A comparison of the efficiency and equity implications of university loan programs in the United States and in Kenya

Journal of Third World Studies, Fall 2001 by Nafukho, Fredrick Muyia, Verma, Satish

Existing data reveal that student loans in developing countries can and do work. The evidence indicates that students are willing to borrow to finance their education and training and that the existence of loans has helped to increase private demand for education and enabled many poor students to finance their higher education.20

In the case of developed countries, during the 1950s, student loans were introduced on a small scale in Europe and in the United States. During the 1960s and 1970s student loans were established or expanded in many developed countries including several countries in Western Europe, Canada, the U.S. and Japan.21 In Japan, for instance, students rely primarily on a mix of generally low tuition (i.e., public subsidies) and student loans. Scholarships are not a very important source of financing for education in Japan.22

The results of the study on the operation of student loan schemes in Britain, France, Germany, Sweden, Romania and the United States reveal that the costs of higher education varied in the way these costs were shared among parents, students, taxpayers, and institutions.23 For example, in Britain, students paid almost none of the costs of their higher education whereas in Sweden and in the United States, students through the work program and loans, paid a substantial share of their costs of education. In Britain, loans were found to be very unpopular with students even though the government in power preferred student loans. This study provides very useful data on the advantages of loan schemes to students, parents, taxpayers and even to spouses in each of these countries. It was established that:

* A very good full-time (traditional) student, would do well in Britain. He would get free tuition and $3,500 to $4,000 for studying in London, with no self-help expectations.

* An academically weak, part-time or non-traditional student, would do well in the U.S. Higher education in America was found to be highly accessible, with relatively low tuition in the public sector. In addition, part-time students were eligible for grants-in-aid, work-study scholarships and loans.

* A parent or spouse would benefit more in Sweden since all college expenses were paid for by taxpayers. Of course, as a taxpayer, the parent (or spouse) would have to give up a significant portion of his income to finance higher education for all citizens who desire such an education.

* A borrower would benefit more in Germany. Students have a five years grace period after graduation and then up to 20 years to repay their student loans, and usually do so at zero percent interest with additional bonuses if the student completed his studies early and graduated in the top 30 percent of his or her class.

* As a taxpayer, from the standpoint of minimizing the burden of higher education expenses, French taxpayers had the best loan scheme. France had the lowest public support per student in higher education among the Western European countries, and the U.S..24

A major advantage of international comparisons of student loan schemes is that policymakers are able to get a broader perspective of how loan schemes operate in various countries of the world. This may assist them in establishing policies related to student financial assistance considering the unique circumstances that exist in every nation of the world.