Editorial | Making student debt payable

Last Wednesday, Densil Williams, the recently installed principal of the Mona campus of The University of the West Indies (UWI), reprised his proposal for Jamaica to introduce income-contingent loan schemes to finance tertiary education, which means that the servicing of student loans would be linked, or indexed, to what borrowers actually earn rather than merely an unencumbered interest charge on the debt.

So, especially early in their working lives, when incomes are likely to be low, or borrowers whose career trajectories aren't big-paying jobs, won’t be on an unrideable treadmill to meet their loan obligations and meet other living expenses. The expectation is that easier serviceable finance options would encourage more Jamaicans into tertiary education.

What is different about Professor Williams’ idea, however, is that unlike most similar schemes around the world, his wouldn’t primarily be a government enterprise, which should appeal to the finance minister, Nigel Clarke.

Instead, Professor Williams wants private institutions with long-term money, such as those that manage pension funds, to get into the business of financing education, and in doing so develop, as he put it, a new asset class.

It is an idea that has the strong backing of this newspaper, which Finance Minister Clarke should embrace. Indeed, Dr Clarke should immediately do these things:

• Urgently convene a discussion with relevant financial institutions to begin to begin the work of determining the necessary regulatory environment for such an arrangement to work properly, including how existing government resources might be leveraged to expand what is available in the private sector; and

• As Professor Williams proposed at his colloquium last week, and as this newspaper suggested soon after he first gave a parliamentary committee an outline of the scheme more than a year ago, the minister should instruct the Students’ Loan Bureau (SLB) to set up a pilot income-contingent loan scheme, targeted at professional groups with historically good repayment records.

GOOD REASONS

There are several good reasons why indexing the repayment of education loans to borrowers’ earnings makes sense.

In the Caribbean, Jamaica, with fewer than three in 10 (27 per cent) of the cohort enrolled in post-secondary education and training, is at best middling, trailing countries like Barbados, St Kitts and Nevis. Yet, it is a frequent observation that nearly seven in ten people in the island’s workforce have no formal training or certification for the jobs they do, and that if Jamaica is to compete in a technologically driven, 21st century economy it will require a better educated and skilled workforce.

Part of the problem of achieving this is the poor outcomes at the lower levels of the education system. Up to a third of the students finish secondary education as border illiterates and over 40 per cent aren’t properly prepared to absorb secondary education. At high school, even after a healthy chunk of students are screened out of tests, only around 40 per cent of the students who write the Caribbean Secondary Education Certificate (CSEC) exams pass five subjects, or more in a single sitting. And of that group, less than 30 per cent have maths and English among those five.

The inability to matriculate isn’t the only deterrent to tertiary enrolment. Economics is also an issue.

Facing fiscal crises, Caribbean governments which own UWI, and used to cover up to 80 per cent of its costs, have cut back on their financing – and in some cases to their domestic tertiary institutions.

As the Patterson Commission on the transformation of Jamaica’s education system said in its report two years ago, many students don’t believe they have viable financing options, compounded by “a lack of private funding to pursue tertiary studies”. They also lack confidence in the SLB.

INCOME UPON GRADUATION

The commission suggested that Jamaica “explore a repayment model based on income upon graduation”, but made no specific formula. However, with calls for a rebalancing of the education spend to fix some of the problems at the early childhood and primary levels, Dr Clarke has signalled that allocations to tertiary institutions will, at best, grow slowly, or, in real terms, decline.

In July, he told a conference of the Caribbean Union of Teachers, “What the data suggests, which accords with the qualitative analysis (of a World Bank/UNESCO report), is that we are underspending at the pre-primary level, which educators say is the more important level, and – I must be careful with how I say this – on a relative basis, overspending at the tertiary level, where the returns on education are mostly private ...”

He raised the prospect of means testing for tertiary students seeking government financing.

The bottom line: a discussion of how Jamaica sustainably funds tertiary is an urgent priority. Many analysts insist that there is sufficient money in institutions that of necessity have long horizons, to bridge the gap left by any government pull-back – once they have a mechanism to securitise investment.

For instance, Ravi Rambarran, an actuary, told last week’s discussion that Jamaica’s near J$700 billion pension industry (more than a fifth of which is held in government instruments) could quickly free over J$50 billion for education investment, on an income-contingent basis.

What ought to be attractive to students is that their education becomes the collateral for the loans. And more affordable terms.

There are many technical issues to be resolved for an arrangement like this to work, such as tracking people from job to job or in the event they emigrate. But Jamaica need not reinvent the wheel. The basics are in place elsewhere. It is just for Jamaica to adapt them to fit its circumstances.