. 2). (1991) Student loans in higher education: 3. English-speaking Africa. Paris: International Institute for Educational Planning. (Educational Forum Series No. 3). World Bank (1986) Financing education in developing countries: an exploration of policy options. Washington DC: The World Bank. (1988) Education in Sub-Saharan Africa: policies for adjustment, revitalization and expansion. Washington DC: The World Bank. 40

IV. Annexes Annex A Summaries of student support systems and edited extracts from background papers

I. Edited extracts from opening address on educational credit by Gabriel Betancur Mejia 1. Educational credit and loans to students Fifty years ago, in June 1942, the Colombian Tobacco Company in Medellin, through its president, Cipriano Restrepo Jaramillo, granted me a loan of US$1,000 to supplement the scholarship which I had received from the New York Institute of International Education and the University of Syracuse to specialize in Public Administration. Thisfinancing was the beginning of educational credit for me, and at the end of that year in the University of Syracuse, it began to take an institutional form with the idea of creating a body whose purpose would be to finance studies abroad. It became more concrete in December 1944 in my thesis for a Master's degree in Public Administration, 'Project for the creation of the Colombian Institute for Advanced Training Abroad'. I was helped greatly in this by my Dean, William D. Mosher, and my Counsellor, Professor Robert Steadmen. ICETEX became areality on the 3rd of August, 1950, with the decree adopted by the Council of Ministers and the President of the Republic, Dr. Mariano Ospina Pérez. In 1952, President Roberto Urdaneta Arbelaéz appointed me as thefirstdirector of the Institute. I began my work on 22 October of that year, which means that ICETEX has now been active for 40 years. In the beginning its resources amounted to US$40,000. 2. The contributions of ICETEX The contributions of ICETEX can be summarized as follows: (i) The creation and development of an organization entirely devoted to promoting and financing studies abroad, to train leaders to ensure Colombia's complete development. A convincing demonstration of the effectiveness of educational credit with portfolio recovery. The 43

Student loans in higher education establishment of a revolving fund, so that the Institute's resources could bereinvestedto continue achieving its aims. (ii) The expression of a basic social philosophy in order to establish a policy for granting loans to candidates with both academic and personal merit, but without resources. Coverage of studies corresponding to the country's needs, in an effort to serve the broadest areas of learning. Equitable distribution throughout all the regions of the country. As far as possible, diversification in the choice of countries and their educational institutions. (iii) Seeking maximum administrative efficiency at minimum cost. Ensuring effective organization of credit based on the guarantee of an appropriate choice ofrecipients and their loan contract, with their corresponding promissory note and solvent guarantors, a bank guarantee and life and health insurance. The latter became the responsibility of ICETEX years later with the creation of the corresponding guarantee fund. (iv) A change in mentality from scholarships, which are free-of-charge, to credit, which creates a sense of social responsibility. This guaranteed the creation of social capital for the benefit of future generations. (v) The creation of a national awareness of the need and advantage of investment in the training of human resources. (vi) Extensive information about its services to the whole country, with the co-operation of TV, radio and the press. In summary, the contribution of ICETEX can be represented by the slogan 'We lend to the student and the professional pays us back'. 3. The development of the services ICETEX began its services financing recipients so that they could specialize abroad. Two years later, undergraduate students asked for the services to be extended to higher education studies in Colombia. This began in 1954, when some budgetary items for university scholarships were transferred from the Ministry of Education to ICETEX, to be converted into loans, applying an award system. In order to increase coverage of its services, the Institute began supplementing international scholarships, in the case of those offered by foreign governments and international bodies, which were awarded on the basis of ICETEX criteria. 44

Annex A Extractsfromopening address This experiment led ICETEX, with the government's support, to create the system of co-ordinating international scholarships so as to make sure that extensive information about their existence was circulated throughout the country via the media, and so that there was a strict рге-selection of the candidates in order to comply with the selection criteria, both of ICETEX and the organization making the offer. After itsfirstexperiences with loans to artists, ICETEX proposed to the National Government that a fellowship fund be created for them. This was accepted, and the corresponding selection was commended to the Committee mentioned above. To fulfil the national government's commitment to international exchanges, the Institute assumed the task of administering scholarships for foreign students in the country, from the promotion stage to selection and administration of the scholarships. In 1967 the Ministry of Education issued a decree adopting ICETEX's policy for its scholarships, and in 1970 its administration was transferred to the Institute. These scholarships were awarded and administered throughout the country for outstanding students from incomplete rural schools to ensure that they could finish their primary schooling in complete schools and receive scholarships for secondary education. Scholarships were also administered for teachers, to improve their professional status, and for resident medical students. Funds for regional development, from budgetary items in the National Congress, the Departmental Assemblies and Municipal Councils, first appeared in the latter part of the 1960s. In order to cope with the numerous requests for information about studies in the country and abroad, vocational guidance services were set up. In view of the demand for professionals from public and private companies, a corresponding employment service was set up to offer the services of ICETEX beneficiaries. In order to reduce the costs of international transport, a 30 per cent discount was obtained, and a special department organized to that effect. One of the services which the Institute has continued to expand is the administration of funds from national, public and private bodies for the development of human resources. At present, a data bank on top-level human resources is being organized. 45

Student loans in higher education 4. Financial sources for educational credit Faced with the need to increase its financial resources to cover a greater number ofrecipients, ICETEX developed the following financial sources, in chronological order: Contributions from the national government's budget. Portfolio recovery. Funds from national and international public and private companies for the development of human resources. Obtaining credit from the Colombian banking system, and the rediscounting of it in the Banco de la República. Funds from the National Congress, Departmental Assemblies and Municipal Councils for the development of human resources. Profit sharing in the Banco de la República through the creation of a corresponding fund. International financial resources. Loans from internationalfinancialbodies. Educational savings bonds placed onfinancial markets. Interest on educational credit. Commission from the administration of the services already mentioned. Income from investments in reserve funds for the fulfilment of educational credit commitment. Income from the insurance and guarantee services. 5. Contribution to the organization of educational credit Types of credit. For study abroad; for study inside the country; to supplement scholarships; full loan, partial loan; new line responsibilities of ICETEX; responsibilities of the Regional Offices; dissemination of the credit service; Adjudication Committees; processing of applications; criteria for awarding scholarships; determining the size of loans; guarantees and legalization; authorization for disbursement; renewal of credit; payment of credit; cancellation; academic andfinancialobligations of the recipients; interest and incentives; choice of priorities; portfolio recovery and the legalrightto deduct loan repayments at source. 46

Annex A Extracts from opening address There are other interesting aspects concerning the experience acquired over the forty years that ICETEX has been in existence, but for the sake of brevity in this document, we will only touch upon them rapidly. From a quantitative point of view, during its existence, the Institute has provided services to more than a million recipients and has loaned more than US$100 million. ICETEX's experience has inspired others to create Institutes and similar services in Latin America and other regions. In 1969, the Panamerican Association of Educational Credit Institutions (APICE) was created. 47

IL Edited extracts from background paper on APICE's reflections on educational credit by Jorge Tellez Fuentes It is a fact that today the main role of education is seen as the key factor in human and social development. Recent documents prepared by the World Bank 1, UNDP 2 and ECLAC 3 agree on the high yield on investment in education. Although the countries of Latin America and the Caribbean CLAC) have made great efforts in the past three decades to increase the supply of education, often to the detriment of quality, there has been a change in the actual policies adopted by governments. They no longer consider education as a priority and every year they allocate less resources to it. When we look at priorities, the World Bank considers that "the public sector in low-income countries should concentrate its efforts on primary education" 4. One of the reasons behind this choice of priority lies in the high cost of higher education and the desire not to divert resources which can solve the problem of illiteracy and primary or basic education for all. What effects will these recommendations to governments have on policies for higher education? UNDP refers to the need to design more effectively the programmes for human development, and points out that "tertiary education is costly and covers only a small proportion of the population, generally those in 1. World Bank. (1991) Report on world development 1991. The task of helping development 2. UNDP. (1991). Human development: 1991 report. 3. ECLAC. (1992). Education and knowledge: basic pillars of changing production patterns with social equity. ECLAC/UNESCO United Nations LC/G 1702, Santiago, Chile. 4. World Bank. (1991). ibid. 48

Annex A Extracts from background paper the high income groups... in this case it might be appropriate to introduce user charges, if they are combined with a system of loans and scholarships for the needy" 5. The same alternative is proposed by ECLAC, and manyresearchers, Reimers, Schiefelbein, Drucker and Carlson, among others. This affirmation raises the possibility of alternatives for financing higher education which are different from what the government offers. Mechanisms such as educational credit, scholarships, and a combination of the two: scholarship-credit are recommended. 1. Student loans (educational credit) as an alternative form of financing higher education in LAC Educational Credit (EC) programmes began in the 1940s with the personal experience of a student, Gabriel Betancur Mejia, and they were institutionalized in his thesis, the result of his studies in Economics, 'Project for the creation of the Colombian Institute for Advanced Training Abroad'. Later, when he returned to Colombia as a graduate, in 1950, he convinced President Mariano Ospina Perez to sign the Decree which established the Colombian Institute for Technical Studies Abroad, ICETEX. This institution's experience has served as a model for several countries. Today we can say that the idea of educational credit as an alternative for financing higher education is well known, accepted and developed. There are programmes in at least twenty countries in LAC, among which are Argentina, Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru, Trinidad, Tobago and Venezuela. At present, the Panamerican Association of Educational Credit Institutions (APICE), founded in 1969, is accelerating contacts to explain the idea in Paraguay and Uruguay where an initial programme for educational credit exists in the Catholic University of Uruguay, 'Dámaso Antonio Larranaga'. There are many institutions whose aim is to use EC, or who have programmes of this kind in their services: universities, banks,firms and foundations other than governmental bodies. The Directorate for 5. UNDP. (1991). Human development, op. cit. 49

Student loans in higher education Educational Credit Institutions and Programmes in APICE currently registers more than 80 programmes spread throughout Latin America. Colombia, the cradle of E C, is particularly rich in its variety of institutions and programmes. The Caribbean Development Bank (CDB) has a programme of student loans in eleven countries of the West Indies. In general, Educational Credit programmes share the following aims: Making access to higher education more democratic by helping students with good academic results and limited economic resources to finance their studies. Contributing to the development of a country by directing loans to areas defined in accordance with national policies and the needs of economic and social development. Providing a source of funds to support the financing of higher Education and supplement government efforts in this area. Making the student aware of his responsibility as a member of society and stimulating a sense of solidarity in him which will broaden access to higher education through the use of funds recovered from short- medium- and long-term loans. Various authors have analyzed the advantages of educational credit. The following is a summary of the main arguments in favour of educational credit. It provides resources to finance higher education. It is a good investment for the student because it gives him access to higher education which in the future will mean a greater number of jobs and better opportunities for finding them; higher wages and incomes; a lower risk of unemployment; higher status and upward social mobility. It is equitable because it encourages a sense of social solidarity in the student through the creation of a revolving fund which is supplied by portfolio recovery. e It stimulates awareness of the student's personal responsibility in the use of his resources - academic abilities and time. He knows that they are the source of his development, and that they are an investment which will have a better return if they are used correctly. 50

Annex A Extractsfrombackground paper It forces universities to compete to reduce costs, attract students and use their resources effectively. It can be used as a stimulus to offer incentives to students if they choose certain careers or if they obtain good academic results. It is up to the independent student to choose the institution in which he wants to study. It avoids the class separation of universities for the rich and for the poor, and facilitates the students' social promotion. It promotes self-financing for the educational establishment, and therefore a greater independence. It gives greater dignity to the student by making him more responsible for his education, which he will have to pay for in the future, and it makes him more demanding with regard to its quality. It creates a stimulus for the educational establishment to make an effort to improve quality so as to attract better students. It must also encourage the planning of human resources, better knowledge of academic costs and the improvement of the institutional educational administration. It leads to greater equity, since it enables more students with limited resources to receive higher education. It reduces losses in study time as aresult of strikes or stoppages. It makes it possible for a greater number of students to devote themselves totally to their studies, without having to work. It helps to keep more students in school, thus increasing their efficiency, since a student will make a greater effort to study if it costs him money to fail or drop out. There is an increase in overall equity, since the person who pays for at least a part, is the one who reaps the benefit. It makes it possible to choose certain careers which should be promoted, thus reducing the attraction of others which are already saturated. It can also be directed towards lower income groups, and the amount received will vary in accordance with the person, or his family's income. It can even be refused if it can be ascertained that the person has sufficient resources. It makes it possible for some of the family's resources to be used for other needs: food, housing, health or the education of other members. 51

Student loans in higher education It increases private and public financing, since it attracts other establishments, such as banks, to make loans, and firms to create special funds to improve the level of their staff. It promotes post-graduate studies and research, which leads to greater academic quality. It can even be used to stimulate research and the training of researchers. It could also be used for other services which improve this quality, such as study travel, participation in professional seminars, health insurance, the purchase of text books and reference books, etc. It provides information which makes it possible to create labour exchanges or job centres. It also facilitates development planning. There are also arguments against educational credit because: Loan recovery does not have a favourable effect on the State's shortterm resources because the portfolio will be recovered in the medium- or long-term and over a long repayment period. The administration of loans can be so costly that it might be preferable to give scholarships to the students and avoid the problem of portfolio recovery as well as the political cost of not offering free education. Loans can demotivate students with limited resources because they do not wish to get into debt.this would also go against the principle of equity which educational credit is trying to achieve, because only those who are fairly certain to be able to pay will take on the debt... Normally, those who have this certainty do not come from families with limited resources. It is not easy to define suitable conditions for loans, especially since the macroeconomic conditions of countries are changing all the time. Loans can interfere with the student's freedom of choice because they oblige him to choose from careers which are financially interesting, since he has to think about paying back the debt. This way, he cannot choose a profession which is badly paid, even if it is his 'vocation', or if he has talents for it. Few students with limited resources can offer acceptable security. Consequently, the loans go to those who have security, and not to the poor. 52

Annex A Extractsfrombackground paper Graduates can have problems reimbursing a loan if they are sick or unemployed, a fact which at present is a fairly high risk. Devaluation affects the purchasing power of portfolio recovery. Similarly, high inflation rates in some countries have in practice converted loans to scholarships. Lack of foresight in these aspects has significantly affected Argentina, Bolivia and Brazil, to mention a few. Recovery rates are often low. This affects institutional efficiency. Students who do notfinishtheir studies have problems re-paying the debt. «The professional starts his active life with a debt. Some say that women graduates may postpone getting married for this reason. 2. Points to be considered Although it is a fact that educational credit has existed for more than 40 years in Latin America and is working fairly successfully in 20 countries of the continent, studies prepared both by the World Bank 6 and APICE 7 suggest a number of conclusions and options for reform of Educational Credit Institutions. Options for reform, to increase the effectiveness of educational credit, include: Increases in interest rates, because if they are not in agreement with inflation and commercial rates, EC programmes will need permanent subsidies. Changes in the amount of the loans, so that the future professional's repayments should not, in general, represent more than 10 per cent of his income. Furthermore, the amortization time should be revised to reduce the risk of default or wasted portfolio. Measures to reduce default and wasted portfolio could include deductions from wages and salaries, strengthening the legal basis for 6. Carlson, S. (1992). Privatefinancingof higher education in Latin America and the Caribbean. Washington, D.C.: World Bank LAC Technical Department Regional Studies Programme, Report No. 18. 7. Orostegui, F.R. (1992). Analisis del Creidto Educativo Para Postogrados: El Caso de America Latina, Bogota: APICE. 53

Student loans in higher education recovery, direct simplification of procedure, the establishment of an insurance policy as a requisite, incentives for the administrative staff responsible for debt recovery, and permanent technological updating of the systems for portfolio recovery. Research carried out by APICE 8 on educational credit to finance postgraduates in nine countries in LAC, suggests that effectiveness of EC at the institutional level could be improved. APICE draws the following conclusions from its research: (i) Educational Credit institutions whose legal status is mixed, sometimes have more facilities than those which have purely public or private status. Each unit should examine its legal status so as to adapt it to conditions which help it to achieve its aims more easily. (ii) The legal situation in most Latin American countries sometimes becomes an impediment for the development of EC bodies. It is necessary to issue legal frameworks exclusively for educational credit activities, so that the rules allow public and private institutions to develop efficiently. (iii) There is a wide range of financial mechanisms and methods which, when rationally combined, can optimize the institution's recovery of debt. It is recommended that an in-depth analysis be made of the different institutional experiences in order to optimize the service and increase resources. (iv) It is necessary to revise the sources of financing of educational credit to give greater preponderance to the most sound ones, and those over which the institutions have total independence. This will make it possible to support undergraduate programmes and the training of researchers in the medium- and long-term. (v) A joint evaluation should be made of the variety of services for users of EC. Notwithstanding, at present educational credit for studies abroad (the USA and Europe) is only a complement to financing, and not the main instrument. This is due to the low coverage of the cost of enrolment (30 per cent on average) and the 8. Orostegui F.R., (1992) Analisis del Crédito Educativo Para Postgrados: El Caso de America Latino. 54

