Funding students’ loans

PRIME MINISTER Andrew Holness’ signal of his government’s intention to remove for all borrowers from Students’ Loans Bureau (SLB) the need to have at least one guarantor will no doubt be popular.

For even that minimal requirement is difficult for most students, especially those from poor families. Which is the majority.

But, as the administration prepares to act on this long-standing idea, this newspaper looks forward to a broader discussion on how Jamaica intends to fund tertiary education, including the prospects for income-contingent loans, such as has been championed by Densil Williams, the new principal of the Mona campus of The University of the West Indies (UWI). If, indeed, the administration is giving this idea consideration, it is past time that it publicly engages all stakeholders, including pension funds, which have a huge amount of capital that can be transformative for education. They, however, have to see education as a real investment option.

In Jamaica, fewer than three in 10 (27 per cent) of the population has tertiary-level education or certification. In this regard, the island lags behind most of its key regional peers. This shortfall contributes to the island’s failure to breakout of the trap of low productivity, low technology, low wage and low growth.

The causes of this situation are varied. They include shortcomings in the early childhood sector and poor outcomes in primary schools, which translates to subpar performances at the secondary level and relatively small number of students being able to matriculate to tertiary education.

Among those who make the cut, many have difficulties financing their education in the face of the government’s effective freeze on the amounts it allocates to the sector in recent years.

Of those who borrow to fund their tertiary education, the largest segment, an estimated 37 per cent, get their financing from the SLB, which in 2021-22 loaned J$4.2 billion to 9,666 students, or six per cent below the previous year.

DECLINE IN ENROLMENT

A difficult economic environment, induced by COVID-19 pandemic, as well as higher costs for tertiary education courses, officials say, contributed to the decline in tertiary enrolment in that period. It is unclear how much the sector has recovered since the Jamaican economy regained its COVID-19 losses and reported record-low unemployment.

However, last week Prime Minister Holness told students at Guy’s Hill High School in St Catherine that the government wants to make it easier to access loans from the SLB.

“You know that this administration has removed the requirement for having two guarantors, so now you only need one,” Mr Holness said. “But we are also actively considering removing this business of a guarantor.”

Already, students covered by the government’s poverty-reduction programme – Programme of Advancement Through Health and Education – are exempt from requiring a guarantor.

But the Patterson Commission report on transforming Jamaica’s education sector, released over two years ago, said that trust by the students in the SLB was low.

Importantly, too, the SLB does not have sufficient capital to meet lending needs, especially if there were a push to accelerate university- and collegelevel enrolment. This shortfall would be exacerbated if the finance minister, Nigel Clarke, follows through on his signal of steering support from universities to the even more under-resourced early childhood and primary sectors.

“What the data suggest, 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,” Dr Clarke said.

DISCUSSIONS

There are discussions, therefore, Dr Clarke needs to have with the island’s tertiary institutions on how fully the government can meet its commitment to cover most of the economic cost of educating students. At The UWI that portion started at 80 per cent, but has steadily declined to substantially less than half.

One way to ease the burden on students as they are forced to pick up more of the slack is via incomecontingent loans, under which repayments are linked to the borrower’s earnings during his working life and capped as a proportion of his salary.

In most jurisdictions, including England and Australia, income-contingent loans – which students start paying when they finish their studies and get jobs – are operated by governments. The loans and repayments follow borrowers from job to job, very much in the fashion of their pension payments.

What Professor Williams proposed for Jamaica is that pension funds, which have long investment horizons, finance such loans, seeing them as a new asset class.

Last October, at a colloquium hosted by UWI, Mona, actuary Ravi Rambaram said that Jamaica’s $700-billion pension sector could quickly release $50 billion for student loans – nearly 12 times the amount loaned annually by the SLB.

Such a scheme would require a predictable and credible regulatory environment, so that the scheme makes sense for all parties. Those conversations should begin, if they have not started already.