Editorial | Income-contingent student loans

As we made clear at the announcement last month, this newspaper welcomes the Government’s elimination, as promised, of the need for borrowers from its Students’ Loans Bureau (SLB) to have guarantors.

It is expected that this policy change, which follows a similar move for students who are on the government’s poverty-reduction scheme, PATH, and for wards of the State, will substantially increase demands for student loans. For as Finance Minister Nigel Clarke pointed out, many otherwise qualified but poor applicants just could not find the required guarantors.

This change, however, is only part of the requirement for financing tertiary education, a discussion which, in the circumstances, Dr Clarke did not sufficiently advance during the Budget Debate. Surprisingly, he did not raise the matter of income-contingent loans for education borrowers, an idea that, hopefully, will be on the agenda of the education minister, Fayval Williams, in the coming sectoral debates.

The question of how Jamaica finances education generally, and tertiary education in particular, is an important one in the context of the island’s notoriously poor educational outcomes and the critical importance of education to creating a globally competitive economy.

Indeed, Dr Clarke himself has pointed to the tensions between what the Government allocates to tertiary education (J$26 billion, or 16 per cent of the education budget in the current fiscal year) and what it spends on other areas of education.

“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 … ,” the minister told Caribbean educators at a conference in Kingston last year.

REBALANCING BUDGET

There have been suggestions for rebalancing the Government’s education budget (currently at J$161 billion) for a greater focus on the early childhood and primary sectors so as to better prepare children to absorb higher levels of education. After six years of primary schooling, a third of students enter high school struggling with basic English literacy.

At the same time, fewer than three in 10 Jamaicans (27 per cent) of the appropriate cohort receive any form of tertiary education, and nearly 70 per cent of workers have no formal training/certification training for the jobs they do.

At the same time, the country’s fiscal circumstances have constrained the Government’s ability to spend on education, which is especially apparent in its allocations to universities, which, over several years, have, in real terms, either been frozen or declined. Which makes accessibility to students’ loans, and the terms of borrowing, important.

The SLB is the largest source of student borrowing in Jamaica, accounting in 2021-22, according to its analysis, for 37 per cent of education lending. The SLB loaned J$4.2 billion to 9,666 students, six per cent below the previous year when Jamaica was in the grip of the COVID-19 pandemic.

The figures, however, are on the uptick, aided, first, by reducing the requirement for guarantors from at least two to one and none for the Programme of Advancement Through Health and Education (PATH)students and children emerging from state care.

According to Dr Clarke, within the first year of lifting the guarantor requirement for wards of the State, loan applications from that group to the SLB increased from 46 to 98, 0r 113 per cent. For PATH beneficiaries, the jump was from 192 to 547, or 185 per cent.

REPAY

Implicit in this data is that people will borrow for their education when it is relatively easy to do so. The issue is to ensure that those who borrow must repay.

Income-contingent lending, in which repayment is linked to a borrower’s earning over his or her working life and capped at proportion of their salary, offers one potential solution. Such loans can be linked to the borrower’s tax registration number or that of the imminent National Identification System ,which, like, say, income tax payments, would follow the worker from job to job. In the circumstance, it is unlikely that a borrower would be overburdened by the student-debt payments while being unable to escape the obligation once she or he is in the formal work environment and interacts with the State.

In other places, these schemes are government-financed. That may be problematic in Jamaica. Which makes the suggestion by Densil Williams, the principal of the Mona campus of The University of the West Indies (UWI), that income-contingent loans becoming a new asset class for long-horizon investors, such as pension funds, especially appealing.

Jamaican pension funds manage over J$700 billion in assets of which actuary Ravi Rambaram told a discussion at UWI, Mona, last October, J$50 billion could be readily released for student loans. That is nearly 12 times the amount loaned annually by the SLB.

Of course, there would be the need for regulatory mechanisms to facilitate such schemes. That makes Minister Clarke’s intervention in the debate urgent.