Annex A Extracts from background paper coverage of the cost of enrolment (30 per cent on average) and the almost complete absence of financing to support the student As well as this, other services such as credit for transport, health insurance and so on, are offered by very few institutions. This fact needs reviewing. (vi) A critical lack of planning and evaluation systems and practices was noted in the institutions. Consequently there is no tradition of research which might result in impact and follow-up studies, analysis or prospective and similar studies. Likewise, information systems are poor and are not approved internationally. As a result, precise studies cannot be carried out. The institutional authorities must become aware of the problem and allocate resources to devise methodologies and models to solve this problem which does not allow for modern and dynamic management. (vii) The allocation of credit for postgraduate studies is taking a negative direction in all the institutions studied, except in CONAPE, Costa Rica. This phenomenon is accentuated when it comes to studies abroad, andresultsin an increase in the lack of scientific staff and the highly qualified professionals that a country needs to achieve development. The Latin American Community of Nations wih provide a favourable framework in which to exchange and benefit from educational, scientific and technological resources. It will also mean lower costs for students and therefore less pressure on limited institutional resources. Mechanisms such as the educational clearing house will make it possible to optimize the idea. (viii) The number of loans and even their amount have decreased steadily, partly because of the limitations in institutional resources. It is urgent to explore sources of financing which make it possible to cover the high costs of postgraduates and at the same time offer services in accordance with the economic conditions of the average professional worker in Latin America. It is suggested that a more dynamic study be made of the possibility of using funds from the reconversion of the foreign debt (loans swaps). (ix) The decrease in the allocation of educational credit for postgraduates also corresponds to the existence of different priorities in the institutions. An appeal is made for them to evaluate the need for 55

Student loans in higher education (x) (xi) (xii) postgraduate staff through national human resources studies, for example, and to act accordingly. The ability of the educational credit institutions to negotiate, and the level of their relations with national decision-making bodies such as the Ministry of Education, the Planning Department, the Department for Scientific Development and the Department for Higher Education, are poor, and this does not lead to an acceptable level of inter-institutional co-ordination, nor to them being recognized as bodies whose role is essential. This means less support for what is required, especially if you consider existing demand in all countries. A policy is needed to approach the bodies mentioned above, based on an image of Educational Credit as a viable and permanent financing mechanism to train high level resources. It will contribute towards shifting knowledge away from the central countries and will make it possible to transfer and generate science and technology towards the periphery. If the institutions manage to achieve the technical and political space that they deserve, they will automatically have access to resources and other benefits which will strengthen them in carrying out their mission. Educational credit is in general benefitting the middle socioeconomic classes. At the same time, the upper socio-economic classes are benefitting most from educational credit for postgraduate studies abroad. In practice, EC has lost its merit as a support mechanism for the underprivileged. Resources must be found and conditions re-adjusted, especially for studies abroad, at least for the middle classes. Educational credit's contribution towards the training of scientists is increasingly modest, if you take into account the gradual reduction in resources devoted to financing post-graduates, as well as the latter's concentration in the areas of administration and medicine, to the detriment of engineering and basic sciences. 56

III. Bolivia 1. Thefinancing of higher education in Bolivia In spite of the provisions of the Constitution, in Bolivia, with severe economic limitations and a student population which is increasing in number every year,financialconstraints do not allow the State to provide totally free higher education. The student must cover some costs, including enrolment fees and expenditures on books, study materials and maintenance. In addition to economic problems, there are shortcomings in the teaching levels and curricula of the state university sector, reinforced by social and other conflicts which lead to a longer period of study necessary to obtain a degree. This in turn means that a considerable number of students drop out while others stay at the university for many years. As a response to the problems faced by the state university sector, private universities were established in Bolivia, under Article 188 of the State Political Constitution which states that: "Private universities recognized by the Executive Power are allowed to function and award academic diplomas. Degrees, by national decree, will be awarded by the State". It also states that "The State will not subsidize private universities. The way in which they are run, their statutes, curricula and study plans will require prior approval by the Executive Power". The 27 public institutions for higher education which exist at present are as follows: Universities Integrated teachers' training colleges Technological and technical institutes 9 (33 per cent) 7 (26 per cent) 11 (41 per cent) Of the eight private institutions for higher education at present, all have the rank of university, even though they also offer technical careers, mostly at the higher technical level. 57

Student loans in higher education During the last decade six new private universities have been founded, whereas the public university system established one rural university in 1985, a teachers' training college in 1987 and two technological and technical institutesrespectivelyin 1981. A total of 113,146 students are enrolled in public institutions (95 per cent of the student populationregisteredin 1991) and 5,831 students in private institutions. The Bolivian Public University has enrolment fees equivalent to US$48 per year, which help to increase the university budget allocated by the State. Other financial contributions made by students come from the payment of stamps or cards which allow access to university libraries, and these represent about US$1.50 per student per semester. Finally, another contribution made by students to the public university system is payment for meals, at an approximate annual cost of between US$80 and US$180, depending on the type of student and his average qualifications. Naturally, the student recovers this cost through the right to eat in the university restaurant, and even though the food is not excellent, it isrelatively cheap compared with eating outside. The annual educational budget adopted by the State for the university system is approximately US$54.5 million. Public expenditure for student aid with regard to the educational budget represents 23 per cent and is equivalent to US$12.54 million. 2. Educational credit in Bolivia The Instigating Centre for Vocational Education (CIDEP), with legal status under Ministerial Resolution No. 150917 27 of August 1969, was founded as a non-profitmaking private association for educational and vocational assistance, outside of any political, partisan or religious activity. One of the main aims of CIDEP is to promote the training of human resources through educational credit, but this task has proved difficult because of the lack of economic support from State bodies. CIDEP is the only institution providingfinancialsupport for students in higher education in Bolivia, and as we mentioned before, it is private, and has limited financial resources which only allow it to carry out activities in the department of Santa Cruz, and not at the national level. 58

Annex A Bolivia CIDEP has been administering educational credit programmes since 1970, and has made a total of 1,992 loans between 1970 and 1991 in different areas and levels of study, as the following Table shows: Table 1. Credit granted per area and level of study (1970-1991) Areas PG Bach. Levels Tec.Courses Total Health sciences Social sciences Economic andfinancialsciences Exact and technological sciences Agricultural and food sciences Architecture and arts Humanities and communication sciences 99 31 69 25 18 15 12 93 54 90 190 44 7 25 53 46 17 167 59 2 8 40 160 520 80 0 40 0 285 291 696 462 121 92 45 Total credit 265 553 374 800 1 992 Average of educational credit processed in the last 5 years: 161 Average of applications waiting to be processed per year: 2 112 Interest rate on loans: Summary of statistical data Credit abroad Credit inside the country Local courses (miscellaneous) 12% annually 648 544 800 Total 1992 At present there are no proposals to reform or modify educational credit policies from afinancial,administrative or social point of view. The only important project is to transform CIDEP to make it into a service institution at the national level. This way, it could administer Educational Credit in the rest of the country. 59

Student loans in higher education When we analyze the work carried out by CIDEP, wefind no valid arguments against Educational Credit, which is a noble social tool. In some cases the only obstacle to granting loans is the low wage levels and high unemployment figures which sometimes do not make it possible for the new professional to fulfil the economic obligations which he contracted with the institution. In the last year, the local commercial bank has opened new credit lines to finance university studies. However, because these are institutions whose purpose is to make money and profits, they are not accessible to poor students, since they require securities in the form of mortgages, interest rates are high (approximately 18 per cent annually) and amortization times are short. In addition, universities in the private sector have partial scholarship programmes, and total ones in a very few cases, which are not significant percentage-wise. Applications submitted by students by CIDEP are evaluated on the basis of the following criteria: (i) Socio-economic conditions. (ii) Academic merit. (iii) Labour market (relative priority and job opportunities). (iv) Time and place of studies. General requisites for the granting of the loan are that borrowers must: (i) be a Bolivian citizen or have 5 year residence. (ii) be in good mental and physical condition. (iii) present certificates of secondary and university studies, etc. (iv) present a curriculum vitae (Postgraduate), a photocopy of birth certificate and two 4x4 cm photographs, (v) present three jointly responsible and indivisible underwriters or guarantors. Once the student's application for a loan has been approved, a loan contract is drawn up indicating the amount of credit, the duration of the loan and the interest rate applied. This document is signed by the person concerned, his guarantors and CIDEP's legal representatives, with due validation of the signatures. 60

Annex A Bolivia The interest rate established by the Directorate of CIDEP is 12 per cent annually during the study period (IPE) and during the amortization period (IPA). Similarly, there is a 90-day grace period before amortization of the loan begins, with a 1 per cent monthly surcharge. Both the capital loaned and the surcharge of interest are paid back to CIDEP once the vocational studies arefinished,that is, during the amortization period. The time granted for repaying the loan is normally equal to the time spent on the studies, or in other words, the time during which the student received financial aid from CIDEP. This can vary from one to ten years. The loans are disbursed in U.S. dollars and are recovered in the same currency. The recipients make their payments to CIDEP offices on a monthly basis, and there is a recovery portfolio of about 250 debtors. CIDEP has a collection department and a legal adviser who is responsible for the follow-up and control of payments. Normally the debtors are contacted by phone so that they wùl repay their debt. If a borrower has not paid within 90 days, the CIDEP begins the necessary legal action to recover the loan, with the support of the General Inspectorate of the Republic which will prosecute the debtors if they refuse to pay back the loan. As the Bolivian economy is aligned on the U.S. dollar, there are no problems of loss of purchasing power or devaluation. However, 25 per cent of the portfolio is subject to a variable payment delay period which fluctuates between 30 days and more than a year in some cases. Delay in payments has a negative effect on the operational side of the institution since it affects liquidity and reduces the money available to grant new loans. The institution's funds are based on an annual operational budget drawn up by the General Management and support departments of CIDEP, and are basically intended for loans to students with limited economic resources. The only obstacle which very often prevents a poor student from having access to educational credit is the lack of guarantors or underwriters with a certain level of economic solvency. The level of the average debt for students receiving educational credit is US$3,000. This amount, in accordance with a repayment plan, represents an average monthly payment of US$90, which must be made by the recipient. The level of wages in Bolivia is extremely low, and this, when added to the unemploymentrate and the country's economicrecessionaffects the student's ability to fulfil his economic obligations. The main problem is 61

Student loans in higher education to obtain work or a source of income, since the average monthly salary for a new professional would be about US$400. To complete this analysis, we see that the index of indebtedness with regard to the average wage level is approximately 23 per cent (US$90/US$400), which would seem sufficient to pay back the loan. 3. Evaluation of educational credit and conclusions We can conclude from the analysis made in this report that the experience of educational credit is an answer to the State's inability to absorb and cover effectively expenditures for higher education for any student who wishes to enter the public university system, since it works with an unstable and limited budget whichrestrictsthe number of students that can enrol each year. In addition, academic shortcomings in teaching, together with the long period of time required for a professional career, have led to the creation of private universities which are becoming a viable alternative for students, as long as financing mechanisms exist, such as educational credit. At present, the loss of purchasing power in Bolivia, in spite of relative economic stability, makes it impossible for a head of family to have enough economic resources to cover study costs for his children. This is why educational credit is becoming a viable and advantageous alternative from all points of view as an instrument for financing higher education. Although it is true that educational credit is a financial instrument, it also considers social and economic aspects, applyingflexibility and special conditions which are not typical of the usual financial body. The interestrates charged on loans are low, amortization periods for loans are long, guarantees to obtain a loan are personal, not requiring pledges or mortgages. When circumstances are justified, the borrower has his repayment time extended or postponed. The student's commitment to an economic obligation makes him more responsible, and he will optimize his period of study in order to reduce his debt. Educational credit has a multiplier effect, since it contributes towards the benefit of many, not a few, as in the case of scholarships, andfinally, we can sum up educational credit in the following words: 'We lend to the student and the professional pays us back'. 62

IV. Brazil I. The financing of higher education Brazil, a country of approximately 130 million inhabitants, has 853 higher education institutions (IESs), consisting of 82 universities (36 federal, 14 state, 4 municipal, 29 privately owned) and 771 other institutions (19 federal, 69 state, 99 municipal and 584 privately owned). Table 1. Enrolment in higher education institutions, 1989 Higher education institutions Federal State Municipal Private Total Students 315 283 193 697 75 434 934 490 1 518 904 Percentage 20.76 12.75 4.97 61.52 100.00 Tuition in governmental higher education institutions is free whereas private institutions charge tuition fees. Students from governmental IESs receive subsidized meals (in university canteens). For post-graduate studies, scholarships (grants) are allocated to the students for studies in Brazil or abroad. Some characteristics and trends of higher education: higher education in Brazil is very heterogeneous; there is currently a moderate expansion of higher education, following the large expansion of the 1970s; there is a gradual improvement in the qualifications of teachers; there is a significant drop-out of students during their higher education studies; 63

Student loans in higher education in private IESs, a large number of the students are currently working, and areregisteredin evening classes; trends towards an emerging crisis can be observed in the universities due to the increasing costs of education and insufficient expenditure for maintaining a good standard of quality, particularly in private IESs which have to transfer the costs to the users, most of them belonging to a low socio-economic class. 2. Education credits There is no doubt that Brazil is going through a social, economic and financial crisis in the field of education, due to the fact that, on the one hand, the Government cannot afford sufficient resources to meet the needs of the three levels of education and, on the other hand, a significant number of students have difficulties in paying their tuition fees. One of the ways of overcoming this crisis is the education credit system which has been functioning for the past 20 years in Brazil. The system of education creditsfitsinto an educational policy aimed at removing all social, economic and geographical obstacles which may impede access to technical and higher education for students belonging to any social class, occupation or region. The education credit programme in Brazil dates back to 1972 when a private institution, the Association of University-trained Professionals in Brazil (APLUB) decided to launch a programme of support to needy university students, with grants covering tuition fees through the education credit system. As the funds came only from this institution, the number of beneficiaries was far from meeting the overall needs of the country, but this successful experiment allowed the universities to benefit from this experience concerning the administration of the programme, using their own funds to finance their own students. In 1974, an agreement was concluded with the Pontificia Universidade Católica of the State of Rio Grande do Sul, when the first real programme with administered funds begun. Today, 13 universities manage their own programme administered by the Funaçao Aplub de Crédito Educativo (FUNDAPLUB). In 1976, the Brazilian Government launched a large-scale education credit programme, executed through the Caixa Económica Federal (Federal Savings Bank), with funds from the Fundo de Assistência Social (Fund of Social Assistance) and other 64

Annex A Brazil sources. This programme was expanded throughout the whole country and, at the beginning, it was made available to more than 100,000 students. Since its outset, the FUNDAPLUB programme has been adjusted in accordance with the rate of inflation. The loans are therefore recovered in terms of constant (real) value. At the beginning, the government programme did not link the value of loan repayments to the prevailing rate of inflation. Therefore, the supply of funds for new credits suffered and the number of beneficiaries, which had reached a maximum of 200,000 students, gradually declined. From 1985 onwards, the programme has been adjusted so that the loan amount to be repaid is linked to the price index, so that loan repayments are made in terms of constant value of money. The programme of the Brazilian Government is not yet institutionalized to include a specific budgetary amount allocated for education credits, though a new law is currently under negotiation in the Chamber and in the Senate to institutionalize the programme, due to the growing demand for assistance from needy students. Nowadays, about 1,000,000 students attend private higher education institutions and thus have to pay for their studies. In 1990, the estimated proportion of those who could not afford to pay for their studies or maintain themselves while studying was 30 per cent, i.e. some 300,000 students need some kind of financial support to enable them to meet tuition fees, food, learning materials and lodging costs. Today, FUNDAPLUB and the Government programmes are giving support to approximately 100,000 students for tuition fees. Others students receive subsidies, mostly for food and learning materials. By this means, there is no doubt that the system of education credits is a way of financing higher education which gives needy young people the opportunity to attend university, by anticipating thefiitureproductive and earning capacity of graduates after graduation. Thus the recovery of the expenditure, invested and then reassigned, constitutes a revolving fund which represents a "multiplier of opportunities". The main requirements for the development of a programme able to meet the full demand for education credits are that (i) decision-makers should realize that they have the power to decide the size of the contribution which is then 'reinvested' by those who have benefited from it, thus allowing them to allocate more funds for wider assistance, and (ii) that a competent administrative system is essential, that is aware of the social 65

