STUDENT FINANCING: THE BRAZILIAN CASE (with some insights from and - PowerPoint PPT Presentation

Developed by Paulo A. Meyer M. Nascimento HIGHER EDUCATION This material can be used so long as the author is cited STUDENT FINANCING: THE BRAZILIAN CASE (with some insights from and on the US) PAULO A. MEYER M. NASCIMENTO Spring 2017

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited “I believe that every kid in this country who has the ability and the desire should be able to get a higher education degree, regardless of the income of his or her family” senator or BERNIE E SAND NDERS Source: http://www.cnn.com/2016/02/03/politics/bernie-sanders-free-college-costs/

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited … confusing Diffuse dissent: consensus … Who would stand The challenge is against such a goal? how to achieve it!

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Senator Bernie Sanders seeks to achieve it through a college for all act: • Eliminating undergraduate tuition at 4-year public colleges and universities, splitting the bill between federal government (2/3) and state governments (1/3). • Reforming student loans, mainly by cutting interest rates and enabling borrowers to refinance their loans. • Expanding the federal work study program. • Simplifying the student aid application process, eliminating the requirement that students re-apply for financial aid each year. • Introducing a Robin Wood tax on Wall Street to finance these reforms.

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Is tuition-free college provision such a good idea?

Developed by Paulo A. Meyer M. Nascimento “ There is no such thing as a This material can be used so long as the author is cited free lunch ” MILTON TON FRIED EDMA MAN Nobel el laureate eate in Econo onomic mics JAMES MES HECKMA KMAN Nobel el laureate eate in Econo onomic mics “ Schooling after the second grade plays only a minor role in creating or reducing gaps”

Developed by Paulo A. Meyer M. Nascimento Relative earnings of adults working full-time, by educational attainment (2014). This material can be used so long as the author is cited 25-64 year-olds with income from employment; upper secondary education (high school) = 100 Below upper secondary All tertiary short-cycle tertiary Bachelor's or equivalent Master's, doctoral or equivalent Index 300 Master's, doctoral or equivalent: Brazil 434 Chile 444, Mexico 307 280 260 240 Source: OECD (2016), Education at a glance . 220 200 180 160 140 120 100 80 60 40

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Whether educational services should be free of charge or not is a political decision

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Capital market failures, equality Public budget constraints and of access goals and the potential high average private rates of return emphasize the need for presence of positive externalities and spillovers are the usual key increasing the cost participation theoretical arguments for share of direct beneficiaries government active role in the provision and finance of postsecondary education

Developed by Paulo A. Meyer M. Nascimento If tuition fees exist, the yellow balloon in the chart bellow becomes a central policy issue This material can be used so long as the author is cited (especially if the diffuse consensus expressed in Sanders’ discourse is indeed a society goal) Institutions and Gov’t Continued College Initial College College Outcomes Students Attendance Attendance (degree, job) (repeated) Family and Financial Aid Individual & Loans Background Chart extracted (with minor adaptations) from Eric Bettinger’s keynote speech at ABAVE 2015 Meeting in Brazil.

Developed by Paulo A. Meyer M. Nascimento “El crédito educativo se fundamenta This material can be used so long as the author is cited en un principio: se le presta al estudiante para que pague el profesional ” Student loans are not a new concept: private student credit agencies exist in the US since the 19th century, with Harvard University being the pioneer in creating its own in 1838 (Fuller, 2014). However, institutionalizing educational credit as a public policy was an idea first developed by Gabriel Betancourt Mejía, who wrote a thesis in 1943 as a result of his own experience in borrowing to pursue a degree (Woodhall, 1983; Betancourt-Mejía, 1992). The Colombian educational credit agency, established in 1950, was the first of a public nature. Henceforth, government-run student loan programs have been adopted by an increasing number of countries (Nascimento, 2016). GABR ABRIEL IEL BETA TANCOUR COURT MEJÍA ÍA Colombi mbian an economist mist, , diplo lomat mat and politic tician ian

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited A bit on the US student debt crisis Chart extracted from Dynarski (2016). • Who defaults on student loans? • Could free community colleges solve this problem? • Could a more flexible student loan system work out?

Developed by Paulo A. Meyer M. Nascimento Increase in default is mostly Who defaults in student loans in the US? This material can be used so long as the author is cited associated with the rise in the number of borrowers at for- 34% of those borrowing under $5,000; only 18% of profit schools and, to a lesser those borrowing more than $100,000. extent, 2-year institutions (mainly community colleges) and certain other non- selective institutions (Looney and Yannelis, 2015). Could a more Could free community colleges flexible student loan solve this problem? system work out? Bringing prices at community colleges back to their historic standard – near zero – would Yes! Lengthening the horizon of loan be one way to reduce repayment, linking payments to borrowing and, thereby, debt current income, and collecting distress, but this would not instalments through the same end the debt problems of mechanisms by which the those who attend for-profit Government collects income taxes and institutions (Dynarski, 2016). social security contributions.

Developed by Paulo A. Meyer M. Nascimento Time-based This material can be used so long as the author is cited repayment loans (TBRL) can turn out to be very difficult to be managed by graduates!

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Repayment burdens (RBs) may become too high for some graduates, e.g. low-earner females: US: RBs by age for females with a Stafford Loan of Brazil: RBs by age for females with a FIES loan of $20,000 $14,000 60% 140% Source: Chapman & Dearden (2017). Source: Nascimento (unpublished). 120% 50% REPAYMENT BURDENS (RB), REPAYMENT BURDEN (RB), PROPORTION OF INCOME PROPORTION OF INCOME 100% 40% 80% 30% 60% 20% 40% 10% 20% 0% 0% 22 23 24 25 26 27 28 29 30 31 24 25 26 27 28 29 30 31 32 33 34 35 AGE AGE AGE RB for the 10th percentile RB for the 20th percentile RB for the 50th percentile

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Income-contingent loans (ICLs) guarantee free access during the study period, insure against default and repayment difficulties after graduation, deal better with the trade-off between RBs and implicit subsidies, and take advantage of the transaction efficiencies associated with government monopoly on the collection of income tax and social security contributions.

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited Underinvestment in human capital presumably reflects an imperfection in the capital market. [A solution] would be to “buy” a share in an individual’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified MILTO TON N FRIEDMA EDMAN Nobel el laureate eate in Econo onomic mics fraction of his future earnings. (Friedman, 1955)

Developed by Paulo A. Meyer M. Nascimento This material can be used so long as the author is cited JAMES MES TOBI BIN Nobel el laureate eate in Econo onomic mics James Tobin proposed a very similar idea and even attempted to implement it at Yale University, his home institution. Although the Yale program proved difficult to administer, one of Tobin’s students would later bring the idea to Australia and show that income- contingent lending could work at the national level, so long as the national tax authority was put in charge of collection. (Moss, 2012)