Direct student loans

Individual costs and benefits of direct student loans are very different in different countries. To expand access to higher education and reduce social inequality without any risk to public funds, deteriorating quality of education or creating unwanted friction between European countries, a well-designed pan-European system of direct student loans was created, corresponding to the three characteristics.

First: all students must be eligible to receive direct student loans, as in the Scandinavian countries, in order to develop a private responsibility. The volume of direct student loan should be sufficient to cover all costs for accommodation, or students from low-income families will be harmed because of the need to work. Moreover, it should introduce a flexible payment system, since its absence is costly for the government, and is beneficial to students from wealthy families. No payment should be applied only to students from poor families, for example, in the form of grants, while others must repay part of the cost of training.

Second: the payments necessary to correlate with income, as in Sweden or the UK, as they are automatically adjusted for the opportunity to pay: debtors with low or no income can not hold payments and, in particular stamp, the payments increase or decrease relative to income at a reasonable rate. Thus, neither the debtor does not collide with too much benefit, and the state will not be forced to subsidize a certain period of inefficient delay in the time when the beneficiary can already begin to return the student direct loans. Moreover, correlated with income payments reduce the percentage of depreciation, since getting together with taxes.

Third: Students must pay interest, as interest rate subsidies is costly to the state and gives students a reason as long as possible to pay the loan or to complete training. However, since high rates can prevent students to take direct loans (student loans), which will reduce the number of tertiary education, interest rates should be limited to inflation during training and after graduation to grow by one or two percent.

Education is expensive. The national average investment in education now make up almost 7% of gross national income in the EC, and from more than 80% – funds from the public sector.

A combination of three factors may explain the wide spread in recent changes in the effectiveness of this funding. First of all, education – is not only the public good. Secondly, as a result of tremendous increase in the number of graduates and students from the late 60′s, especially in Europe (Eicher, 1998a), expenditures on education have risen sharply and now represent one of the largest spending categories of public funding in many countries. Third, at the time were more stringent budget constraints by the government, which led to the protracted financial difficulties.
In developed countries, the dispute focuses on the financing of higher education for several reasons: the rapid growth of this budget, the preservation of social inequalities despite the expansion of public funding, particularly in Europe, as well as the fact that, according to public opinion, primary and secondary education must be almost completely free of charge and funded by the state.

One of the answers to this funding crisis is a significant increase in private financing in higher education. This strategy is supported by the World Bank (Report, 1986, 1988). These recommendations are aimed at increasing efficiency and improving the financial condition and confirmed by numerous studies. In most cases recommends that you increase the tuition fee, and then reform the system of student aid. This idea has often focused on the establishment of public credit markets to finance the cost of residence for students and – occasionally – on learning by providing special loans for students.