Student loans in higher education and financial implications of the programme and able to carry it out efficiently. 3. Management of loans for students In Brazil two organizations manage the education credit programmes: 1. FUNDAPLUB: a foundation created by APLUB as a support to education. This is a private institution which carries out the programme with funds provided by APLUB and administers funds originating from several universities to support their own students. FUNDAPLUB started its activities in 1972. It is now administering funds from 13 universities and supporting 10,000 students. 2. CAIXA Económica Federal: the Federal Savings Bank with a social and financial mandate, manages the programme with funds channelled from the Ministry of Education and under its guidance. The programme not being yet institutionalized, it has no specific budgetary resources, and this obliges the Ministry of Education to obtain funds from social assistance or other sources. Thus the resources allocated to the programme are uncertain, and liable to fluctuate. Regarding the selection of the beneficiaries of the loans, the basic guideline is to support very needy students who show a good dedication to studies, taking into account the government programme which stimulates vocational training within thefields which have high priority, according to the needs of the country. The value of the loans is regularly updated and automatically linked to a price index; the adjustment includes an element for inflation plus an interest rate element of 6 per cent a year, from the end of the beneficiary's studies. The stipulated time allowed for the repayment of a loan is equal to the period of the loan, i.e. a loan granted for a period of four years will have to be paid back within a further period of four years following graduation. However, every beneficiary of a loan may postpone starting the repayment for one year after the end of his/her studies. During this period, the beneficiary must provide and regularly update personal data (including current address), which will enable the organization managing the programme to send a book of vouchers for the monthly payments to be made into a bank anywhere in the country. This method of collecting 66

Annex A - Brazil repayments which should be efficient, sometimes encounters problems due to the saturation of the labour market for some professions or low salaries being paid for others. In this situation, negotiations may take place regarding the possibility of postponing repayment of debts or reducing their amount by extending the period of loan repayment. 4. Evaluation of the experience The 20 year-old experience of this programme shows that the advantages are considerable compared to the drawbacks. Some advantages are the following : (a) it gives the opportunity to thousands of talented young people to complete their studies, which would be impossible without the allocation of a loan; (b) it prepares young people to assume responsibilities by investing in their vocational training and makes them aware that the repayment of their own loans will provide the opportunity for study to other needy students; (c) it improves the motivation to study of those who have suffered distress because of lack of resources; (d) it reduces the time of studies at the university for vocational training, as the system has made it possible to enrol for a larger number of courses each year, (e) it reduces the number of student drop outs due to lack of financial means. Regarding the drawbacks, it could be claimed that the efficient development of the programme and the maintenance of a revolving fund require effective and fully operational management and control systems throughout all the phases of the programme from the original allocation of the loans until theirfinalrecovery, and this is difficult to achieve since during the repayment period (average eight years) various external factors may influence the socio-economical situation of the country and have repercussions on the programme. 67

V. Chile 1. Thefinancing of higher education The Chilean university system before 1981 consisted of eight universities whose financing basically came from fiscal resources which at that time represented 4.54 per cent of public spending on education, (cf. Patricio Amagada, 'The financing of higher education in Chile', FLACSO, 1989). At the end of 1980, rules concerning universities were established whichrestructuredthe higher education system, bringing about considerable changes. One of these allowed for the creation of universities as legal entities under private law. Later, the DFL No. 4 (1981) was pronounced, establishing rales about the financing of universities. Thus, by the end of 1988, the higher education system consisted of 184 institutions (only including central establishments). Of these institutions, 28 were universities, 33 vocational institutes and 123 technical training centres. At present, there are 374 institutions of higher learning in the country, 25 with direct government money (AFD) and 349 without AFD (cf. Ministry of Education, MINEDUC 1992). Of the 25 institutes of higher education which are publicly-financed, 23 are universities and 2 are vocational institutes which are in the process of becoming universities. Of these publicly-funded institutions, only 14 universities and the 2 vocational institutes are public legal entities, whereas the remaining nine are private legal entities. These universities with AFD have 129,245 students (Source: MINEDUC 1991). Of the remaining 349 institutions of higher education without AFD, all with private legal status, 44 are universities, 150 vocational institutes and 155 technical training centres (only considering central establishments). These institutions of higher education have a total of 125,389 students (cf. Directorate of Private Institutions for Higher Education in Chile 1991, MINEDUC 1991). Theregistrationfee paid by students is divided into the basic enrolment fee and the tariff. 68

Annex A Chile The basic enrolment fee can be defined as a single annual payment, regardless of the course of study, through which the student becomes a regular pupil of the institution for higher education with all of the rights that this implies (from enroling for the subjects he is to take in the respective semester or year, to choosing the benefits which the institution grants its regular students, etc.). This payment must be made by all students, without exception, and there is no type of economic aid for it. The amount of the fee, which is determined by each of the Institutions of Higher Education, varies greatly and ranges from US$50 to US$200. Different criteria are used in setting fees, but in most cases the determination of fee levels is market-driven. The tariff can be defined as the annual cost of the course of study, for which the regular student has enrolled. The determination of this annual sum, is also mainly market-driven, that is, it is based on what other similar universities are charging. This maximum value for annual tariffs tends to be a reflection of the present value of all expected future income flows, a result of the expectation of the future income from a given career. In general, tariffs for courses of study range from US$343 to US$1,674. Moreover, we see that at the same time, private institutions without public money charge basic enrolment fees and tariffs which are as high, if not higher, than publicly-funded universities. 2e Current trends in educational loans The main types of assistance received by students in publicly-funded institutions for higher education are: university credit and scholarships. In 1987 a University Credit Fund was created in each publiclyfunded institution for higher education. Administration of the fund is governed by rules of procedure and its aim is to grant credit to students with limited resources for all or part of the fees involved for the course of study in which they have enrolled. Selection is based on academic and socio-economic criteria, with a weight of 40 per cent given to results of the academic aptitude test (in the case of new students) and 60 per cent to socio-economic conditions. This credit is granted on the signing of a promissory note by the student at a real rate of 1 per cent annually with a ten year time limit and two year grace period starting from the time he finishes his studies. Depending on the variables mentioned, regular 69

Student loans in higher education students in publicly-funded institutions of higher education can request up to 100 per cent of the cost of fees for their course of study. The total amount of university credit estimated for the whole publicly-funded higher education system is approximately US$33 million in 1992. Furthermore, the State created a Scholarship Programme to finance all or part of the fees of students with limited resources, who are studying for careers which in the future may not generate sufficient income to enable them to pay back the university credit. This would seek to create a better structure for opportunities in society, meaning the social mobility which comes from having access to higher education. Non-repayable scholarships of the equivalent of US$852 are also awarded to complement educational credit. The total amount granted in scholarships for 1992 is US$8,520,000. The Scholarship Fund created in each higher education institute is governed by rules of procedure and can grant the whole amount or part of the tariff. The main variables for selecting recipients of scholarships are the level of expected remuneration for the course of study in which they are enrolled, their academic results and the socio-economic situation of their family. It is estimated that there are 16,600 students benefiting from scholarships in 1992. There are other scholarships whose overall amount is smaller, such as Reparation Scholarships for financing enrolment. Those who are entitled to these scholarships are the children of persons declared to be victims of human rights violations or political violence, up to the age of 35, according to the Truth and Reconciliation Report, and recognized as such by the National Corporation for Reparation and Reconciliation. This benefit covers all the costs of enrolment and tariffs, and comes from the Fund for Scholarships and the Development of Higher Education. There is also another scholarship to reintegrate students sanctioned for political reasons, which gives them US$571 per semester, so that they can finish their studies. In 1991, State public expenditure for the whole higher education system was US$187,293,712, and in 1992 it was US$195,774,614. Both figures are in 1992 dollars. These figures do not include contributions owed to and collected by institutions for higher education through transfers via the National Committee for Scientific and Technological Research (source: Budget Law for 1991 and 1992, Item 09, Budget Office, Ministry of Finance). 70

Annex A Chile Direct public expenditure for assistance to students is through government contributions called University Promissory Notes, and through the Scholarship Programme. These contributions amounted to US$40,901,063 in 1991 (in 1992 dollars), equivalent to 21.84 per cent of the total allocated by the State for higher education, and to US$36,873,563 in 1992 (in 1992 dollars), or 18.83 per cent. The decline in government contributions was supposed to be covered by the recovery of University Credit directly by the institutions for higher education. Current policy is that each institution for higher education should itself finance needs for University Credit through its efficient management and recovery. In 1987, the University Credit Fund was created in each of the institutions for higher education with direct government money (AFD), whose administration was governed by rules of procedure and whose aim was to grant credit to students with limited resources, for all or part of the fees for the course of study in which they were enrolled. At present, there is no formal proposal to introduce reforms into student loans. However, it is a very important topic which has led academic circles in the country to consider different adjustments in order to optimize resources and make the administration of University Credit more efficient 3. Loan recovery Each UC Fund is responsible for collecting loan repayments, either directly or through the banking system. There is a percentage of default in repayment, due mainly to problems in locating debtors, as the information concerning their address does not always agree with thatregisteredin the Credit Fund. However, solutions are being sought, such as using the Electoral Register data base, or advertising and broadcasting through the mass media, to motivate those in default to renew information about their addresses and to re-programme their payments. It is estimated that the system of institutions for higher education will provide, through financial investments, University Credit worth 33 million dollars for a demand estimated in 1992 at US$46,974,431. In general, the level of expected income from wages is associated with the course of studies completed by the student. 71

Student loans in higher education In the situation of students with limited resources studying for lowincome careers, and considering that these students received University Credit and scholarships for their studies, the level of debt compared to income, measured as the annual repayment to be made, should not be more than 5 per cent of their annual income. Moreover, legislation considers extreme cases in which, if the debtor is unable to pay back his debt, then he can be exempted from repayment. 4. Evaluation of experiences in granting loans to students The body of laws introduced in 1981 which establish that higher education is not free of charge, and that went from a differentiated to a fixed fee, with the option of government credit, fundamentally changed students' conditions. Initially there was a lack of commitment to the new policy, mainly because of the political costs which it implied. However, later measures, such as the creation of the University Credit Fund in each of the institutions for higher education, the law which made it possible to re-programme delinquent debtors, the various measures adopted by institutions which even went as far as protesting against promissory notes, have all meant that the system is beginning to work, although it still requires further adjustments. To analyze the advantages and disadvantages of loans, we will compare them with a totally free-of-charge system and differentiated tariffs, since these were the other experiments tried in the country. The first consideration is that by going from a cost-free higher education for the student (100 per cent implicit scholarship) to one whose cost is deferred over time, with University Credit, the State has been able to devote more resources to basic education, focusing social expenditure where it can be more socially profitable for the country. The second consideration concerns the role played by higher education in social mobility in Chile. Free higher education for those who could not pay for it (differentiated tariff) until 1981 was to a great extent the main cause of social mobility. By giving a cost to higher education, it was thought that there would be an effect on this mobility. However, the fact of deferring the cost over time through credit, taking care that it should not impose excessive burdens (payments equal to or less than 5 per cent of one's income), leads us to believe that this policy has not negatively affected social mobility. 72

VI. Colombia 1. Current trends in financing higher education The most recent trend in the financing of higher education in the country can be seen in the current administration's Plan for Broadening Education, whose main points are as follows: e Greater participation and commitment by families in the financing of higher education. In the immediate future the majority of universities' resources will have to come from the recovery of academic costs, the diversification of sources of income and administrative and institutional adjustments. The participation of commercial banks in the financing of both aspects of higher education: students and institutions. Table 1. Distribution of higher education institutions, 1991 Number of institutions State Private Total Universities and university institutions 40 70 110 Technological institutions 11 34 45 Institutions for technical vocational training 10 49 59 Total 61 153 214 Source: ICFES, Statistics for higher education, 1991. 73

Student loans in higher education Table 2. Distribution of students in higher education institutions, 1991 Institutions State Private Total Technical institutions Technological institutions Universities 4 080 35 937 144 266 35 136 38 511 232 035 39 216 74 448 376 301 Total undergraduate 184 283 305 682 489 965 Post-graduate Total 4 295 188 578 Source: ICFES, Statistics for higher education, 1991. 7 754 313 436 12 049 502 014 A total of 37.6 per cent of the enrolled population studies in state institutions and 62.4 per cent in private universities. Both state and private universities charge an enrolment fee based on declared income, or a certificate of income from work, and set a minimum limit. For registration fees state universities are free to charge amounts which they considerto be fair, and private universities charge fees whose minimum value is 8,500 pesos (US$14). In addition to enrolment fees, universities are authorized to charge for certificates, attestations, validations, graduation fees, qualifications and supplements.the majority of state institutions provide medical and dental care, and a small number have housing for students. Some private universities offer the same services, with the exception of housing. Most of the income for private universities comes from enrolment fees, and in some cases the sale of services. In state universities, most of the income comes from contributions from the National Budget. These are increasingly limited, and only partially cover operating costs. The budget allocated to state institutions in 1992 was 124,912.23 million pesos (US$197 million) with an increase over the previous year of 12.1 per cent. This represents a deficit of about 21,277 million pesos (US$34 million). 74

Annex A Colombia 2. Current trends in educational loans National government trends in policies for loans to students: Perhaps the strongest trend in this area is the elimination of the subsidy for higher education, for which two concrete measures are being proposed: (1) An increase in the value of enrolment fees for state institutions. This implies that in the next few years they will have to cover 33.5 per cent of operating costs. These increases will be used to improve the quality of programmes and for research. (2) The establishment of an educational credit fund by the commercial banks for undergraduate students to finance academic costs and upkeep. In thefirstthree years this will be exclusively for public universities, and after that it will be extended to private universities. This fund will be directed towards the poorest students, and will not be subsidized; in other words, it will charge market interest rates. Current proposals to reform student loans In Colombia, the Colombian Institute for Educational Credit and Technical Studies Abroad (ICETEX) is the institution in charge of administeringfinancialaid to students of higher education. Because of the limited resources to cope with the demand for educational credit, within ICETEX, some alternatives for reforming educational credit policies have been proposed. They are as follows: e e The establishment of interest rate differentials, on the basis of the student's socio-economic status and the type of programme to be followed. The existence of different amortization plans and times, including the possibility for the student to choose the amortization plan from a series of options on the basis of his economic situation and the changes which may affect it in the future. Better use of the enrolment system financed through the establishment of agreements with universities. In this case, without it creating 75

Student loans in higher education a movement of resources, ICETEX would be responsible for portfolio recovery from students, and this would later on be returned to the universities. Obstacles The progressive increase in the value of enrolment fees over recent years (32 per cent in 1992), with a tendency to increase in the future, together with the increase in the population enrolled, and therefore the demand for credit, requires a greater volume of resources. In spite of ICETEX's efforts to obtain more sources of financing, one of which is a considerable increase in its internal cash generation, which at present represents 95 per cent of total investment, there is a constant need for more funds. Thus, to attend to 11 per cent of the total enrolled population this year, and covering approximately 70 per cent of demand, maintaining present coverage percentages, 6,000 million pesos (US$9.5 million) are available, whereas 12,000 millions pesos are needed. This fact alone explains the magnitude of the investment required by ICETEX or any other institution which would be able to grant educational credit under similar conditions. Moreover, the prospect of lending 100 per cent of the enrolment fee, in view of annual increases which in recent years have been higher than inflation, and with the possibility of a higher interest rate, means that there will inevitably be levels of indebtedness which could involve 40 per cent of the future professional's income. This would create serious problems for the institution in recovering the portfolio. The point concerning an increase in interest rates, which was well received up until the end of last year, would not be applied in the short term, because of the present downward trend, and will depend mainly on how they behave in the future. 3. The administration of loans to students ICETEX is a public establishment by national order, attached to the National Ministry of Education, created by Decree No. 2856 of the 3rd of August 1950, and re-structured in 1969. Since its creation, ICETEX's basic aim has been to train the qualified human resources necessary for 76

