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Loan Subsidies in Eight Countries Alex Usher Vice-President (Research) and Director (Canada) Educational Policy Institute Student Financial Aid Research Network Providence, Rhode Island 23 June, 2006 Outline Look at loan subsidies and conditions in 8 countries

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  1. Loan Subsidies in Eight CountriesAlex UsherVice-President (Research) and Director (Canada)Educational Policy InstituteStudent Financial Aid Research NetworkProvidence, Rhode Island23 June, 2006

  2. Outline • Look at loan subsidies and conditions in 8 countries • Look at how different subsidies affect government expenditures • Look at how different subsidies and loan repayment options affect graduate debt burdens

  3. Subsidies • Subsidies during studies • Subsidies to lower debt at graduation • Subsidies during repayment

  4. Subsidies During Studies(as of March 2005)

  5. Loan Remission

  6. Subsidies in Repayment

  7. Differences in Subsidies

  8. Loan Defaults • Money which is irrecoverable due to un-willingness or inability to pay • Issues related to unwillingness can be dealt with through better technology and tracking (Canada), compulsion to pay (UK, Aus), or increasing penalties for non-compliance (US). • Issues related to inability to repay can be dealt with through some form of income-contingency.

  9. Threshold levels and rates of repayment

  10. That Swedish Student Loan Formula in Full At = Payment, L = balance, r = interest rate, p = annual increase, n=years remaining on loan

  11. The Truth About Thresholds • High thresholds are good for the student (less payment) but bad for the government (higher costs) • Over the long run, higher thresholds can mean significant costs for Government, especially if accompanied by promise to forgive the loan after a period of time

  12. Australia Canada Netherlands New Zealand Sweden US 28% 12% 7.5% 11% 26%(ICR)/15%(new) 8% Estimated Loan Losses

  13. Average Student Debt (% students who borrow)

  14. Average Graduate’s Salary

  15. Debt-to-Income Ratio

  16. Debt Repayment Burden (avg. debt, avg. income)

  17. Debt Repayment Burden (high income students only)

  18. Debt Repayment Burden (low income students only)

  19. Lessons Learned • There are no cheap student loan programs • As # and size of loans increase, so do loan losses • In international context, any student loan that returns 70% of its original value to the government is a good one • The choice is between subsidizing failure directly (default costs/high thresholds and forgiveness) and trying to prevent failure in the first place (low interest, loan remission)

  20. For further information… Alex Usher Educational Policy Institute Toronto Office 300-20 Maud St. Toronto, Ontario (416) 848-0237 ausher@educationalpolicy.org www.educationalpolicy.org/pdf/Global_Debt_Patterns.pdf

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