Reevaluating Israel's student loan program

New program, if adopted, would offer income-contingent loans which are not time dependent.

By TALYA HALKIN
November 13, 2005 01:28
4 minute read.
Reevaluating Israel's student loan program

students 88. (photo credit: )

 
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The Australian model for student loans, which could potentially revolutionize access to higher education in Israel, was the subject of a round table discussion of a group of economists and education specialists at Tel Aviv University last week. The talk was presented by Australian professor Bruce Chapman, an international expert and consultant on financing higher education, who was invited to Israel by hi-tech executive Guy Spigelman and MK Yuli Tamir (Labor), the founders of a new campaign to implement the Australian student loan model in Israel. The campaign, with a slogan of "Start studying - pay when you work," already has received positive attention from Education Minister Limor Livnat. The model, which has been operating successfully in Australia for over a decade, also has been implemented in New Zealand and other countries and will be adopted this year in England. "Unlike regular bank loans," Chapman explained, "the model of income-contingent loans is not time dependent." According to the proposal developed by Spigelman and Tamir, Israeli students - regardless of their economic status - would be able to choose whether to pay tuition at the beginning of the school year or to postpone payment until they have graduated and have jobs. Under the second option, students would begin repayment only once they are working and earning a salary equal to or higher than the average national wage. Repayment would be conducted through Bituach Leumi, which would add 3.5% to the social security payments of former students. Any former students who lose their jobs or suffer a salary decrease would not have to continue payments until their salary once again reaches the average wage. This element was designed to help avoid default risks and repayment hardships. One of the early experiments with income-contingent loans, Chapman said, took place at Yale University in the 1970s. Bill Clinton, he noted, was one of its beneficiaries. But the experiment failed, he said, because a single educational institution, essentially, is unable to reinforce repayment. Chapman believes, however, that the relative sophistication of Israel's tax and social security systems would ensure recollection of the loans. The model's biggest advantage, according to Chapman, is allowing access to the poorest students in a given country who have no sources for financing their education. Data pointing to the successful implementation of the Australian model, Chapman said, was remarkably similar in very different countries including China, Canada, and Mexico. On average, he noted, men return their loans within seven years and women within 7 to 8 years. In Australia, Chapman said, the model in question raised the participation in higher education of students from the lowest economic quartile to 38% from 18%. The system, similarly, increased the number of students from middle- and upper- class backgrounds. "The benefit of this system is not proportional - it is absolute," Chapman said. "I am confident that the Israeli data will look the same." Despite the concerns of the model's opponents, Chapman said data has shown that both women and minorities - who typically earn less and may work less - successfully repaid their loans. Detractors of implementing the program in Israel also point out that, since the program does not address the financing of the higher education system as a whole, it may introduce an influx of students into a system that does not have sufficient resources. Professor Dan Ben-David, an economist at Tel Aviv's Department of Public Policy, told The Jerusalem Post he was supportive of the program. "I think this would solve a major problem for students," Ben-David said. He believes this was especially relevant in an Israeli context where students enroll in undergraduate programs relatively late and often are no longer supported by their parents, independently of their family's socioeconomic status. One potential problem Ben-David pointed out, however, was that, given Israel's large gray and black income market, it was hard to truly estimate a former student's true salary. Nevertheless, he said, Israel's deepest education problems currently lie in the primary and secondary education systems. Rather than inundating the higher education system with two many students, he believed the new loan model, if implemented, would still not enable the many high school graduates who do not meet basic academic standards to enroll.

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