Annex A Colombia national development, by providing equal opportunities for students to have access to, and to continue their studies at the higher level. It is for Colombians who have academic qualities and insufficient resources. In spite of the changes which have taken place in the Institute to cope with new needs, these aims have been maintained over time through two basic services: scholarships and educational credit. The last of these is the main basis of institutional services. Parallel to this, there are other bodies, especially in the financial sector, which provide educational credit to students, in the short term (6 months) and at interest rates that range from 32 per cent to 36 per cent Choice of candidates for educational credit It is basically aimed at the population with limited economic resources and high academic levels, in areas of greater national priority. The selection of candidates is based on a model for distributing resources which attempts to apply to their best advantage the resources available in the three credit programmes: undergraduate inside the country, postgraduate inside the country and postgraduate abroad. Among the variables taken into account there is the National Government's Development Plan, which identifies national priorities and ICETEX's institutional policies. In addition, it involves the specific characteristics of each of the regions, which are the responsibility of the Regional Offices. These give priority to qualified demands from the most depressed regions. To benefit from credit, the future candidate must fill out an application form, present a photocopy of his declaration of income or income certificate, his marks from the previous semester or results of ICFES tests, two joint debtors, one of whom has real estate, and neither of whom are pensioners or over 50 years of age. Characteristics of the loans The credit covers the period of time needed for the programme of studies: 5 years for university training, 2 years for technical training and 2 years for postgraduate studies. It is generally paid on a half-yearly basis. Normally, it is paid directly to the university, and occasionally to the student. 77

Student loans in higher education For its half-yearly renewal the student must take his marks to ICETEX. An interest rate of 24 per cent is charged on the loaned capital and a 1 per cent guarantee which is paid on disbursement. The recovery of loans depends on the terms of the credit. ICETEX has three types: (i) Long term: the student receives the payments throughout the whole of his study programme, and starts to pay them back when he has finished his studies. This means that in the case of a 5-year programme total recovery of the portfolio will take 10 years, 5 while the (ii) student is studying and 5 years while he is paying back the credit Medium term: the student pays back 50 per cent during the academic period (semester) and the remaining 50 per cent is accumulated to be paid back as long term credit, (iii) Short term: 100 per cent of this is paid back during the academic period. The average time for recovering credit is 7 years, keeping in mind the three different methods: 3.5 years during the study period and 3.5 years during the repayment or amortization period. Recovery of loans The ICETEX portfolio is recovered in two ways. The main one is direct payment to the 21 Regional Offices and the Zonal Office in Bogota. The other form of payment is through collection agreements between ICETEX and banks orfinancialcorporations. For portfoho recovery there is also the order of payment system in which the debtor authorizes ICETEX to collect the instalment by deducting it from his payroll. Problems of recovery The slow growth in portfolio recovery - 39.1 per cent in 1990 compared to 17.0 per cent in 1991 can be one of the causes for the increase in the mature portfolio - 1.73 per cent in 1990 and 20.09 in 1991. There are different factors, both external and internal, that can explain this. One of the factors which is external to the institution but which has a great impact on the management of debt collection, is the 78

Annex A Colombia country's difficult socio-economic situation. This results in high inflation rates, a low level of employment in recent years, and their effects on the real wages of a high percentage of the population. Internal factors might be faulty management of recovery in some regional offices, due to lack of staff or a lack of aggressiveness and continuity in recovery policies. It should also be noted that because of ICETEX's efforts to increase the value of disbursements (drafts) to students due to therisein enrolment fees, this has meant that the recipients have to pay out a higher percentage of their income in monthly instalments. These amounts go from a minimum of 2,500 pesos (US$4) for old loans to more than 60,000 pesos (US$95) a month for those who entered the system in the last few years, according to a survey of ex-recipients. 4. Evaluation of experiences in granting loans to students ICETEX's experience in managing educational credit covers 40 years, during which they have constantly opened new areas and responded to the challenges arising from increasingly specialized demand. In response to the needs of society and with the purpose of serving a greater student population, with limited resources and an increasingly small share of the national budget (3.9 per cent in 1992), medium-term credit was encouraged. From 1985 on, another method was used shortterm credit, whose purpose was to make the portfolio revolve more quickly and thereby free resources which could be used to cover new demands for educational credit. However, the simultaneous occurrence of phenomena such as the reduction of contributions from the national budget for investment programmes, the rapid increase in the cost of enrolment fees (32 per cent in 1992) and the increased demand for credit (in 1990 only 55.4 per cent was met), together with slowly revolving credit due to the inherent nature of educational credit, ICETEX operates at a deficit because it has no short- or medium-term liquidity to fulfil its obligations and to serve the new student population asking for credit. 79

Student loans in higher education Advantages of educational credit Educational credit provides many advantages. The main ones are: It is a mechanism which strives to achieve equal opportunities. It generates greater responsibility in the family and the student It is a mechanism which makes it possible to obtain higher income in the future. It contributes towards training a human resource which is important for national development. It is an instrument for professional promotion. The social costs of the training of human resources are lower with loans than with scholarships or grants. It leads to greater scientific and technological development for the country. It has a multiplier effect since through portfolio recovery other students can be financed. Disadvantages of educational credit The maintaining of subsidized interest rates, together with long amortization times, does not make it possible to establish a revolving credit fund which is self-sufficient and does not require any subsidy and/or support from the State. The low income level of a great percentage of the population makes it impossible to commit a higher percentage of one's income to monthly instalments, in the proportion required to pay back the debt. It commits part of the professional's future income. Greater amounts of financial resources are needed to attend to the student population requesting this service. Through lack offinancialresources,drafts are not made to students on time, and it does not cover the whole populationrequestingcredit and meeting the requirements. Because of the slow rotation of the portfolio due to the long amortization time, the money loses its purchasing power. 80

VIL Costa Rica 1. Financial trends in higher education In Costa Rica, higher education is organized through four public universities, nine private universities and 16 para-universities. In addition, there are five postgraduate institutions in the areas of health, agronomy and administration. In 1991, public universities had a student population of 55,811 students (79 per cent), compared to 15,055 students in private institutions (21 per cent). At the para-university level the situation is the opposite, since the student population of the 13 private institutions is considerably greater than that encompassed by the remaining three public institutions. In 1990, the former absorbed 74 per cent of the population and the latter 26 per cent. In the public sector, the role of fees traditionally was to be reconverted into scholarships and other services for the most economically needy students. However, the present trend shows a greater role participating in the financing of variable costs of courses and even certain fixed costs. Consequently, the present level is considerably higher than during the previous decade, even though it is still lower (one third) than the private sector. In the private education sector the role of these payments is to cover the total cost of studies, and it is almost three times as much as in public education. In the public sector the level of assistance or aid is usually very high. Approximately 50 per cent of the students apply for it and it actually benefits 80 per cent with types of aid such as exemption from payment of the total amount, aid in cash, lodgings, meals, research, partial payments, loans of money, books, equipment, etc. In the private sector on the other hand, the budget level for aid is very low and very few students benefit from it. The most common form of aid is adapting payments so that the student can continue his studies while paying off the respective cost. 81

Student loans in higher education 2. Current trends in educational credit The 1990-1994 National Development Plan for the Education and Human Resources Sector establishes policies so that educational credit will become a rapid and suitable mechanism to: Ensure the population's access to formal and informal educational opportunities.» Make optimum use of the resources allocated to educational institutions. Contribute to the training and education of human resources. There is also a government policy that institutions of higher education should generate greater budgetary resources through the sale of services. The Educational Credit service is administered by various organizations which finance students. CONAPE is the most consolidated of these and is a leader in its field, financing students so that they can follow courses of study both at home and abroad. Institutions of higher education, especially those controlled by the State, have organic units in charge of administering loans, generally with small budgets. The main requirements for the selection of students are: e University entrance. Financing is available to students in state universities who are officially admitted to the course, or students in private universities who have passed at least four subjects. Academic average: Students beginning their studies need an academic average of eight or more. Official authorization for the course of study. Both the educational institution and the course of study chosen by the applicant must be recognized officially by the State, and subject to financing by CONAPE. In the case of careers whose demand is saturated on the labour market, only students working in related jobs will be financed. 82

Annex A Costa Rica Moreover, the student's social and economic conditions and origins will be taken into account By law, preference is given to students from rural areas. CONAPE has interest rates which vary according to the level of studies. At the undergraduate level the rate is 19 per cent annually, and at the postgraduate level it is 24 per cent annually. The students begin their amortization plan as soon as theyfinishtheir studies. The period for paying off the debt varies according to the amount involved and the recipient's socio-economic situation. The repayment periods range from 1 year to 8 years. There are two ways of recovering the loan: by administrative or by legal means. Administrative Payments are made in the institution's offices or via deposits into a current account in a state bank, 98 per cent are done this way. Legal This is recovery by legal collection when the debtor fails to fulfil his credit obligation. 1.3 per cent of the portfolio is recovered this way. e e e Borrowers can negotiate their repayment plans according to two methods: a fixed instalment and an increasing instalment Application of one of these depends on the borrower's socioeconomic situation at the time. Default, which is common in any credit operation, has been scarce and under control. Loan recovery does face problems, however. The most common problem is locating the borrower or his guarantors when they have changed their address. A lesser problem is that of the unemployed or under-employed. Recovery problems have had effects on administrative costs and have slowed down the turn-over of capital. They have also led to strained relations between the institution, the borrower and his guarantors. Students who for economic reasons cannot provide guarantees, are classified as special, and CONAPE supports them with a Guarantee Fund. 83

Student loans in higher education The students whose loans are covered by this fund must have a good academic average, preferably come from marginal rural or urban areas and not have any possibility of providing traditional guarantees. The average application for credit is US$1,571 per person. The monthly wage of a new graduate is approximately US$376, and his monthly payment US$70, which means 18 per cent of that wage. This average includes undergraduate and postgraduate students. 3. Evaluation of experience in educational credit The educational credit service, administered by a public institution, began 19 years ago. For thefirstfour years it functioned as a department within a state bank. Over the last 15 years it has been run by CON APE, a semi-autonomous public institution. During this period it has financed approximately 12,000 students, mobilizing capital worth US$10 million. Those 15 years have served to consolidate the Institution and to prove to the population that the philosophy of educational credit is worthwhile. CONAPE is at present revising its educational credit service in order to make it more accessible to the population, and to speed up the procedure. At the same time, the possibility of regionalizing part of the service by transferring it to rural communities is being considered, thus decentralizing part of the process. Variations in the requirements for students applying for the loan are being tried out, such as credit guarantees for poor families. The main obstacle is the lack of a national system of aid to students which is consistent with priorities in technical and vocational training, and which establishes the types of needs to be covered by scholarships, loans and other forms of aid. Other obstacles are the lack of national awareness about the solidarity involved in the loan, and the fear of young people and their families when it comes to handling bureaucratic procedures or coping with a debt immediately after they graduate. The traditional anti-credit argument that it signs away an individual's future, has been mostly, if not entirely, refuted. Advantages and disadvantages of student loans compared to other forms of aid to students can be summarised as follows: 84

Annex A Costa Rica Advantages of educational credit It encourages students to finish their studies as soon as possible, so as not to increase their debt. It motivates students to obtain good academic results. It requires students to finish within the agreed time to avoid an economic 'penalty' if they do not. It creates a sense of responsibility in the student through his relationship with the credit institution. It teaches students social solidarity in the financing of higher education and the training of human resources. Disadvantages of educational credit Due to the lack of a properly ordered national aid system, students from very poor families have to get into debt, whereas others from the middle classes receive unnecessary aid. 4. Conclusion CONAPE is at presentrevisingits educational credit service in order to make it more accessible to the population, and to speed up the procedure. At the same time, the possibility of regionalizing part of the service by transferring it to rural communities is being considered, thus decentralizing part of the process. Variations in the requirements for students applying for the loan are being tried out, such as credit guarantees for poor families. The main obstacle is the lack of a national system of aid to students which is consistent with priorities in technical and vocational training, and which establishes the types of needs to be covered by scholarships, loans and other forms of aid. Other obstacles are the lack of national awareness about the solidarity involved in the loan, and the fear of young people and their families when it comes to handling bureaucratic procedures or coping with a debt immediately after they graduate. The traditional anti-credit argument that it signs away an individual's future, has been mostly, if not entirely, refuted. 85

VIII. Dominican Republic The 25 years of experience of FUNDAPEC in the administration of programmes of loans to students in higher, secondary and basic education in the Dominican Republic, enables us to affirm that Student Credit offers a series of advantages (benefits) not just for the student, but for his family and society as a whole. These advantages are, amongst other things, educational, financial, social, and work-related. 1. Student credit improves educational opportunities. It gives access to students with limited resources and enables them to complete their studies successfully. 2. It contributes to educational goals. More students go on to higher education. 3. It contributes towards making higher education more effective internally. It reduces drop-out rates, the repeating of years and student absenteeism, since the student who has committed himself to a loan must maintain a certain level of qualifications and stay in school until he finishes his studies. (a) It reduces the average time needed to produce a graduate of higher education. Students with loans are motivated to finish their studies within the established time limit. (b) It helps to improve the educational level of the population by having more graduates from higher education, and putting more students through school in the number of years prescribed by corresponding regulations. (c) It reduces costs and expenditures per student and graduate of higher education because of improved educational efficiency and a reduction in the years necessary to finish the course of studies. 4. It helps to improve the external efficiency of higher education. (a) student credit is directed to students who are pursuing courses leading to careers which are regarded as priorities for national, local and sectorial development and for which there is high demand, according to studies of the labour market. 86

Annex A Dominican Republic (b) It contributes towards the redistribution of income through education, since those with less income will be able to receive higher education through student loans. The following arguments can be put forward against student credit: 1. The Economic instability of the country, characterized by high inflation, devaluation and unemployment. These lead to low wage levels for new workers and in some cases long delays before they find work. In the Dominican Republic this can take between 3 and 6 months. 2. A long grace period and a long time to amortize or reimburse the loan. In most cases this means double the duration of one's studies (10 years) which in times of high inflation results in declining purchasing power of the loan repayment. 3. The Government (Public Sector) does not give economic support to the credit programme. FUNDAPEC receives a very small subsidy from the Public Treasury. Likewise, there is no appropriate government policy which makes it possible to give special treatment to students who ask for loans for travel expenses and needs related to obtaining an education. 1. Terms for the establishment of student credit If we consider that educational credit is an instrument with socioeconomic and educational effects, and not just financial ones, then FUNDAPEC s experience suggests that educational credit should be administered by: (i) Non-profit-making educational credit institutions, regardless of whether they are private, public or mixed, (ii) Universities and educational institutions when it is a question of loans granted to their own students; although we should point out that the experience of FUNDAPEC shows that universities and institutions only cover the stage of granting credit, and in very few cases the stage of recovering it, which is the one that requires greater attention and administrative effort, (iii) Ministries or the Education Secretariat, although in most cases these are inefficient, especially when it comes to recovery. 87

Student loans in higher education In the Dominican Republic, the banks do not administer funds for educational credit. This is due not just to the existence of FUND APEC, but also to the following reasons: (i) They do not have the administrative and organic structure required for the whole process of student credit, (ii) They do not have experience or knowledge of educational problems, since their basic activity is financial; (iii) The other credit agencies are formed by the universities and educational institutions themselves who grant loans to their own students. This credit does not signify afinancial disbursement, since it is only a deferred payment for enrolment and a monthly fee, which, in the case of the Dominican Republic, are then administered by FUND APEC for recovery of the loans made by the universities to their own students, (iv) However, the banks can befinancialagents with which to negotiate credit portfolios, through the transfer of promissory notes or other types of transaction. The credit/scholarship ratio in FUND APEC is: 14 per cent of the present portfolio corresponds to scholarships and 86 per cent to credit. The student loans or credit granted by FUNDAPEC are for the following items: enrolment; monthly fees; books; transport and others. Funds from third parties include resources from firms and educational institutions who entrust FUNDAPEC with the administration of their loan portfolios and with the selection of students to receive credit. FUNDAPEC's student credit policy is directed towards improving educational opportunities for students with low economic resources but high academic standards and following high-priority careers. In order to receive education credit, a student must meet the following conditions: (i) Follow a course of studies for a career classified as a priority by FUNDAPEC. These are careers leading to jobs which are in greater demand on the labour market, (ii) Have good academic results, (iii) Come from low income level family, (iv) Provide guarantees from underwriters (v) Fulfil other administrative requirements. Note: It is not a requirement that the recipient of the credit be working or not 88

Annex A Dominican Republic The students mustfillout a form in which, in addition to general information, they include their socio-economic and educational situation. The information on this form is checked by the student credit management. Following this, the student has to go for an interview. Later, the FUND APEC credit committee examines the applications, approves them or rejects them. The same procedure is followed for scholarships and credit except for the part concerning securities which are only required for loans. 2. Terms for the establishment of student credit FUND APEC grants student credit for the complete financing of a career or profession, as well as for specialization or training courses when recommended. The amount or size of the credit is determined by the following factors: (i) According to the enrolment fee and monthly payments for the course of study, regardless of the type of university. In this respect, FUND APEC does not establish minimum or maximum amounts of (ii) credit, According to requirements for additional expenditures involved in following the course of study, such as books, meals, transport, etc. Security. The guarantors are family members or friends who become jointly responsible for a loan, for the payment of the debt contracted, that is the reimbursement, interest, default, etc. The security can be a mortgage, pledge, or a work card from the firm in which the guarantor works. Interest varies for the different programmes administered by FUND APEC in accordance with thefluctuations of the cost of money for the portfolio funds. At the moment, student credit is granted with a 14 per cent interest rate. This rate is well below that of commercial banks, which is about 35 per cent at present. Repayment period. A grace period of three months has been established, and the period for reimbursement or repaying the loan is double the amount of time required for the course of study. In the Dominican Republic this varies between 1 and 10 years. Repayment of educational credit. FUND APEC has established a flexible repayment policy for those students who are not working after 89

