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  • EU loan scheme: loathed and loved

    - The EU member states lack great enthusiasm about the Erasmus ‘loan guarantee scheme’. They want to cut the budget, but is this really the final curtain for the proposal that is so dear to the European Commission?

    It’s just a tiny part of the ‘Erasmus for all’ package, but it has stirred up emotional debate, mainly among students’ associations: the loan guarantee scheme.

    The scheme is a financial instrument enabling students to take their Masters’ degree in another European country. In the proposal, the EU would provide a partial guarantee to banks which in turn offer loans to Masters’ students against certain favourable conditions.

    The European Commission is the main proponent of the proposal, because of its potential of leveraging  the Erasmus funds. Some student organization, like NWS for example, are in favour. ESU however is fiercely against.

    Maximum 2 per cent?

    Last week’s meeting of ambassadors of the EU member states (COREPER) showed little zeal for the idea of giving students loans instead of grants. However, the idea of a pilot scheme is still on the table. 

    A Brussels’ insider says that the ambassadors informally agreed on allocating maximum 2 per cent of the ‘Erasmus for all’-budget to the loan guarantee scheme.

    This would open up new discussions as at least 4 per cent of the total budget is needed for the scheme to operate properly. 

    No experiments please

    Lars Vos, Education Attaché at the Dutch Permanent Representation to the EU reports that many EU countries don’t want to spend Erasmus grant funding for the newly created loan scheme. “It is a new instrument that has not yet proven its worth. In times of austerity you don’t want to experiment too much.”

    The position of The Netherlands is that degree mobility is important and that a new European loan guarantee scheme could foster this.

    “By using this innovative financial instrument, you can allot more money to student mobility. About 6 times as much as when you would use the money as grants”, says Vos.

    Brain drain confirmed

    The Dutch Ministry of Education had KPMG look into the effects of an Erasmus ‘loan guarantee scheme’. The KPMG-report states that the Erasmus loan scheme has little additional value for Dutch students. However, it could be interesting for students from elsewhere in the EU who currently don’t have a system of portable loans or grants.

    Furthermore the consultants say that financial institutions show little interest in offering the loans to foreign students, as they fear their debtors might be difficult to trace after they have returned to their country of origin.

    In all, the authors of the report doubt the feasibility of the Erasmus loan guarantee scheme. They also mantion the danger of a ‘brain drain’: the students from poorer countries will have to remain in relatively richer countries in order to be able to pay back their loans.