America’s Experience Should Warn Ireland Away from Student Loans

Photo by Michael Fleshman:
Photo by Michael Fleshman:

Earlier this week, Fine Gael announced some of the education promises in its General Election manifesto.

Alongside the usual favourites such as reduced pupil-teacher ratios, one very notable promise stood out: the introduction of a student-loan scheme for third-level students.

This isn’t the first time that the notion of student loans has appeared in the media recently. For the last few months, leaks have flowed and kites been flown from the Expert Group on the Future of Higher Education Funding in Ireland, chaired by Peter Cassells.

As most of these rumours have centred on the proposal of a student loan scheme, it is perhaps unsurprising that Fine Gael would latch onto this as a proposal. After all, if the Report leans heavily on the loans proposal (as expected), it will be easy to force it through as an early manifesto delivery.

This measure would be a huge error for Irish education policymakers. Loan schemes have been attempted elsewhere and caused huge problems for students, the education system, and the economy as a whole. In the U.S.A, perhaps the most famous experiment with financialising the higher education system, they are associated with increasing both income and racial inequality.

Debt Acceleration

One of the key problems with student loan schemes is that they tend to saddle students with huge levels of debt – debt that can drag students down long after they have graduated.

Worse, the trend in countries that have these schemes is that it tends to spiral – more and more students taking on greater and greater levels of debt.

In the U.S.A., the average level of debt per borrower in each year’s graduating class has risen every year, from just under $9,000 USD in 1993 to approximately $35,000 USD for the class of 2015. What’s more, the rise is getting steeper: the same data shows that average student debt increased by $10,000 USD in the 12 years between 1993 and 2005, but jumped up by $15,000 USD in the ten years between 2005 and 2015.

That’s going from an average increase of $917 USD per year (1993-2005) to $1,500 USD per year (2005-2015). If we were talking about speed instead of debt dollars, professional athletes would be only too happy to get that level of acceleration. The problem is, this acceleration is weighing graduates down, not getting them further: approximately 1 in 3 Americans is behind on their student loan repayments.

Spiralling Figures and “Education for Profit”

Not only is the average level of debt accumulated by students in America growing exponentially, the number taking on loans is increasing as well.

In an article for the Wall Street Journal blog Real Time Economics, Jeffery Sparshott describes how ‘almost 71% of bachelor’s degree recipients will graduate with a student loan, compared with less than half two decades ago and about 64% 10 years ago’.

This increased involvement of the financial services industry in education has also triggered a political and cultural shift. As early as 2014, student loan financial advisors in the U.S.A. observed that families now directly contributed far more to paying for college than the government. This gives the lie to Fine Gael’s claim that even with student loans, the State would still continue to be the main funder of higher education: that’s just not a guarantee that can be made.

Alongside this, a rise in ‘for-profit’ colleges has been seen. These colleges are associated with low-quality teaching, and aggressively target low-income school-leavers who are desperate to improve their employability in a competitive job market, but can’t afford more prestigious schools. Such students are up to 13% more likely to default on their loans in the first two years than other undergraduate borrowers.

The Alternative

What are the alternatives to the proposed student loan scheme? The Cassells Report is expected to argue that, while possible, maintaining the current status quo of a mix of State funding and student contributions (currently €3,000 per annum) is less than desirable.

I would tend to agree that the status quo is not preferable: the sector is already under considerable resource strain, and even more investment would be required just to maintain the current scenario – running to stand still, effectively, for extra costs that will rise to €1.1bn in 2030.

Moving to a Scandinavian or Scottish-style higher education system, fully funded by the State, has been rubbished in some quarters. The leaked draft of the Cassells Report has described this move as ‘unlikely to be implementable in an Irish context’. But this is only a half-truth.

A proper State-funded higher education model is only impossible to implement as long as priority-setting makes it so. If elements of the political class continue to prioritise tax cuts over investment, and voters continue to vote for such promises, then it remains impossible to implement best-practice policies. However, if both groups were to take heed of President Michael D. Higgins’ recent veiled criticisms of emphasising tax cuts in the election, and support a robust tax revenue model for Ireland, then the game would change.

If we commit ourselves, it is entirely possible to build a higher education system that is properly resourced and promotes equality rather than inequality. Nothing less should be our aim.

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