Student loans in higher education their studies are finished or who have a very low income. This policy is characterized by the following mechanisms: (i) Renegotiation of the repayment period. The grace period is extended, as well as the number of monthly payments or instalments for repayment. This is determined on the basis of the creditor's ability to pay. (ii) Assistance in finding employment. (iii) Convening of the underwriters and guarantors to explain the terms of the renegotiation. 3. Evaluation of the experience FUNDAPEC's 25 years of experience in administering student loan programmes has taught us the following: (i) Educational credit is an important source of financing for higher education. (ii) Educational credit is a way of redistributing income through education. It increases opportunities for education, since it not only provides access, but makes it possible for the recipients to continue and to succeed in their studies. (iii) Educational credit improves the internal and external effectiveness of students, educational and borrowing institutions. (iv) There is considerable experience in the administration of funds for educational credit, which enables us to state that it is possible to apply it in those countries or educational institutions which at present are not using or applying this important source of financing. (v) Economic instability in a country and insufficient government support (normative andfinancial) do not contribute to the sustained development of educational credit. (vi) Long grace periods or long periods in which to amortize or reimburse the loan go against the interests of the institutions because of the unstable economy of the country and the low incomes of the debtors. (vii) Educational credit institutions have the capacity to administer funds for student credit. (viii) The identification and application of sources of financing for educational credit has made it possible to have various types of funds available to satisfy needs for enrolment, monthly payments, 90

Annex A - Dominican Republic (ix) (x) books, transport, meals, etc., as well as for awarding scholarships and granting subsidized loans, For student credit programmes to be financially efficient, priority must be given to loans for courses of study with the best jobs prospect, Educational credit has reached a large number of non-educational institutions (firms, associations, etc.) which use credit as a means to promote their own workers, while at the same time increasing their level of training. 4. Recommendations Advocate legislation to instigate educational credit. This should be an incentive to obtain financial resources, facilitate the application of rapid mechanisms and procedures, and ensure the return of student loans, with a view to creating a Revolving Fund to increase the number and type of recipient. Guidelines should also be established to cope with fluctuations in the country's economy and theflexibility of the labour market. Perfect the technical-methodological instruments which are applied at each stage of the process of administering student credit programmes. In this respect, we believe that studies of the labour market are an important mechanism for directing loans. Student loans should be directed at improving the internal and external effectiveness of higher education. Educational credit should be a means of redistributing income through the better educational opportunities offered. It is worthwhile considering the establishment of an information network among credit institutions, as a way of simplifying administration, rationalizing the use of resources and optimizing expenditures. The introduction of credit programmes to those countries which do not use them at present should be supported by a strategy based on carefully chosen pilot projects. Establishment of a guarantee fund or reimbursement insurance. Educational credit can adopt various ways of doing things. It can be individual, institutional, administer different kinds of funds, finance direct educational needs or others related to the development of the human being. 91

Student loans in higher education Student credit contracts should specify index-linked loan repayment so as to ensure recovery of the loan in terms of constant purchasing power. If not, administrative costs and indirect subsidies to students will lead to liquidity problems for the credit institution. For this reason they need to establish their own price indices based on the costs of study courses and related expenditures. 5. FUNDAPEC's proposal for providing technical assistance (i) Give technical support to carry out studies of the labour market so as to identify needs for the training and qualification of human resources, (ii) Develop technical-methodological instruments to calculate the costs of administering student credit programmes, (iii) Devise methodologies to determine the internal and external effectiveness of student credit programmes, (iv) Develop a system to follow up graduates, (v) Establish technical-administrative guidelines to make student loans more efficient, (vi) Identify complementary and additional sources of financing for educational credit, (vii) Co-operate between institutions on all the aspects mentioned above, either bilaterally or inter-institutionally, (viii) Develop rules and procedures for granting student credit. 92

IX. Ecuador Higher education in Ecuador is made up of 53 university and polytechnic establishments and 94 post-bachelor degree institutions of higher learning, which represents a total enrolment of 221,962 students, or 6.6 per cent of the national student body at all levels. There are 17 public sector (public) universities (70.8 per cent of the total). In 1991 there were 8 private universities (29.2 per cent). However, the public universities have an enrolment equivalent to 78.5 per cent of the total student population. In the public sector universities, enrolment is increasing by 2.9 per cent each year, and in the private sector, the average annual increase is 5.4 per cent. Registration fees vary according to the sector sponsoring higher education. The Constitution of the Republic in fact states in article 27 that 'public education is secular and free of charge at all levels', and in the same article it establishes that 'the State will provide (financial) aid to free private education., without detriment to the allocations made for that education and for private universities'. On the basis of these sources of income, public sector universities and polytechnic schools collect fees for enrolment, examinations for degrees, etc., which are used for running costs and vary between 7,000 sucres and 25,000 sucres (US$7-US$25) for national students and US$1,000 for foreign students, as their only annual contribution. This income represents 14.6 per cent of the total received. The rest of their financing is provided by the State. In the case of private universities, fees are charged for enrolment and teaching, varying according to the student, type of university and type of course of studies between 200,000 sucres and 400,000 (US$200-US$400). These sums represent 127.2 per cent of the operational cost of these centres for higher education. In the sub-system for higher education, especially in the universities and polytechnics according to article 40 of the corresponding Law, every establishment must maintain a 'Department of student well-being', whose aims are: vocational guidance, the co-ordination of professional practices, a health care department (medico-dental), residences, restaurants and 93

Student loans in higher education cafeterias, insurance, etc. They also promote and handle scholarships and educational credit. In general they carry out all of the above, but for scholarships and credit they have only minimum or no co-ordination at all with the IECE. Between 1989 and 1991, allocations for the Ministry of Education have represented 18.4 per cent, 21.6 per cent and 19.4 per cent of total State expenditures, and in 1991 reached US$301.2 million for a student population of 2,964,400 students at all levels, including higher education. University and polytechnic education accounts for 21.6 per cent of this total, the highest proportion in the last three years, amounting to US$64.9 million. Due mainly to currency devaluation, thisfigureis 21.7 per cent lower than the one actually received for the same level of education in 1990. The effect of this was compounded by an increase in enrolment, which meant a reduction in what was allocated to each student to US$308, which is US$190.50 less than in the previous year, and this explains the serious crisis affecting higher education in Ecuador at present. Faced by this distressing situation, the IECE could help compensate partly and indirectly for financing of university and polytechnic centres of education by granting credit for undergraduate and postgraduate studies inside the country, especially through 'scholarship' fees. To this purpose, in the 1992 programming, and in the 'postgraduate' sub-programme, a policy has been adopted to give special treatment to students in centres of higher education whose school fees exceed the specificfinancialceiling granted by the institution. 1. Current trends in educational credit Through the law constituting the Ecuadorian Institute for Educational Credit and Scholarships (IECE), the State and government delegate most of the responsibility for formulating and applying educational credit policies. For this, the Institute has independent status and receives and manages its own funds and assets. Nofinancialresources for educational credit come from government transfers. What transfers they receive are administered as grant scholarships. In August 1990, the amounts of the loans were increased by 308 per cent, since as a result of internal inflation and devaluation abroad, the purchasing power of the sucre (national currency) had decreased greatly. The amounts loaned at present are US$2,887 for studies inside the 94

Annex A - Ecuador country, and US$4,148 for studies abroad, which only partly finance expenditures to acquire a career or specialize or up-date one's studies. They can be increased by an additional 25 per cent in exceptional cases, when the executive management decides to grant this complementary financing after a rigorous study and justification. Because of the increasing costs and a deterioration in the ability to finance these costs, the possibility has been studied of increasing loans to US$3,770 and US$5,613 for studies within the country and abroad, respectively, but this change would require an increase in the Institute's sources of financing. There are also proposals to reform educational credit, for example by reducing the number of sub-programmes considered, or items to be financed, and charging time limits, especially the grace period and recovery stage, as well as the interest rates to be charged in the disbursement, grace period and amortization stages. 2. Arguments and limits concerning the feasibility of change (a) With regard to the sub-programmes, the current 11 should be reduced to no more than four: undergraduate, postgraduate, and technical studies, which concentrate 92.1 per cent of the credit contracted and the so-called 'Family credit', which, although it is not based on the philosophy of educational credit, and its recipients do not participate and contribute to the country's economic and cultural development, absorbs 4.5 per cent of the money available. (b) There are also 11 different items and we feel the need to reduce expenditures involved to four at the most, including maintenance, scholarship fees, study elements, which absorb 78.4 per cent of the financial allocations. For study programmes abroad, additional financing is provided for travel, which now represents 12.6 per cent of the resources granted. (c) With regard to the duration of stages and instalments, there is a need to reduce the grace period and recovery time, since at present there are cases where the sum total of disbursement time, grace period and recovery time amounts to 23 years, and this causes great financial harm to the institution, and even leads to a loss of its capital. The overall duration of these time limits should not exceed 12 years. 95

Student loans in higher education (d) For the last two years the credit granted by the IECE has been producing interest. The average rate of the tworatesapplied in the disbursement and grace period and in the recovery stage varies between 26 and 30 per cent annually, depending on the length of these stages. This rate contrasts with the average commercial rate, which between 1991 and 1992 varied between 39 and 49 per cent. This shows that the interest subsidy granted to borrowers represents 36.4 per cent of the current capital market rate practiced in the country. The proposed reform is that this subsidy should not be more than 20.0 per cent and that it should vary in parallel and automatically with regard to what the monetary authorities establish. In the current credit regulations, the heading 'conditions and requirements' is sufficiently explicit about what the candidate for credit should provide and justify. We have listed some of the details below: (a) Conditions: Borrowers must be Ecuadorian, have sufficient academic merits and skills, not have sufficient financing, and not be in debt to the IECE through default of payment. (b) Requirements: They must justify the conditions listed under (a), and must have the desire and will to undertake studies which are a priority for national development, and be admitted by the teaching centre responsible for these areas of study and have the guarantees required by the regulations. (c) Borrowers must provide proof that they satisfy the conditions and requirements, in the form of certificates and relevant documents and their course of study must be at an institution recognized by Ecuadorian laws and authorities. The terms used to grant credit. These concern: (a) The length of the stages Earlier we referred to the stages involved in implementing credit. These are: disbursement, while the recipient is studying in the programme he has chosen, up to 13 academic years in 'Family Credit', for 5 years inside the country and 3 abroad in technical studies, and 4 academic years for undergraduate studies. The second stage is the grace period, which goes from the end of the studies to the time when the debt starts to be amortized. This usually lasts 96

Annex A - Ecuador for six months in all of the programmes, except in 'Family credit'. For distance learning, the grace period is only two months. The recovery stage, for studies inside the country and abroad, is as follows: 10 months for 'Family Credit'; up to 10 years for the other study programmes inside the country and up to 12 years for studies abroad. (b) Interest rates It is a practice to charge interest rates which are subsidized with regard to the current legal rate on thefinancial market, but recently there has been concern, and studies have been made, to establish a single rate and to apply it in the combined stage of disbursement, grace period and amortization. This would facilitate its application and calculation for operational matters, and would make it possible to recover part of the loaned capital, in particular when inflation at home and currency devaluation abroad negatively affect the real amount received by the recipients, not only in the medium term, but eventually in annual terms. Whereas in 1981 the average credit operation for studies within the country amounted to 43,916 sucres, in 1991, even with the increase in the amounts, which brought it to 1,279,717 sucres at current value, this sum represented only 45,136 sucres in terms of 1981 purchasing power. In the case of studies abroad, while the average was equivalent to US$3,908 in 1981, this compared in real terms to US$2,923 in 1991, because of the devaluation of the currency. (c) Ways of contracting educational credit There are two of these: a specific one for 'Family credit' and a general one for all of the other sub-programmes. In both cases, they are designed so that they can be processed by computer. The contract for family credit collects data from up to three recipient students, which is the maximum that can be financed per family as assistance for the beginning of classes in the corresponding school year. In the design of the contracts for real personal educational credit, the data refer exclusively to the student receiving credit. A s far as information about guarantors and joint debtors is concerned, the contract for family credit collects information on one of these, and the contract for the other sub-programmes should be filled in, 97

Student loans in higher education according to the regulations, with data about the two guarantors, but there are spaces for a third, provided for in cases where the amounts financed exceed the maximum quantities. (d) Problems arising from the repayment of these loans We cannot consider the recovery of credit as a problem, because of the nature and characteristics of the institution. Its purpose is more social than that of a financial, profit-making body. It is not a short-term financier either, like a commercial bank, but a long-term and even medium-term lender (combined disbursement and grace period), and this time is hard to reduce because of the length of studies, especially for professional careers. As a result, most of the institutional capital is registered in the activity as 'portfolio to be collected' and only a very small amount in 'mature portfolio'. Today, on the basis of accounting information, the IECE has capital for credit amounting to 9,031.4 million sucres. Since 1973 its loss of capital has reduced that by 448.5 million sucres, so that today its net worth is only 8,582.9 million sucres. Out of that net worth activity, 7,096.1 million sucres corresponds to the credit portfolio which in fact represents the overall amount of credit granted. This is made up of 7,040.8 million sucres to be collected (99.2 per cent of the net capital) and barely 55.3 million sucres of amounts received (0.8 per cent of the net capital). In short, practically all of the capital is loaned, and new loans are subject to the liquid assets available (10 per cent of total assets) and contributions of capital from private sector transfers or annual recovery of credit granted. These last resources amounted to 3.1 thousand million sucres in 1991, making a total of 11.5 thousand million sucres since the beginning of the IECE. However, we are pleased to announce that we will not maintain a provision to compensate for uncollectible credit, in spite of the fact that the Law provides for this as a 'Guarantee fund', because the sum total of 'legally claimed credit' barely amounts to 105.9 million sucres, which represents 1.5 per cent of the overall reference portfolio. 98

Annex A Ecuador Table 1. Educational credit contracted by the IECE between 1973 and 1991 Total period indicated В Administration 90-91 Percentage ratio B/A (Current administration over total period) Amounts Type of No. of (million credit operations sucres) No. of operations Amounts (million sucres) No. of operations Amounts Family Studies: Inside the country Abroad 55 164 31267 20 410 10 857 568.8 11 369.8 5 721.4 5 648.4 4 117 4 760 3 610 1 150 251.8 6 538.6 3 850.1 2 688.5 7.54 15.2 17.7 10.6 4.3 57.5 67.3 47.6 Totals 86 431 11 938.6 8 877 6 790.4 10.3 56.9 Recipients of family credit 87 406-2 783-3.2 - Total recipienuv73 837-11 660-6.7 - Source: Planning department. 99

X. El Salvador 1. Introduction The Guarantee Fund for Educational Credit was established on 10th May 1973, and was conceived by the Government of the Republic to enable people with limited economic resources toreceivethe training necessary for the country's economic and social development through an institution which provided credit facilities to finance education. It began working in the city of San Salvador, with an initial contribution of 100,000 colons (US$40,000 at the 1973 exchange rate) from the central government and withfive employees concentrated in the offices created for the institution. EDUCREDITO was created to help primarily Salvadoran students with limited resources who wish to acquire and perfect technical or professional knowledge in the country's educational centres and who possess the necessary intellectual and moral capacities as well. EDUCREDITO depends on thefinancialsupport it receives from the Central Reserve Bank of El Salvador, and the commercial banks which act as intermediaries in granting guarantees. 2. EDUCREDITO's results EDUCREDITO gives endorsements at the secondary, technological and university levels in educational institutions throughout the country. In its 19 years of service it has granted 15,500 guarantees, and this has made it possible for people with limited economic resources to become professionals and to be leaders of the economic, social and political activities of our country. The amount involved has increased to 60,000,000 colons. The guarantees given by EDUCREDITO over these years have been distributed as follows: 100

