Long Period Loans

Long-term loans

Type of loan, term of loan, penalty for overdue. Changing study credit regimes at the global level Bologna became the first formal academic institution and was founded at the end of the eleventh millennium, offering loans to some scientists in need. Only in 1240 was this kind of regulation formalized as a system of credit for students, when the Bishop of Lincoln did so with funds from the Oxford School.

While many other colleges followed this example, it took until 1951 for the Colombian authorities to launch the world's first ever nationwide students credit program, known as ICETEX, which is still in (hesitant) use. These regulations became everyday in the sixties and beyond, and today the higher educational funding regimes of the overwhelming majorities of states are supported by study credit programmes.

In the business world, there is agreement that loans are an integral part of public higher educational policies to help relatively disadvantaged potential applicants cover fees and/or give financial assistance during full-time studies. This is because, unlike many other areas of financing (e.g. mortgage loans to fund the acquisition of a house), it is not possible to obtain student loans for investment in financial resources just because a credit bureau takes all the risks in the case of failure; there is no security that can be offered for sale to cover the costs of bad debt.

Until 1989, these schemes were all characterized by the recovery of debts over a certain period, such as a mortage, and are referred to as time-dependent repayments of study loans or TBRLs. Almost 30 years ago, however, a silent revolt in international university funding policies began. In Australia, this occurred with the implementation of a system of credit for students in which the obligation is not linked to a certain period of stay but to the borrower's prospective earnings.

Australia's borrowers (mostly graduates), known as the Higher Education Contribution Scheme or HECS, pay back their loans if and only if their individual earnings currently surpass an AU$57,000 (US$44,200) per annum mark; the system is referred to as an "income-dependent loan" or ICL. HECS was followed by the introduction of similar income-related credit schemes in New Zealand (1991), England (1998), Ethiopia (2001), Hungary (2001), Thailand (only for 2006) and the Netherlands (2017), and partly in the USA (1994), South Korea (2011) and Japan (2017).

Among the current jurisdictions reforming legislation towards universally income-dependent lending schemes are Colombia, Brazil and Japan, and Malaysia, Ireland and the US are engaged in lively open debate. As soon as the economy of TBRL and ICL is grasped, it becomes clear why all international political activity in the field of study credit policies goes in the same vein.

One of the key issues with regard to TRLs is that repayments are scheduled and therefore do not respond to the borrower's finances. There are two related problems: the severity of the reimbursement and the possibility of failure. Debt recovery stress and delay with a TBRL occurs within a certain period if a borrower does not have sufficient incomes to pay back his credit conveniently.

A number of borrowers will be able to bear the burden and sustain repayment, albeit under pressure. However, others with TRLs who are in dire straits will be delayed with their loans, with very serious adverse effects both for themselves and for the state. Persons in arrears with a students' mortgage suffer great losses on their creditworthiness and in return gain easy or even long-term impossibility to obtain credits, e.g. for the acquisition of a home.

This means that for a large number of nations, this means tens of thousands of dollars in lost credit revenues; failure ratios can be alarmingly high and are at least 40% in Brazil, Malaysia and Thailand. By and large, the benefits of income-dependent credit are twofold.

Firstly, because repaying the debts is only necessary if former college graduates are able to do so, there is no hurdle to repaying a student's debts, and therefore no official failures. And, since no enforceability mechanisms beyond retention by the employers are necessary, there are no significant administration burdens associated with the standard enforceability requirement of a TBRL.

States like Colombia, the USA and Thailand disburse very small amounts of government funds to obtain study loans. Naturally, income-dependent loans must be country-specific and often cost government a considerable amount of money. For example, in England, almost 40% of ICL debts are uncollectable, and in New Zealand tax payers give very high interest subsidy to students' borrowers.

However, there is no question that a well-designed income-dependent lending system has very significant benefits over alternate conventional students' credit schemes, which may unavoidably be headed for disappearance. Mr Bruce Chapman est un co-chercheur d'envergure internationale auprès du Centre pour l'enseignement supérieur mondial et professeur au College of Business and Economy de la Australian National University.

Dearden is a Co-Investigator at the Centre for Global Higher Education as well as Associate Professor at the UCL Institute of Higher and Business Studies, UK. Last weekend, at the Centre for Global Higher Education's plenary session, they spoke about the new higher educational policy. Headquartered in the UK, the Centre for Global Higher education is located at the UCL Institute of Higher education.

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