An EU student loan: but why?

Nieuws | de redactie
21 februari 2013 | The revamped Erasmus programme covers a new student loan guarantee next to the existing Erasmus grants. Remarkably, the students oppose the facility. The European Commission is eager to introduce the loans, but for what reason?

At a round table meeting hosted by Isabelle Thomas (S&D Member of the European Parliament) one specific part of the Erasmus for all-proposal was discussed: the student loan guarantee facility. This financial instrument aims at enabling students to take their Masters’ degree in another European country. The EU provides a partial guarantee to banks which in turn offer loans to Masters’ students against certain favourable conditions.

Close to the deadline

“Erasmus procedures are now coming close to the deadline”, Ms. Thomas pointed out. “The Commission proposed Erasmus for All in 2011, with the aim of making access to Erasmus more democratic. In 2012 this was put before the Parliamentary Committee on Education. For budgetary reasons the idea arose that student loans could substitute grant systems.”

According to Ms. Thomas the problem lies in the paragraph on ‘obtaining the student loan facility’, which in her view paves the way for substituting scholarships with loans. “This would increase indebtedness of students, not something we should wish for with 25% of people under 25 unemployed already, and in some countries even 50%.”

What happened to portability?

The European Students’ Union (ESU) has been fiercely against the loan guarantee facility. In their view the loan facility is a divergence from the commitment to full portability of loans and grants, which was underlined by national education Ministers in the Bergen Ministerial Communiqué in 2005.

Furthermore ESU thinks that the students’ interests lie not at the heart of the proposal. “It lacks any risk-analysis on the impact it will have on young people’s debt”, the union said earlier in a position paper. “The consequences of such funding initiatives can be best seen in the United States. On the 30th of June 2012, total outstanding loans exceeded $ 914 billion.”

Caught in a job to repay the loan

The way such a student loan facility functions, renders it de facto interesting only to students that expect a well-paid job after graduation. It could for instance service the Spanish engineering student, moving to Germany for a masters’ degree and getting a job in Germany afterwards.

However, the burden of debt after graduation will be so high that the Spanish engineer could never accept a less paid job in his home country, thus creating the brain drain feared by ESU. This raises the question what the real rationale behind the idea of a loan facility is. Is it really a labour market measure aimed at moving just engineers from the south to the north?

Interestingly, Matteo Giacomini of the Italian Students’ Union (UDU), pointed out that an earlier try to offer student loans failed in Italy. “We have a grant system and in 1997 a law was passed opening up the possibility for student loans. But with the high level of unemployment in Italy – 30% of the young population is without a job – the loan system is no real opportunity for students. Another feature of our situation is that we currently have a big banking scandal and that trust in banks is at its lowest. The Banca Monte dei Paschi di Siena, Italy’s third largest bank, cannot repay its loans to the state, so our perspective on loans is really bad. The trust of students is completely missing.”

We will not change the spirit of Erasmus

At the round table, Fabrice Comptour, the representative of the European Commission had a hard time coping with so much opposition to his proposal. Comptour: “The Education Committee of the European Parliament already agreed on the proposal, but there seems to be a lot of misunderstanding, for example: the loan rate is not yet fixed.”

“We have no hidden agenda to replace loans for grants. We will not change the spirit of Erasmus”, he stressed. “On the contrary, we have identified a problem: there is no financial support for doing a full masters’ degree abroad. People that can’t afford to put down a collateral for a loan cannot afford to go abroad.”

“Indebtedness of students was another argument used: this is controlled by our grace period between graduation and a job. Concerning the loan burden, we are still very far from the U.S.  For the loan guarantee, we have done already a market test in Spain, Portugal, Italy, Greece and Cyprus and the results are encouraging. We have also commissioned a feasibility test.”

How neutral is the feasibility study?

But the neutrality of that feasibility study is questionable, since it has been directed by no one less than Professor Nicholas Barr, according to The Times ‘one of the architects of the UK student loan system’ and a vocal proponent of loan systems on blogs and in newspapers.

In his blog posting ‘Forget about student debt’ Barr says: “Thinking of student debt like credit card debt is filing it in the wrong bit of your brain. Repayments are like a capped graduate tax, so the right place to file it is as a payroll deduction like income tax and national insurance.” One practical reason for introducing a loan system in the UK is that “Loans make it possible to require repayments from students from other EU countries”, Barr says in The Guardian.

Rationale remains unclear

It’s not just the Student Unions, and attentive MEPs like Isabelle Thomas that doubt the rationale behind the EU’s student loan facility, even the EU’s own Impact Assessment Board, which examines the quality of proposals by different Commission departments, asked the Directorate General for Education and Culture (DG EAC) “To clarify the rationale for the Student Loan Guarantee Facility.”

Will the student loan guarantee scheme survive? It would help if the reason for the proposal became more clear. Thus far, even after the round table meeting at the European Parliament, the ‘why-question’ remains unanswered.

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