Editorial | Income-linked loans

The agreement between Jamaica’s Students’ Loan Bureau (SLB) and US immigration authorities for the Americans to help identify emigrating borrowers who leave their debt obligations behind is generally good news.

Because when debtors, especially those who can afford to pay, do not, it robs many students of the possibility of affording a tertiary education. And many, indeed, do not pay.

For instance, over the past two years the SLB was forced to write off over J$3 billion in debt owed by delinquents, and, according to government data, seems on course to expense nearly a billion and a half more in 2024-25.

But while welcoming the initiative with the Americans, The Gleaner sees it as an opportunity for a broader discussion on the financing of higher education in Jamaica, including on income-contingent student loans.

This issue has been raised in the past without significant public engagement by the Government. The timing is now propitious.

Fayval Williams, the former education minister who was previously broadly receptive to the idea, is now the finance minister, having been assigned that job at the beginning of this month.

And Dana Morris Dixon, Ms Williams’ successor, not only previously worked in the financial sector, but was a member of the Orlando Patterson Commission on education transformation, among whose recommendations were tertiary education loan schemes akin to income-contingent ones.

They should have a basis for a conversation on the issue. And it is a sensible idea.

NEW, CREATIVE MECHANISMS

Jamaica’s SLB operates a revolving loan scheme, which, in the current financial year, will disburse around $4.9 billion to an estimated 10,000 students. That, in dollar terms, is an increase of approximately 17 per cent over the previous financial year.

The SLB estimates that it provides 37 per cent of all loans to Jamaica’s tertiary students, and that it covers about a third of everyone enrolled in higher education.

Most SLB loans are payable over seven years, at 7.8 per cent per annum. Borrowers usually have a 14-month grace period after their studies before repayment begins.

However, against the backdrop of the Government’s tightened fiscal circumstances, demands for more resources to be steered towards early-childhood and primary education, as well the years-long cutbacks in funding to state-supported tertiary institutions, many students find it difficult to pay for higher education. There have been calls for new and creative mechanisms to help close the gap.

Income-contingent loans have been among the proposals.

Under these schemes – which exist in several jurisdictions, such as Australia, Britain and New Zealand – education loan repayments are capped at a percentage of their incomes, usually no more than 10 per cent.

In some cases, the proportion of repayment might be further moderated, depending on, say, the job a graduate has, such as if she or he works in the public sector, where wages are usually lower.

Mostly, income-contingent loans are linked to, and tracked by, unique identifiers, similar in concept to Jamaica’s Taxpayer Registration Number or social security numbers, which follow workers from job to job.

In that way, the system allows for salary deduction of loan payments, the same way taxes are taken from workers’ pay at source

Indeed, there seems to be similarities between this arrangement and what SLB has brokered with the American authorities, under which several categories of professionals who migrate to the US are flagged on their student loan status if, or when, they try to upgrade their visas.

“People who may have migrated on the J1 visa and want to renew their status in the US, before they can actually do that, there’s an arrangement where the US government needs to find out from us if this person is indebted to the Government,” said the SLB’s manager for loan service, Cheryl Surjue.

REGULATORY ARRANGEMENTS

However, the suggestion so far raised in Jamaica for income-contingent student loans goes beyond state agencies like the SLB putting up cash.

Two years ago, Professor Densil Williams, now the principal of the Mona campus of The University of the West Indies (UWI), suggested that institutions with long-term money, such as pension funds, could develop a new asset class with these kinds of loans. A year ago, well-known actuary Ravi Rambaram estimated that around J$50 billion could be quickly released from Jamaica’s more than $700-billion pension assets for such loans.

At a UWI colloquium where the issue was discussed, Ms Williams, then the education minister with a background in financial management, seemed enthused by the idea. It should now be rigorously explored, including having conversations with all stakeholders, and consideration given to the necessary regulatory arrangements for such a system to work.

As we suggested previously to Nigel Clarke, Ms Williams’ predecessor at the finance ministry, the new minister should instruct the SLB to begin a small pilot programme on income-contingent loans.