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Students loaded with loans are less free to conduct their lives in the way they wish. It's a bad idea

We know very well the negative consequences of a student loan system. Just look at the United States, writes Julien Mercille.

A CONFIDENTIAL REPORT on the funding of Irish higher education has recommended a student loan system.

But this should be opposed, because it will saddle students with much debt. The burden of paying for education should not be put on students’ shoulders and the system should remain publicly funded.

The loans are said to be ‘income-contingent’, meaning that they would have to be paid back once graduates’ income reaches a minimum level. The media keeps repeating that it would make college ‘free at the point of access’.

But this is a disingenuous way to describe it. When you buy a house with a loan (mortgage), nobody declares that you got a house for free. Student loans don’t make education free—all they do is make you pay later, with a hefty interest bill.

Negetive impacts 

We know very well the negative consequences of a student loan system. Just look at the United States, where it’s been catastrophic. (The plan proposed for Ireland is said to be inspired from the Australian system, which is not as bad as the US, but the principles are the same).

Meet Liz Kelley, a 48-year old Missouri high school teacher who now owes the US government $410,000, and counting.

She is part of the 43 million Americans who owe $1.2 trillion in student loan debt. The average undergraduate who borrows leaves college saddled with $30,000 in borrowings. As many as 780,000 of them, or 1.8% of the total, owe $150,000 or more. And 346,000 owe in excess of $200,000.

Half of the sum owed by Kelley is accounted for by accumulated interest. And no, the exorbitant total is not due to loan sharks’ aggressive practices. It is a result of government loans with a number of features to make it cheaper to borrow, such as no repayments while still in school and below-market rates.

With skyrocketing student debt come more defaults. In the US, as many as 31% of student borrowers default on their loans at community colleges, while only 6% default at selective four-year colleges. The difference is mostly due to the fact that the latter students get jobs with larger salaries, making it easier to reimburse loans.

It reveals that if it is mostly those with the highest-paying jobs who manage to pay back, the system is flawed.

And of course, financial institutions and the banking industry love student loans.

They get more customers and play a role in managing the government loan scheme, or their own lending programmes. It’s all very lucrative for them. And there is also a form of social control involved.

Once they graduate, students are loaded with loans, and therefore less free to conduct their lives in the way they wish. They have such large obligations to meet to rid themselves of their debts that changing jobs or taking more time off may not be possible.

The loan system proposed for Ireland should not be surprising to anybody who has followed how the education system has evolved in recent years. The main government strategy to restructure it is outlined in the Hunt report of 2011.

It basically calls for making higher education more entrepreneurial and commercial. The word ‘enterprise’ appears 89 times in the 134-page report.

There’s nothing wrong with some elements of education finding commercial applications, but when the whole strategy revolves around that, there’s a problem.

Treating education more like a business and less like a public good entails cutting public funding. Since 2006, the real value of public expenditure per student in higher education has declined from just over €11,000 to slightly above €8,000.

As a result, there was a lower level of funding in 2013 than a decade previously (figure 1).

julien 1

Also, public funding as a proportion of total education funding has decreased from 78% in 2008 to 68% in 2013 and will drop to 64% by 2016. Conversely, the ‘student contribution’, namely what students have to pay in terms of fees and other expenses, has gone up in a mirror fashion to make up for the drop in public funding (figure 2).

It is projected that by 2016, private student contributions will amount to 19% of total higher education institutions’ income. Some universities now obtain over 50% of their total funding from private sources.

julien 2

Staff numbers in higher education have been cut by 10%, or 2000 individuals (roughly half academic and half administrative) since 2008. But over the same period, student numbers rose by 25,000.

This means bigger classrooms and the staff-student ratio has increased from 1:15.6 to 1: 19.5. We should fight to keep our education system public, affordable and of high quality. Racking up student debt is not the way to do it. The government should get its priorities right and fund education properly.

Julien Mercille is a lecturer at University College Dublin. Twitter: @JulienMercille

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