Annex A - El Salvador Table 1. Guarantees given by EDUCREDITO (1988-1991) 1988 1989 1990 1991 Secondary school leaving certificate 106 106 67 56 Technological college 99 89 27 11 University 285 248 165 121 Total guarantees given 490 443 259 188 Total amount (colons) 3 737 660 3 431 300 2 306 000 1 354 000 (US$) 747 532 686 260 336 740 168 891 The marked decrease in guarantees given is the result of measures adopted in the last four years to curb default payment. The points established for giving guarantees require analysis. As a public service institution, EDUCREDITO is concerned with giving Salvadorans access to professions, stimulating students to improve, giving them a deep sense of responsibility and encouraging them to graduate in the time programmed so that they will not drop out or repeat their year. At the same time, it ensures that educational costs do not affect the family budget. Finally, it 'contributes effectively towards raising the level and quality of life of the Salvadorans'. Since 1989, the Recovery department has been active in preventing and recovering default payments for credit guaranteed in the various financial institutions, and speeding up recovery of payments made by EDUCREDITO. Thus, the recovery of bank debts through the activities of the Recovery Department, as a result of its restructuring in 1990, the development and application of the handbook of recovery strategies, the establishment of a system of visits, and active participation in seminars, increased the recovery of credit very markedly. 101

Student loans in higher education Table 2. The recovery of delayed payments (in colons) Year Bank Paid by EDUCREDITO 1988 49 051.00 229 009.66 1989 361 343.00 144 173.10 1990 2 007 000.00 365 000.00 1991 2 600 000.00 565 000.00 Efforts to recover default payments have increased, because of EDUCREDITO's commitment. One of its priorities among its action plans is 'The effective administration of default', which defines collection policies and strategies. 3. A posteriori scholarships programme The A posteriori scholarships programme has been an important variation in the work of EUROCREDITO since its creation in 1985 following a donation of 2,000,000 (US$400,000) by AID. Its purpose is to stimulate and reward assiduousness in students at the secondary school level by a cancellation of their debt once their studies are finished. This benefits users of educational credit, since in 1990 it extended coverage to the technological level. The programme stimulates the students through periodical information discussions in the study centres, so that they can get to know the centre, and talks to motivate them to apply for scholarships. This also makes it possible to follow the academic results and behaviour of potential recipients. 4 Sponsor/guarantor plan In order to strengthen the guarantee fund and relations with the country's industrial and entrepreneurial sectors, the so-called Sponsor/guarantor plan was developed. Its sole aim is to give real guarantee backing to students who have none, thus multiplying credit opportunities for other Salvadorans. 102

Annex A - El Salvador This plan uses three methods: (i) Sponsor/guarantor for those students who make an application and cannot offer a guarantor's security to EDUCREDITO. (ii) Staff loan: Firms create this as a service for the staff working in their firms who apply for educational credit. It serves as a guarantor for EDUCREDITO. (iii) Donations:firmsor persons donate an amount to EDUCREDITO which serves as backing for a student who cannot present a guarantor. With these methods the Sponsor/guarantor plan has had favourable responses from some Salvadoran firms. For its implementation it will receive the technical assistance and participation of the Central Reserve Bank, the Ministries of Planning, Education and Labour, as well as representatives from private enterprise. 103

XI. Guatemala 1. Current trends in financing higher education in Guatemala In our country there are four private universities and one state university in which there is a total of approximately 100,000 students. 70 per cent of these are in the State University, the University of San Carlos de Guatemala, (USAC). In the State university, students pay the equivalent of US$15 per year, which means that education is virtually free of charge. Apart from this, to have the right to enrol in a private university, a student must take an entrance exam, since there are limited quotas. The opposite is true of the University of San Carlos, where the only entrance requirement is to have graduated from a diversified study course, since there are no established quotas. However, in the latter there is a good Vocational Guidance Programme based on aptitude tests, positive attitudes, interests and study habits. The student receives vocational counselling but he is not obliged to follow the course of study for which he is most suited on the basis of the results of the tests mentioned above. As far as other financial contributions by students are concerned, in addition to enrolment fees, in both the state and private universities, the student has to pay for his books and stationery and the equipment necessary for practical work, as well as the printing of his thesis and graduation fees. In order to provide other forms of assistance to students in the University of San Carlos, there is the 'Department of university students' well-being' which has a vocational guidance section, a section to attend to health problems (medical, psychological, dental, and laboratory services), and the socio-economic section which is mainly in charge of the 'scholarshipaoan' programme for which it has an annual fund of US$550,000. 104

Annex A - Guatemala In the private universities there is also a form of assistance to students, which is limited to awarding a few scholarships or loans to finance a part of their studies. Public expenditure on student aid for the University of San Carlos de Guatemala, with regard to the state budget for education, corresponds to 5 per cent of the nation's general budget. Private universities receive no direct state financing. 2. Current trends in educational loans There are only two state institutions in Guatemala with educational credit programmes: The University of San Carlos (USAC) and the Department for the Promotion of Scholarships (DIFOBE). USAC has a scholarshipaoan programme which only takes care of its own students. These loans are granted to students for their undergraduate studies, and must be paid back when they have finished their studies. They pay back the same amount that they received, that is, without any interest. In spite of this, there are problems in recovering this credit, since the University is an educational institution and does not have a proper system for recovering the loans granted. This has prompted DIFOBE to develop a project which will soon be submitted to the university authorities proposing their services to administer their Scholarship/Loan Programme. The Guatemalan Department for the Promotion of Scholarships - DIFOBE, is an entity attached to the Ministry of Labour and Social Security. Its main aim is to grant financing to students with good academic results and limited economic resources, so that they can carry out studies in areas considered as being of high priority for the economic, social and cultural development of the country. D I F O B E's main source of external financing is the annual contribution of 6,000 quetzals (US$1,200) by private firms in the country, for each foreign expert that they hire. By law, these firms must train a national counterpart or else contribute the sum mentioned to DIFOBE. This institution changed its policy in 1984, and at present it mainly grants educational credit to undergraduate and postgraduate students regardless of the university or technical institute in which they are studying. 105

Student loans in higher education The educational credit granted by DIFOBE has an annual interest rate of 16 per cent and the student has to pay it back when he has finished his studies. There is a grace period of three to six months and a repayment period of two to five years depending on the amount of educational credit provided. The current trend is to transform DIFOBE into the Educational Credit Institute of Guatemala (ICE) and a draft for its creation has been prepared which will have to be approved by the Congress of the Republic. Even though the State would still be represented, this body would be an independent entity, which we hope will attract more financial resources and perform more dynamically and efficiently. With regard to obstacles to the development of educational credit in Guatemala, there is the fact that both at the level of the authorities and the students themselves, there is not yet a clear understanding of the advantages of educational credit, and this creates a resistance to its full acceptance. This resistance is basically due to the fact that the government, universities and some other bodies have made grants and awarded scholarships for study over the years, but without any commitment by the student to pay them back, so that the idea that it is profitable to invest in vocational training has never been developed. Moreover, the Guatemalan's socio-economic situation and the fact that there are no long-term development plans to define clearly the role of the professional in the future and his place in the labour market means that students are afraid of contracting a debt which they will have to pay back with interest once they begin their professional life. 3. The administration of student loans As far as loans for financing education are concerned, there is only one institution in Guatemala operating in this system at a national level, and that is the Department for the Promotion of Scholarships. Other public and private institutions also offer this type of financing in the form of loans, but they do so only for the population that they represent, as is the case for universities and some private firms. The same is true for scholarship programmes. With regard to the choice of students for loans, the commonly established criteria are: 106

Annex A - Guatemala (a) The studies carried out by the candidate must be a priority for the economic, social and cultural development of the country. (b) Good academic performance. (c) Limited economic resources. Academic performance is evaluated from different points of view. Consideration is given not just to qualifications obtained by the student during his course of studies, but also other parameters such as skills, interests, positive attitudes and personality. With regard to the terms of the loans, there are some institutions which grant them free of interest, such as the University of San Carlos of Guatemala, the Rafael Landivar University and the Francisco Marroquin University. Unlike those mentioned above, the Universidad del Valle de Guatemala charges 10 per cent annual interest, and the DIFOBE 16 per cent. The student must pay back these loans once he has finished his studies, with a grace period ranging between 3 months and one year. The repayment instalments vary according to the amount loaned and the student's economic capacity. These instalments are established beforehand in the respective contract. In this respect, DIFOBE has been very successful, since the recovery rate is above 95 per cent in the institution's 10 years of experience. However, the Universities are having serious problems recovering loans. In some cases they are below 10 per cent. This has prompted DIFOBE to develop a project for USAC to administer the funds in the University's scholarshipaoans programme. 4. Evaluation of experiences in granting loans to students Studies are being carried out at present to assess to what extent recipients and the country have used scholarships compared to loans to finance training. Preliminary results indicate that at the individual level both forms of financing have been profitable, but we do not know with certainty what the social benefit has been. However, it is assumed that society has also benefitted from the training of these professionals, and that educational credit has the advantage over scholarships of stimulating a sense of social responsibility in the student receiving the loan. This can easily be seen if we see the success obtained by DIFOBE in recovering credit, compared with the 107

Student loans in higher education success obtained by DIFOBE in recovering credit, compared with the failure of the universities in recovering their Scholarship/Loan programmes,in spite of the fact that the majority of universities do not charge interest on these. It might be thought that it is because of pressure put on them that students react better to DIFOBE than to other institutions, but DIFOBE's success has not depended on such methods. It has depended on the student's awareness of his responsibility towards another recipient, whose opportunity to receive a loan depends on him paying back his own within the specified time. For such reasons we believe that educational credit is the most appropriate way of financing education in our country. 108

XII. Honduras I. Current trends in the financing of education In Honduras, until 1988 it was possible to create andfinance new institutions for higher education and to recognize others which were already active, but which had not achieved that status because of legal technicalities. At present, the country's higher education system has five universities and four non-university educational institutes. Of the five universities, three make up 60 per cent. These are private and represent approximately 10 per cent of the enrolments in the system, whereas the other two State universities represent 88 per cent of the total. The National Autonomous University of Honduras and the National Pedagogical University offer a distance education system which takes care of 3 per cent of enrolments in higher education respectively. The State units which represent 22 per cent of Institutions of Higher Education, are responsible for 88 per cent of the students in the system, and compulsory contributions from students are approximately US$28.00 per year in the National Autonomous University of Honduras and US$13.00 in the National Pedagogical University. In the State Universities, admission is free of charge, there are no entrance exams, and the most important formal prerequisite is to have graduated from secondary school. Indices of students repeating a year or dropping out are high, and on the average, eight years are necessary for a student to graduate at the bachelor's degree level. In the private universities, which represent 33 per cent of the supply of higher education in the country and which are only responsible for 10 per cent of total enrolment, the costs for students vary, often on the basis of their course of study, but on an average they pay a fee of four thousand American dollars for the whole course. In these institutions conditions and prerequisites for admission vary, but there are no entrance exams. 109

Student loans in higher education The other three institutions are exclusively for the teaching of Agronomy and Forest Sciences, with a system of boarders throughout the course of study. They require an entrance exam for their students who are receiving subsidies in the form of partial or total scholarships. Costs for students in these institutions vary from approximately US$9,000 to US$22,000 for three years. As we explained, all the students of these three institutions, who represent 17 per cent of enrolment at the higher level, receive economic assistance from private or government sources ranging from between 60 per cent and 90 per cent of the total cost of the course of study, and vary often 100 per cent. In some cases, the student has to contribute at least 25 per cent of the costs of his academic training, and it is normal that he should pay for things such as books, exercise books, printed material, uniforms, personal and graduation expenditures, as well as the cost of entrance exams, admission quotas and transportation. 2. Current trends in educational credit There is no uniform policy with regard to whether students should pay a larger or smaller share of their education costs. The present trend is to create new private institutions of higher education which offer more alternatives for vocational training and respond to the new requirements for social development. This may be due to the loss of credibility in Public Universities which have given too much importance to their political activities and administrative systems. This has an effect on the educational process and leads to a drop in academic quality. Over the last two years great attention has been paid to the application of educational credit as a way of stimulating academic excellence, and it is not thought that better performances are obtained from students simply by guaranteeing that they will graduate and pay back the money loaned. The aim is to improve personal potential so as the individual will be successful in the labour market, and alternatives are found to apply methods thatresultin an economic benefit for the student because he is well qualified. The need to give positive stimulus to the individual component of excellence has given rise to interesting debates in which proposals are made that clash with legal formalities. For example, they ask those 110

Annex A - Honduras awarding credit to adjust the amount of the allocations to compensate for inflation, because in many cases the periodical disbursements for recipients are not enough to satisfy their school needs. One of the shortterm government projects to modernize the State is the privatization of the emblem of educational credit institutions in Honduras, the 'EDUCREDITO' Educational Credit Institution, which, in the first years of its existence was a private body, but was forced to change its structure into that of an autonomous State government entity a few years later to capitalize the institution following an offer by an international financing body. At present, in order to support institutional activity and to avoid any political interference, the Executive Power wants to return it to its original status as a private, non-profit-making institution with its own equity. We must point out that it is impossible for the State to cope with the increasing demand for higher education. For this reason, alternatives must be found that involve the individual more in the financing of his own vocational training. 3. The administration of student loans A s w e have explained, there is no central office to provide information about the administration of scholarships or loans to students, and generally speaking, all Institutions for higher education set aside some funds for this type of activity, but there is no centre to quantify, qualify or register them, so it is almost impossible to offer any precise data. Apart from 'EDUCREDITO', the institution which devotes the most significant resources to economic aid for students is the National Autonomous University of Honduras. It makes available approximately US$14,000 per year, and this is administered by a special scholarships and loans programme. Out of the funds mentioned, a small portion (3.8 per cent), is set aside for annual scholarships for students with visibly limited economic resources who have received the highest marks during the year in each of their subjects. Scholarships amount to less than US$800 per year per recipient. The remaining funds are for loans to students. The selection of candidates for scholarships or loans is usually carried out in the study centres on the basis of criteria they have established themselves. Generally, the most important prerequisites for a loan are to have and maintain academic results above 65 per cent on a 111

Student loans in higher education scale of zero to one hundred, and to prove that you are unable to pay for your studies by any other means. Scholarships are for outstanding students or those who have satisfactorily passed the entrance exam. Loans offered by this Institution can be used to finance costs of enrolment, equipment, school uniform, graduation and thesis, transport, housing, meals and other personal expenditures. Loans can be made available at any time during the course of studies until thefinal year and graduation. However, partial disbursements cannot exceed US$65 per month. These loans pay 3 per cent interest on unpaid balances and 8 per cent on default payments. There is no grace period, and credit must be paid back within a maximum of 48 months, starting from graduation, or immediately if for any reason the recipient is no longer using the credit. This benefit is only offered to students in this Centre, which also offers a partial cancellation of the debt in exchange for academic excellence. Credit granted by 'EDUCREDITO' is subject to different interest rates. If it is for study inside the country, the rate is 12 per cent, but for study abroad it is 15 per cent on unpaid balances. For repayment there is a grace period of three months starting at graduation, or immediately, if for any reason the recipient is no longer using the credit. The maximum time limit for repayment of the loans is six years, but this period varies according to the amount of credit and can be as short as one year. The most commonly used method for guaranteeing the recovery of credit is a private document which has to be signed by the contracting parties, that is, the institution, the recipient and his guarantors. This formal document, which very often has to be used to enforce payment of amounts due, has inherent technical problems which make the process of compelling debtors to pay very slow and costly. In the case of the Scholarship and Loan Programme of the National Autonomous University of Honduras, credit is recovered through a collection office, which attributes the success of activities to the quality of the contract established. The rate of default payment is high, and this is also due to the inefficiency of university bureaucracy. Obviously, the administrative burden is borne by the University Institution which is faced by budget deficits and is unable to meet the labour demands of its trade union, or the requirements of teaching standards and training resources. 112

Annex A - Honduras The learning process has also been costly for 'EDUCREDITO', but they have made significant efforts to recover default payments which in recent years have been reduced by 33.3 per cent. At present.various alternatives are being studied to improve this portfolio. One possibility is a cancellation of default interest to stimulate defaulters to renegotiate their debts and bring themselves up to date. It goes without saying that this option can only be applied through a legislative decree. Another significant method which has been applied recently to guarantee recovery of a loan, is to draw up contracts by public deed, which is an Executive certificate guaranteeing and facilitating immediate implementation. There is a particular form of default payment which we might call involuntary default. This is what happens when the debtor does not find work after graduation. As the grace period is very short, and in some cases non-existent, it is obvious that it will be difficult to recover the credit immediately. Present regulations do not make special provisions for these cases and default interest is charged. As we know, educational credit is an instrument to make education more democratic. It gives access to those people who otherwise would be unable to follow courses in higher education. However, the regulations for granting credit, and mechanisms to guarantee its recovery, are a limiting factor which prevents a great number of applicants from having access to it. In general, it is those who do not have endorsements or property to support their application for credit, and they are consequently excluded from the benefits of this system. All of these facts represent a barrier which needs to be overcome through a search for new mechanisms. However, for the time being we have to accept the need for those legal instruments which guarantee that funds loaned will berecovered and can be used for the vocational training of other people. We could thus argue against educational credit by saying that it is an elitist and excluding mechanism, benefitting a precise social group with economic advantages, and not those who are less fortunate. In any case, unless other practical ways of guaranteeing recovery are found, the educational credit system will continue to suffer from its weakness which limits extension of its benefits to society. 113

