Editorial | Student loan payment can be linked to income

While it wasn’t altogether ignored, the matter of an income-contingent loan (ICL) scheme for tertiary students gained surprisingly little attention – rather than robust analysis – from the Patterson Commission into how Jamaica can transform its underperforming education system.

The Patterson report was delivered to the Government 14 months ago. Unfortunately, it hasn’t yet been subjected to the rigorous review this newspaper hoped for. The commissioners did, however, propose that Jamaica “explore a repayment model based on income upon graduation”.

“This would lessen the burden on students who have not been able to find employment after graduating,” said the commission, chaired by the Jamaican academic Orlando Patterson. “This approach would also allow for greater equity where payments are made on a sliding scale based on income after graduation.”

They didn’t, though, explore how such a system might work in Jamaica, the experiences of countries where it is used, and how such a system might fit into the loan arrangements employed by the island’s Students’ Loan Bureau (SLB). In the wake of Densil Williams’ recent forceful and expansive articulation of the idea at a hearing of Parliament’s Human Resources and Social Development Committee ­­– including highlighting its potential as a new asset class for long-term lenders – maybe the issue will now gain traction and the discussion it deserves.

“All these pension funds around the place that have all of these monies and looking for something long term to invest in, you invest in education,” Professor Williams, the pro-vice chancellor for planning at The University of the West Indies (UWI) and principal of the UWI’s campus in Antigua, said at the hearing. “Your return is almost guaranteed because the chance of somebody graduating university and not getting a job is very slim.”

EDUCATION BONDS

Professor Williams’ implied suggestion is that the Government could float education bonds to support a likely increased demand for student loans.

This newspaper supports the concept, which, ironically, if the outcomes in England can be replicated in this region, may hold the key to stabilising the finances of post-secondary institutions in Jamaica and the rest of the Caribbean, allowing them to charge more while expanding enrolment and improving quality. This, largely, is congruent with the recommendation of the Dennis Byron commission on governance of The UWI that, controversially, called for a doubling of what students of the financially strapped UWI contribute to the cost of their education.

In Jamaica, Nigel Clarke, the finance minister, should, therefore, instruct the SLB to undertake an analysis of what would be required for it to convert its loan regime to an income-contingent model. In fact, the SLB should also consider the early start of a pilot project, focusing on a few critical areas, where the demand for, and repayment of, loans may have important lessons for the fashioning a long-term ICL scheme,

It is estimated that no more than a fifth (20 per cent) of Jamaicans have post-secondary education. Policy analysts lament that 70 per cent of the island’s workers have no, or little, training for the jobs they do. This is far from adequate if Jamaica is to transform itself into a competitive digital-age economy.

FAILINGS

Part of Jamaica’s education deficit, as the Patterson Commission pointed out, has to do with the failings of the system at the early stages of education. But the commission also noted that many Jamaican students don’t proceed to tertiary level education or training because they can’t afford to and don’t believe that the SLB is a good financing option. There was, too, the commission said, “a lack of private funding to pursue tertiary studies”.

“... There was overwhelming consensus that the SLB was not a preferred option for many students,” the commissioners added. “This has led to students attempting to work full time and study full time and also to the inability of many students to remain in their programmes.”

At present, SLB’s mortgage-type loans carry rates of between six and 9.5 per cent, which borrowers must begin to service 14 months after they graduate. On average, they have seven years to repay. Borrowers complain that with these regular, mortgage-type loans, they often have difficulty qualifying (lack of collateral) and in meeting repayment obligations, especially early in their careers. They earn too little, and repayment requirements are too high. Which is where income-contingent repayment makes sense.

Under these arrangements, as exist in England and Australia, repayments of student loans are tied to the borrower’s income after earning reaches an established threshold – similar, say, to what happens with income tax. If the income threshold is $300,000 per year, with a debt servicing ratio of 10 per cent, that 10 per cent applies to each dollar earned after J$300,000. For someone earning $400,000, the annual repayment would be 10 per cent of $100,000 or $10,000 per annum. While the value of debt doesn’t change, the higher the borrower’s income, the more, in nominal terms she or he pays. Usually, repayment is salary-deducted, with the debt linked to a unique number, which in Jamaica’s case could be the tax registration number (TRN), making it difficult for a borrower to escape his or her obligation. There are, of course, several variations to this basic system.

However, in countries where it is in place, tertiary enrolment increased, especially among people who were previously locked out of higher education. Before the introduction of ICLs in England in the late 1990s, university tuition was, ostensibly, free. Research data, however, indicate that wealthier students, who tended to be better educationally prepared, mostly got the limited places.

And as is the complaint against Caribbean governments and the UWI, in the face of economic stress, per capita subventions to universities declined. The result: standards fell. Ironically, with students being required to pay, English universities have in recent decades sharply increased their costs. Yet they are attracting far more students – from all socio-economic strata.

There may be lessons there for Jamaica.