Editorial | Why is the Gov’t mum on loan idea?

Initiatives like the one launched in Montego Bay last week by the furniture retailer Courts to raise money to help students with their tertiary education are helpful. Montegonians will pay to take part in a charitable run.

But even as we endorse this project – and the many others that help countless young people to meet the cost of post-high school aspirations – it is clear that they, on their own, cannot solve the problem of funding tertiary education in Jamaica. Which is why we are surprised at the continued absence of a robust debate on the matter, including the introduction of income-contingent loan schemes for students entering universities and colleges.

Except for Prime Minister Andrew Holness’ announcement of the removal of fees for skills training at the Government’s HEART/NSTA Trust vocational institutions, there was no exploration of new ideas on education financing during the recent debate of the Government’s J$1-trillion Budget for 2023-24.

Indeed, this newspaper’s public suggestion last October to Finance Minister Nigel Clarke that he instruct the Students’ Loans Bureau to design and pilot an income-contingent lending scheme appears to have been unnoticed and/or ignored.

EXPLORE NEW MODELS

There are several good reasons why Jamaica should explore new models for funding education generally, and tertiary education in particular.

At 14 per cent, the J$143.8 billion allocated to education is the largest chunk of the Budget except for debt servicing (interest and amortisation). Jamaica’s education spend is over six per cent of gross domestic product (GDP), higher than most of its regional peers although in nominal US dollar terms it lags behind many.

But educational outcomes, experts say, do not match expenditure. Therefore, where, and how, limited resources – including the efficacy of allocating approximately 17 per cent of the proposed spent to the tertiary sector – are spent is worthy of serious discussion. Some analysts advocate rebalancing the State’s education expenditure by shifting money to the early childhood sector from other areas, especially vocational, and, perhaps, the tertiary level, where Jamaica spends proportionately more than many of its global peers.

At the same time, an estimated seven of 10 Jamaicans have no formal training for the jobs they do, and the economy is significantly short of technical and vocational skills. Mr Holness is attempting to attack the latter problem with the removal of all fees to undergo HEART training courses, notwithstanding criticism that the agency uses its resources inefficiently.

The debate, however, has not got around in any serious fashion to what should happen at the tertiary level, where most institutions face financial crises, and large swathes of students can ill afford the cost of their tuition even when heavily subsidised.

Moreover, fewer than three in 10 Jamaicans of the requisite age cohort are enrolled in tertiary institutions, which is less than half of the number of some of Jamaica’s major Caribbean peers, including Barbados and Trinidad and Tobago. Yet many studies show a strong correlation between tertiary education and GDP expansion – an area where Jamaica has been a regional laggard, with annual growth of a little over one per cent over the past four decades.

INCOME-CONTINGENCY LOAN

Last October, Densil Williams, the pro-vice-chancellor for planning of the regional University of the West Indies, proposed to a parliamentary committee that Jamaica adopt an income-contingent loan model to open the door wider to tertiary education.

“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 said. “Your return is almost guaranteed because the chance of somebody graduating university and not getting a job is very slim.”

With income-contingent loan schemes, variations of which operate across the world, loan repayments are tied to the borrower’s income after his or her earnings reach a particular threshold, similar to what happens with an income tax threshold. The ratio of loan repayment to income is also usually capped. So while a borrower will pay nominally more as his income rises, the percentage remains the same even as the debt is paid down faster.

In most schemes, repayment is deducted directly from the borrower’s salary, based on a unique number, similar to, say, Jamaica’s Tax Registration or National Insurance Scheme numbers. It is, therefore, easy to follow the debtor from job to job until the debt is repaid, or as is the case in some arrangements, a specific amount of the loan has been liquidated after an agreed number of years, depending on the career path the borrower followed.

Of course, as Professor Williams argued in October, schemes of this kind could create a new asset class for long-term investors. Government regulation and other support could allow such investors to leverage their assets several fold, thus expanding the resources for education without creating any significant liability to taxpayers. It is a possible win-win all round – for individuals, investors, and the economy.

Dr Clarke and the education minister, Fayval Williams, whose background is in finance, should say what their views are on this proposal and whether they have done anything about it.