Student loans in higher education 4. The evaluation of experience in student loans It is a difficult task to define a method to establish the degree of experience a person can have in making loans to students. However, we can mention a number of situations which show that people involved in this activity have practical reference points which provide a broader framework for looking at the subject. Some of these situations are: e Evaluation, revision and readjustment of the Credit Regulations. Participation in defining selection policies and criteria. Application of the Regulations, forcing comparison with reality. Comparison between the amount of partial disbursements and purchasing power at the time of regulation. Permanent contact with students, training institutions and the changing needs of school life. The officials of EDUCREDITO, having been in contact with the problems and needs of students for many years, have considerable experience in the administration of student loans and scholarships. EDUCREDITO fully understands the importance of educational loans in the lives of students, since in many cases loan is the deciding factor as whether a student will be able to continue studying or not. In this situation, we believe that every encouragement needs to be given to emphasizing the positive aspects of student loans. However, we could say that its greatest drawback lies in its administration and regulations which are not flexible enough to adapt it to the needs of a constantly changing world. If we have to compare educational credit with total or partial scholarships, we mustfirst of all think about the purpose of each of these forms of aid. The scholarship is directly and solely related to the student's excellent performance, as a prize or recognition for his academic efforts and intellectual capacities. Educational Credit, on the other hand, cannot be so demanding. It must be available to all, regardless of their better or worse performance, as long as they meet the minimum requirements. However, we must not disregard the need to apply incentives for aiming at academic excellence through educational credit. 114

XIIL Panama Higher education in Panama is developed in eight universities and eight centres for higher studies. At present, we have two universities and two centres for higher studies in the public sector, with a total of 51,164 students. The private sector has six universities and six centres for higher studies, and a student population of 10,685, The growth of private universities in recent years has led to the development of areas of specialization and a large range of options for students leaving secondary school. Higher education in Panama has an 'open door' policy, in which all Panamanians have access to higher education. For this reason, students are admitted to the various centres for higher education on presentation of their school leaving certificate. Table 1. Enrolment in universities and centres for higher education in the Republic of Panama, 1991 Study level Bachelor Postgraduate Public universities Private universities Public centres for higher studies Private centres for higher studies Total 50 891 9 779 273 906 61 849 231 419 650 Parameters for registration in higher education institutions in Panama vary greatly. In the public universities (University of Panama and Technological University) students only pay for enrolment, which costs 58.50 balboas (1 balboa = US$1.00)per year. According to the course of studies chosen, students also have to cover the costs of laboratories, which 115

Student loans in higher education are 7.50 balboas for the first laboratory, and 50 balboas for each additional one. Private entities for higher education have varied academic costs as well as the enrolment fee. Considering all the variations, the annual average for enrolment and academic costs in private institutions of higher learning is 1,000 balboas. Students have access to different types of aid to finance their higher education. One of these is the Institute for the Training and Development of Human Resources (IFARHU). It is a public entity created in 1965 to set up a programme guaranteeing the appropriate development of technical training and the rational use of human resources in the Republic of Panama as a means to accelerate economic and social development. Among the main services provided by IFARHU to finance higher education are educational loans and scholarships. Educational loans are economic support which IFARHU offers to Panamanian students to carry out studies at the higher level, both in Panama and abroad. Loans are used for studies at the higher technical level, bachelor's degree, postgraduate level, courses, seminars, and to pay for thesis costs. The educational loan covers tuition costs (enrolment, books, materials and so on), and maintenance (lodging, meals, transport). Scholarships are non-reimbursable economic aid offered by IFARHU to students to help them pay for their study costs. The University of Santa Maria La Antigua, the private sector Council for educational aid, and the Panamanian Association of Company Executives all have scholarship programmes. In 1991, the government allocated 376,426,300 balboas to the educational sector, which is made up of the following Institutions: the Ministry of Education, the Panamanian Institute for Special Qualification, the National Institute of Culture, the National Sports Institute, the Institute for the Training and Development of Human Resources (IFARHU), the University of Panama and the Technological University of Panama. The educational sector also includes the two public universities and the IFARHU, an institution created by the State to provide aid to students (scholarships and loans). The detailed budget is as follows: 116

Annex A Panama Table 2. Budget for the educational sector (in 1,000 balboas), 1991. Total Operational Investment Total of which: education sector 376 426 347 284 29 142 University of Panama 55 052 50 517 4 535 Technological university 10 924 9 994 930 IFARHU 19 587 13 176 6 411 Seventeen per cent of the total budget of the educational sector is concentrated in the two universities, and 91 per cent of their individual budget is for running costs of the institutions. This has led to an irregular situation, since it limits their further development and their influence on the community. IFARHU, an institution providing aid to students, has 5 per cent of the total budget for the educational sector, and 67 per cent of its individual budget is for the institution's operational costs. 2. Educational loans The government implements the educational loan policy through the Institute for the Training and Development of Human Resources (IFARHU). It is based on the following criteria: e preference should be given to the most needy students; the loans requested should be to finance study courses in Panama, unless the course is not offered locally, or to continue studies abroad; to support international scholarship offers, with the programme of paid leave and educational credit, if the offer is related to projects for developing the country. As well as the educational loan programme, IFARHU has a scholarship programme, another activity which enables students in higher education to receive a contribution from the State to pay for their studies. 117

Student loans in higher education At present, the educational loan programme is facing a few problems in its development. On the one hand, we have some current regulations which are becoming obsolete, and on the other hand, in recent years there has been little demand for educational loans. This is due to various factors, such as unemployment, family commitments and low wage levels, a result of the economic crisis affecting the country, and it makes it hard to find guarantors, a necessary condition for the granting of an educational loan. To cope with this situation, IFARHU has decided to revise and update the Loan Regulations, so that they will correspond to the realities and present needs of the country. Selection of candidates The selection of candidates deserving educational loans is made by a Committee which checks whether the applicants fulfil the following conditions: e e they must be Panamanian or a foreigner with more than ten years residence in the Republic. the applicants must have academic results and personal qualities which clearly show that they will be able to benefit fully from, and take advantage of, the educational loan. they must give proof of their need for economic resources to carry out studies at the higher level. they must devote themselves exclusively to those studies for which the educational loan was granted. they must present two joint debtors. the application must suit the study priorities defined by the Institute itself. Conditions for educational loans The conditions under which educational loans are granted are as follows: IFARHU will grant as a maximum amount for higher and/or university studies the sum of 16,000.00 balboas, and its approval will 118

Annex A Panama e depend on the cost, place, duration of studies and the salary received by the future professional in the labour market. Educational loans will produce an annual interest of 5 per cent on unpaid balances, and this will be charged at the end of the studies, when the contract expires and if the benefit is cancelled due to early graduation. When the contract is cancelled because it is not fulfilled or because the recipient has given up his right to it, interest will be considered from the date on which the contract begins. The Institute win charge a handling fee of 10 balboas for each 1,000 balboas and fraction thereof, which will be discounted from the first quarterly payment. Payments will be made to the recipient in advance in quarterly allotments (January, April, July and October) The student who receives an educational loan is obliged to: (a) (b) (c) Enroll as a regular student. Present a copy of the qualifications obtained within 60 days of the end of each school period. Remain in permanent contact with the section in charge of academic follow-up of the loan. On graduation the borrower must present proof that he has finished his studies. Source of financing The government, when it created IFARHU in 1965, allocated 57,000 balboas for the financing of the first educational credit programme, through which it granted 21 loans nation-wide. In 1966, the Institution received thefirsteducational loan from the Interamerican Development Bank (IDB). Between 1965 and 1971, the Institution granted 2,790 loans for a total amount of 6,025,000 balboas, with funds from the government and the Interamerican Development Bank. In 1971, through Cabinet Decree No. 168 of 27 July, a national tax was created in the country called Educational Insurance, and it came into effect in September 1971. Law No. 13 of 28 July 1987 reformed the above-mentioned Cabinet Decree. Educational Insurance establishes that 119

Student loans in higher education all workers in the country who receive a fixed wage must contribute 25 balboas for each 100 balboas of the amount paid them, and the employer contributes 1.50 balboas for each 100 balboas of the wage he pays his employees, and 2.75 per cent of annual income tax declared by self-employed persons. The creation of the Educational Insurance tax in Panama is an important step forward in the financing of Panamanian education, since both the public and private sectors contribute to the development of education. This is a guarantee for the Institute to finance its credit programmes. From 1972 to 1991, 32,230 educational loans were granted, representing a total amount of 138,396,000 balboas. Recovery of educational loans When the student hasfinishedthe studies for which he requested the loan, he moves to the recovery stage. This is done in three ways: direct discounts (borrowers or guarantors) personal payments coercive legal action. In the case of IFARHU, an ad hoc tribunal was created use coercive legal action to recover difficult loans. The estimated recovery period for loans is based on the following: 2000 2 001 4 001 6 001 8 001 10 001 Loan balboas and less - 4000-6000 - 8000-10 000-16 000 Amortization time (years) 3 5 8 10 12 15 The main factor preventing the effective recovery of educational loans is the country's economic situation. This givesriseto a high level of unemployment, under-employment, low wages, increase in the cost of 120

Annex A - Panama living, and so on. This situation has marked effects, since the money obtained through recovery is invested into granting new loans. Evaluation The evaluation of educational loans compared to other forms of aid to students, shows us the following advantages: the amounts of the loans are higher than any other benefits provided by the Institution. loans do not require high academic averages the way that scholarships do. investments in educational loans can be recovered for the institution, there are better opportunities to keep an educational loan than a scholarship or educational aid. Among the disadvantages of educational loans, we can mention the following: the student has to reimburse IFARHU for the educational loan whether he has achieved the aim for which he requested it or not; the cost of recovering educational loans is high for the Institution, because of the long time it takes for the borrower to pay back. Furthermore, this long time is harmful to the borrower, since he has to pay more interest; present provisions for maximum amounts for educational loans mean that these do not cover all of the costs of a course of studies, and this affects students with low socio-economic levels. As a result of the evaluation of the educational loans programme, some aspects concerning coverage have been changed. In 1991, IFARHU granted 427 loans with an annual amount of 978,174 balboas, 53 per cent (228) of which were for studies in national educational centres and 199 (47 per cent) abroad. A total of 202 loans were made to students to study in the country's universities, with an annual amount of 236,285 balbaos. Of these loans, 151 (75 per cent) correspond to public universities, and 51 (25 per cent) to private universities. 121

Student loans in higher education To study in other centres for higher education, 26 loans were granted for the sum of 30,600 balbaos, of which 23 (88 per cent) correspond to public centres and three (12 per cent) to the private sector. Table 3. Loans granted by IFARHU, (number and annual amount), according to place and level of studies, 1991 Place/study level Number Annual amount Panama of which: Post-graduate Bachelor's degree Technical Abroad of which: Post-graduate Bachelor's degree Technical 228 8 199 21 199 52 134 13 266 945 16 373 231 568 19 004 711 229 242 835 385 977 82 417 Total 427 978 174 Source: Executive Department for Human Resources Planning Department of Statistics. 122

XIV. Peru I. Current trends in the financing of higher education Number of universities and institutes of higher education in 1991 Universities 52 Higher Institutes 482 Total 534 Balance between private and public educational institutes Private Public Universities 24 28 Higher Institutes 170 312 Total 194 330 Students in public universities and higher institutes do not pay registration fees. In the case of private institutions, they pay registration or enrolment fees at the beginning of each academic semester, and these vary between US$20 and US$50. Their purpose is to cover operational costs. Students in private institutions pay tuition fees based on the number of credits taken in one academic semester. They also pay for medical insurance, transport and the use of library services. In public institutions, you temporarily lose yourrightto free education if you fail a subject or semester. Most universities, through their student well-fare offices, offer a range of services to help in health, transport and meals. A few of them offer housing services. In private universities, a fee system has been set up based on the student's economic situation. The lowest fee is approximately 50 per cent of the highest fee. There is also a quota of scholarships for students with limited resources, and in some institutions loan systems have been organized. 123

Student loans in higher education Current trends in educational loans The general law for education establishes policies on scholarships, credit and other educational incentives, and provides for the creation of the National Fund for Educational Credit, and the National Educational Credit Programme. This was designed as afinancialsupport service, in the form of reimbursable loans, to pay for the costs of study, upkeep and equipment, preferably of students with low income and proven academic success. It applies to the following groups: higher university and nonuniversity education, postgraduate vocational and technical studies and training. The training of highly qualified technical staff is one of the priorities of education and scientific and technical development. It also guides educational credit policies. In general there has been a considerable decrease in resources allocated for educational credit in recent years, particularly in the case of the National Institute for Scholarships and Educational Credit (INABEQ, whose only source of financing is government resources. The economic crisis and the reduction in public spending have had an effect on the level of resources set aside for education, especially educational credit. INABEC's budget for this item has decreased over recent years. For example, after increasing from US$36,992 to US$118,642 between 1985 and 1986, it dropped dramatically to US$82,678 in 1987, and to US$13,477 in 1989. This trend continued in the following years. Faced by other emergencies, priority has shifted from education, and specifically educational credit, to other activities. Considering the tendency to establish higher interest rates to keep up with the growth of inflation, educational credit is moving beyond the possibilities of the lower and middle classes, who are precisely those who need it most. 2. Administration of student loans INABEC is the official body of the Peruvian State in charge of developing, proposing and implementing policies for scholarships and educational credit. Other institutions carrying out activities in this area are the Peruvian Institute for the Promotion of Education (IPFE) some universities, the Higher School of Administration for Graduates (ESAN), 124

Annex A - Peru CONCYTEC and some non-university higher institutes such as the Higher Technological Institute TECSUP, and, soon, the Peruvian Institute for Corporate Management (IPAE). Inside the country, INABEC offers: scholarships to adolescents and adults for their vocational training; to secondary school leavers for their non-university vocational training. Abroad, it offers: scholarships for secondary school leavers for their vocational training; for workers, technicians and professionals for specialization. In 1989 INABEC participated in 0.3 per cent of undergraduate credit operations, 43.7 per cent of postgraduate inside the country and 33.2 per cent postgraduate abroad. Its participation was 26.2 per cent oftotalcredit activities. 1 The IPFE is a civil, private, non-profit-making association devoted exclusively to educational purposes. It is trying to strengthen the educational system in its area of greatest need: the training and preparation of high level technicians and professionals, through the granting of scholarships and credit for postgraduate studies at home and abroad. The loans granted by IPFE to follow postgraduate courses inside the country cover the costs of enrolment and upkeep. The latter are for people who do not live in the city in which they are studying. For studies abroad, most of the loan is for enrolment and upkeep. In some cases travel, books and mobility are financed. Finally, there are also loans for students with scholarships to supplement their upkeep. Seventy five per cent of the credit granted by IPFE is for postgraduate studies abroad. The national private bank, through the Wiese Bank and the Banco de Crédito, supports the creation of credit lines so that IPFE can develop its activities in this field. The universities have institutionalized the scholarship service. The fund which the Catholic University sets aside for educational credit is 8 per cent of its budget. With regard to repayment, these are loans of honour to be paid back under the conditions agreed upon between the university and the student when hefinisheshis studies. 1. Source: Diaz Diaz, H. Educational credit in Peru. The experience of the Peruvian Institute for the promotion of education (IPFE) Lima, 1990. 125

Student loans in higher education 3. The choice of students for loans The criteria used to choose recipients of educational credit are similar. In general they take into account the student's socio-economic situation and his academic performance. Moreover, guarantors are needed, and they can be natural or legal persons who make a joint commitment with the student to repay the loan. IPFE is carrying out an efficient study of the ability of guarantors and borrowers to repay credit. Not only are they rapid and on time, but in practice default and failure to fulfil obligations are minimal. 4. Terms of student loans Interest rates for student loans vary from one institution to another, but they tend to take one of the following forms: Charge an active rate which is higher than the country's inflation index. * Amortization, including interest, should be made paying amounts which correspond to the level of tuition fees at the time when the payment becomes effective. In the case of INABEC, since most of the financing of the credit programme comes from Public Funds, an interest rate equivalent to 50 per cent of the active market interest rate is charged. Administration costs are not included. 3 per cent of the total amount of the loan is discounted for the guarantee fund. The recovery of the loans takes into account a grace period -usually six months. The time limit for cancelling loans varies, and is established by each institution. It could be based on the amount of the loan and the estimated ability of the student to pay back the debt. For example, in INABEC the time limit is two years, in ESAN 15 months, in IPFE from three to four years, and in TECSUP a maximum of six years. 5. Methods used to recover these loans In most cases, the loans are repaid through the commercial bank, using the system of orders signed when the credit is granted. If the 126

Annex A - Peru recipient fails to fulfil his obligation to pay the debt, the lending institution may use existing legal methods so that the guarantor assumes his responsibility. TECSUP establishes that the instalments to repay the debt should not exceed 17 per cent of the income of the student recipient. If they did, then the guarantor would be responsible for making up the difference. In the Catholic University repayment times are established in a common agreement between the institution and the student. 6. Problems regarding the repayment of loans and their effects Because of the economic crisis and recession facing the country, which affect the population's wage levels and limit the labour market, in some institutions there have been delays in the payments of the debt. For thisreasonlonger amortization periods are sometimes negotiated between the lending institution and therecipientto overcome temporary payment problems. Generally, the guarantee fund created in institutions can be used to cover the balance of a debt contracted by a default borrower. If the fund has not been created, the guarantors are responsible for paying the debt It is certain that the problems referred to above have an effect on the availability of financing for new credit, and delay the attention which should be given to requests for aid. 7. The availability of loans for students from families with limited resources The aims of institutions offering loans to students include giving preference to those who cannot afford to pay for their studies. However, credit conditions today, based on current interest rates, make it very difficult for working class students to have access to a benefit of this kind. Some scholarship holders who need additional economic aid apply for a loan to help them pay for their minimum needs. In the case of IPFE, conditions are adjusted to the needs of an applicant for credit. In INABEC, after having evaluated the application, finance in the form of non-reimbursable credit a scholarship will be given to a student who gives proof of sufficient academic ability and the need for economic aid. 127

Student loans in higher education 8. Level of the debt compared to the salary of the student who has finished his studies We might say that there are two situations. In the first case, we would point out that as the private institutions which offer loans have a great deal of prestige nationally and abroad, those people who receive loans are practically sure to find not just a job but remuneration classified as high for their activities. On the other hand, institutional experience has been able to measure the repayment capacities of borrowers on the basis of their possible income levels and, as in the case of TECSUP, when the debt exceeds this possible income level, the guarantor has to make up the difference. The second situation is that of INABEC. As the amounts of the debt are low they do not exceed US$600, the possibility of people with limitedresources having access to them is higher. However, those people, when they graduate from a training centre, have more difficulty finding work and receiving good wages. For this reason the time limit for repayment of the debt often has to be extended (by one or two years). INABEC has established that amortization payments must not be more than 20 to 30 per cent of the student's income. 9. Evaluation of experiences in granting loans to students The first institution to establish a service of scholarships and educational credit in Peru was IPFE, founded in 1962. The Institute has given priority to high quality training in areas related to national development. IPFE's contribution to postgraduate training is praiseworthy. During its existence it has benefitted approximately 2,000 people. Furthermore, in qualitative terms its contribution can be seen in the scientific and technologicalfield and the multiplier effect obtained in centres for higher education, in firms and in research centres. Until 1972 there was no government institution in charge of scholarships and educational credit for the training and full qualification of Peruvian students and professionals. INABEC was created in 1972, and supplemented its operational stateresources with what it could glean from international technical and cultural cooperation. It began progressively to decentralize its activities. We must admit, however, that educational credit 128

Annex A - Peru does not represent a priority for the government in teims of allocation of resources, so INABEC's activity has been reduced to a minimum. The experience of ESAN, and universities such as the Pacific, Catholic and Lima, as well as TECSUP is highly positive. As their training costs are high, many of their students would not have been able to receive training and full qualification if there had not been educational credit, which is a way of making opportunities for higher education more democratic for a greater number of students. The costs of higher education have risen in real terms in the last two decades. The system of loans could play a role in increasing sources of financing for higher education, with the aim of improving the quality of teaching. But experience shows that this will only be possible if good loan programmes are designed, with appropriate criteria for the selection of possible recipients, proper interest rates and guarantee systems, good administration and a mechanism to ensure the effect of the loan fund in the future based on a high recovery rate. With regard to other forms of aid, educational credit has other advantages. In a country where wages have been decreasing for more than a decade, and where state resources to finance higher education are increasingly limited, even other aid services such as student restaurants and transport are more precarious, and run the risk of being reduced to a minimum or disappearing if present trends continue. On the other hand, a student's problem is not just having a scholarship to pay for his tuition fees. He must also pay for transport, clothes, books, etc. It is much more effective to cope with this through loan programmes. If not, the student drop-out rate will continue to rise. 129

XV. Venezuela Student aid is provided by a variety of institutions. This report concentrates on the role of one institution, the Gran Mariscal de Ayacucho Foundation, which has recently drawn up a development plan to increase provision of educational credit. The government of Venezuela and the World Bank have recently negotiated an education credit that includes, among other provisions, strengthening and reform of the Gran Mariscal de Ayacucho Foundation and an increase in student loans administered by this institution. 1. Gran Mariscal de Ayacucho Foundation The 'Gran Mariscal de Ayacucho' Foundation, in its institutional strengthening policy, intends to optimize productivity by extending and renewing its programmes. It promotes the creation of new ways of training high level human resources, within the work context of institutions linked to the public and private sectors in the country. It also intends to identify priorities and needs for improving effectiveness and management for example through decentralization and the transfer of administrative competence from the central level to regional entities. The Institution's new policies aim to: Achievefinancialdiversity in the medium term; To give more direction to educational credit; Make the recipient more responsible about fulfilling his/her academic and financial commitment, and thus improve loan recovery. The aim of the 'Gran Mariscal de Ayacucho' Foundation is to become a national centre for financial aid, to establish agreements for vocational training according to specific plans on a permanent basis; to stimulate excellence; to develop relationships between institutions and infrastructures; to collaborate and be active in society, in promoting educational credit. 130

Annex A - Venezuela Table I» Number of universities and institutes of higher education, 1991 Type of institution Universities and institutions Public Private Total of higher education Universities 25 14 39 Teaching university institutes - 1 1 Polytechnic university institutes 1-1 University institutes of technology 19 12 31 University colleges 6 9 15 University institutes 8 11 19 Total 59 47 106 Source: Department of Statistics CNU/OPSU Table 2. Student enrolment 1979/1989 by educational levels Years Pre-school Basic Secondary Higher (1st to 6th) vocational education 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 344 287 421 183 461 017 499 093 523 318 546 221 561 846 549 376 552 907 555 933 3 060 425 3 158 466 3 249 669 3 320 235 3 368 223 3 464 546 3 539 890 3 663 126 3 721 122 3 777 575 217 050 222 267 225 615 229 299 236 520 253 429 268 580 275 263 280 727 278 247 296 726 307 133 331 115 349 766 379 218 383 256 443 492 441 734 407 372 503 540 131

Student loans in higher education All of this is focused on the development of human resources. The democratic principle of equality of opportunity must be established and respected, and educational credit must be consolidated as a valuable instrument in this regard. At present, the Institution's responsibilities include:» Granting scholarships and credit for education. Technical andfinancialaid. The promotion of courses and research. There are basically three sources of finance for the foundation: 1. Credit from the World Bank. 2. Conversion of part of the Foreign Public Debt into investment in education. 3. The transfer of interest by trusteeship on international reserve funds of the Central Bank of Venezuela, allocated to the Foundation. The Institution is devoted to training high level human resources for economic development through pursuit of the following aims: Training managers for various government and state activities. Strengthening management training in the private sector. Helping to consolidate the IESA's Centre for the development of Human Resources so that it can give support through teaching, research and information to the various strategies adopted to train and manage high level human resources. Improving staff development in Public Administration. Developing and strengthening programmes in management training in the Venezuelan academic system. Four types of reform of student loans are being introduced: 1. Improved design of the educational credit system, to establish clear incentives through exemptions for those who pay off their debt and to increase investment to improve collection mechanisms and loan recovery systems. 132

Annex A - Venezuela 2. Changes in the ternis of loans, to increase recovery. 3. Improvements in selection criteria to guarantee equitable distribution of educational credit. The idea is to extend coverage to low income sectors and attract students from such backgrounds, while reducing subsidies for economically privileged students, who at present are not required to contribute towards their educational costs. 4. Possible additional sources of funds to cope with the growing need for financing through educational loans. The Foundation is currently developing and designing plans, mechanisms, programmes, formulas etc., to improve the financing system described above. With regard to policies, priority is being given to the following ways to improve and reform educational credit: 1. Focus educational support more selectively, by improving methods of selection, analysis of requirements, taking into account the prime needs for employment, and consideration of the duration of financing. Criteria must be developed and special programmes used to target loans more effectively. 2. Reduce interest subsidies. The level of subsidy of interest rates during study periods may be reduced, and charges introduced to cover the costs and administration of credit, together with the application of fixed interest rates, fixed in advance, to take account of expected inflation. 3. Minimizing default. There is a legal framework for direct payroll deduction which can be applied if necessary. There is no freezing of other sources of credit, and incentives for collection are being strengthened. 4. Alternative recovery mechanisms. Among the options considered is work in the public sector as an alternative to repayment. 133

Annex В Participants in the forum Gabriel Bectancur Mejía, Presidente Honorario, Colombia. ÁPICE, Bogota, Gulemo Bemal Correa, Secretario General, ICETEX, Bogota, Colombia. Jorge Enrique Castro Herrera, Jefe de Créditos, Instituto de Crédito Educativo, Egucigalpa D.C., Honduras. Maynor René Cordón, Representante Titular de las Universidades del País, DIFOBE, Guatemala, Guatemala. Tobías Espinoza, Gerente de Operaciones, Fundación Gran Mariscal de Ayacucho, La Urbian, Estado Miranda, Venezuela. Dalys Catalina Guardia Martans, Jefe Departamento de Crédito, IFARHU, Panama, Republic of Panama. Roberto Emmanuel Liz Castellanos, Directeur Ejecutivo, FUNDAPEC, Santo Domingo, Dominican Republic. Daniel Martinez Juckowsky, Director Presidente, Porto Alegre, Brasil. FUNDAPLUB, Licencianda Aba Luz Mora Anda, Directora Ejecutiva, ШСЕ, Qutio, Ecuador. Alejando Montero Ramírez Jefe del Depto de Planificación, CONAPE, San Jose, Costa Rica. 134

Annex В - Participants in the forum Lucia Moreyra Pelosi, Presidente del Consejo Directivo, IPFE, Lima, Peru. Elias Armando Ortiz Mejia, Présidente del Directorio, CIDEP, La Paz, Bolivia. Victor Enrique Rocher Femada, Vice-Rector de Finanzas del Instituto Professional de Santiago, Santiago, Chile. Reymundo Rodríguez Barrera, Fondo De Garantía para el Crédito Educativo, EDUCREDITO, San Salvador, Republic of El Salvador. Jorge Téllez Fuentes, Director Ejecutivo, Bogota, Colombia. Observers Susana Artela, LASPAL, Cambridge, USA. Edgar Romeo Avana Castillo, Guatemala, Guatemala. Samuel Carlson, World Bank, Washington, USA. Melba Báez de Erazo, FUNDAPEC, Santo Domingo, Dominican Republic. Anna Luisa Covarrubias, Pontificia Universidad Católica de Chile, Santiago, Chile. Miram Díaz Santana, FUNDAPEC, Santo Domingo, Dominican Republic. Miguel, J. Escala, FUNDAPEC, Santo Domingo, Dominican Republic. Providencia Fernández, FUNDAPEC, Republic. Santo Domingo, Dominican Ana Cecilia Fernández Rojas, CONAPE, San José, Costa Rica. 135

Student loans in higher education Jorge A. Conzalez Moreno, Pontificia Universidad Católica de Chile, Santiago. Martine Guerguil Comisión Económica para América Latina, ONU, Santiago, Chile. Melanio Hernández Alberto, INTEC, Santo Domingo, Dominican Republic. Kevin Lillis, British Development Division in the Caribbean, Saint Michael, Barbados. María Conuelo G. Maisto, ISEP, Georgetown University, Washington, USA. Milagros Maldonado, FUNDAPEC, San Domingo, Dominican Republic. Manuel Marsá Ruiz, Universidad Católica, Assuncíón, Paraguay. Yvelisse Prats de Pérez, FUNDAPEC, Santo Domingo, Dominican Republic. Juan Antonio Ribas, EDUCREDITO, Tegucigalpa, Honduras. Lygin Rodríguez, Educational Testing Service, Puerto Rico. Francisco Rodríguez Oréstegui, ÁPICE, Bogota, Colombia. Sixto Volpe Ríos, Universidad Católica, Assuncíón, Paraguay. International Institute for Educational Planning (HEP) Maureen Woodhall, Senior Consultant. Serge Péano, Programme Specialist. 136

ПЕР publications and documents More than 650 titles on all aspects of educational planning have been, published by the International Institute for Educational Planning. A comprehensive catalogue, giving details of their availability, includes research reports, case studies, seminar documents, training materials, occasional papers and reference books in the following subject categories: Economics of education, costs and financing. Manpower and employment. Demographic studies. The location of schools (school map) and sub-national planning. Administration and management. Curriculum development and evaluation. Educational technology. Primary, secondary and higher education. Vocational and technical education. Non-formal, out-of-school, adult and rural education. Copies of the catalogue may be obtained from the ПЕР Publications Unit on request.

The International Institute for Educational Planning The International Institute for Educational Planning (ПЕР) is an international centre for advanced training and research in thefield 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: Belgium, Canada, Denmark, Finland, Iceland, India, Ireland, Norway, Sweden, Switzerland and Venezuela. 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 thefieldof educational planning. In this endeavour the Institute co-operates with interested training and research organizations in Member States. The Governing Board of the ПЕР, which approves the Institute's programme and budget, consists of eight elected members and four members designated by the United Nations Organization and certain of its specialized agencies and institutes. Chairman: Victor L. Urquidi, (Mexico) Research Professor Emeritus, El Colegio de México, Mexico. Designated Members: Arturo Núñez del Prado, Director, Latin American and the Caribbean Institute for Economic and Social Planning, Santiago. Cristian OssOy Director, Development Policy and Analysis Division, Department of Economic and Social Development, United Nations. Visvanathan Rajagopalan, Vice-President and Special Adviser to the President, The World Bank. Allan F. Salt, Director, Training Department, International Labour Office. Elected Members: Isao Amagi (Japan), Special Adviser to the Minister of Education, Science and Culture, Ministry of Education, Science and Culture, Tokyo. Henri Bartoli (France), Professor, Séminaire d'economie du Travail, Centre Pierre Mendès-France, Paris. Mohamed Dowidar (Egypt), Professor and President of the Department of Economics, Law Faculty, University of Alexandria, Alexandria. Kabiru Kinyanjui (Kenya), Senior Programme Officer, Social Sciences Division, International Development Research Centre, Nairobi. Tamas Kozma (Hungary), Director-General, Hungarian Institute for Educational Research, Budapest Yolanda M. Rojas (Costa Rica), Academic Vice-Rector, University of Costa Rica, San José. Lennart Wohlgemuth (Sweden), Director, Scandinavian Institute of African Studies, Uppsala. Inquiries about the Institute should be addressed to: The Office of the Director, International Institute for Educational Planning, 7-9 rue Eugène-Delacroix, 75116 Paris, France.

Educational Forum Serles No, 4 The systems offinancialsupport to students in higher education which have been in place for several decades are today coming under scrutiny in many countries - both industrialized and developing - and Governments are beginning to demand that students should meet a greater share of the costs of their higher education, either before or after they graduate. Some countries are actively considering the introduction of loans to students, others are poised to put greater reliance on the loan systems they have been operating in recent years; yet others have rejected the possibility of introducing loans and are looking into the feasibility of introducing special tax schemes for students in higher education. The International Institute for Educational Planning is therefore holding a series of educational forums devoted to the question of loans to higher education students. The purpose of these forums is to analyze the main issues raised by the introduction of student loans and, through exchanges of experiences between countries, to highlight the main implications for policy-making and for management of student loans programmes. The three previous forums were held for: (i) Western Europe countries and the USA, (ii) Asian countries and (iii) English-speaking African countries. Reports of these three forums have been published. This booklet reports on the fourth forum held for countries of Latin America and the Caribbean. Latin American countries have a very long and rich experience of student loans schemes, ever since the first programme was set up in Colombia, forty years ago. The author Maureen Woodhall is Reader in Education Finance at the Institute of Education, University of London, Research Fellow at the Education Department, University of Wales, Aberyswyth and a Senior Consultant for the IffiP. She has written widely during the past 20 years on the subject of student loans.