How credit to university students works in European countries

In Europe, debt to pay for studies remains an unused practice also because the State cannot directly pay the amount but can only act as guarantor, while it is more widespread in the United Kingdom and the Netherlands. Germany has a particular system which is half a scholarship and half interest-free debt

This article is part of a series of two contributions by Tortuga on the subject of loans of honor for college students. In this article, we propose a comparison with other European countries, while in the second we present the specific situation.

Loans of honor

The issue of support for university students is often at the center of public debate in our country. Following the recent presentation of a bill for the creation of a " Student Loan Society" With public-private participation, it is useful to reflect on why it might be worthwhile to get into debt to study, and what role the state should play in this process. Attending university has great advantages: even from an economic point of view alone, graduates have lower-than-average unemployment rates and higher wages. But going to university, you know, costs money. It costs in terms of university fees, room and board (especially if you are away from home), and not everyone can afford such a cost. For this reason, there are scholarships for less well-off students, which are provided by the Regions through the Right to University Study (DSU) programs.

However, there is another form of support, practically unused and which nobody talks about, namely university loans often called loans of honor: loans at subsidized rates covered by a public guarantee and disbursed by a public or private entity. Scholarships and loans are two very different instruments: a grant "net" reduces the cost incurred by a student, while the loan allows you to have more money today to make an investment whose benefits will come in the future. Two different tools, both with their logic, their costs, and their incentives. Both in Germany and the rest of Europe, these loans often have a state component, and purely private loans are rarer.

This depends on a so-called "market failure": in a completely private market, banks would have little incentive to provide such a loan in the absence of guarantees (such as the student's or his parents' income), guarantees that students do not always have.. Still, many studies claim that investing in education would be a profitable investment both for the student (because graduates earn more) and for society at large (which thus benefits from a highly educated population). In these cases, the state, therefore, intervenes to ensure that it is investing sufficiently.

What happens in the rest of Europe

To better understand how honor loans work, it is useful to look at what happens in countries close to us. According to a report by Eurydice, the European education information network, state-subsidized university loans exist in two-thirds of European countries and are a much rarer type of support than scholarships. Furthermore, even in the countries where these loans are present, their frequency of use varies widely, as shown in the map. They are very common in the United Kingdom and the Netherlands (where respectively more than 90% or around 50% of university students use them), and very rare in France (less than 1%).

Let's start with the countries where students can apply for government loans, such as the UK, Holland, and Germany. In the UK, this type of loan fully covers tuition regardless of income and is repaid at a fixed rate of salary earned after graduation. Dutch students can also take advantage of state loans on favorable terms: the amount of the loan depends on the family income and the amount to be repaid is commensurate with the income earned by the student after graduation, with very low interest rates (0% in 2018). In both of these countries, if the student does not exceed a certain income threshold after studying, he does not have to repay the debt. Germany has a special system (codenamed BAföG), which is half a scholarship, and half an interest-free loan. Even in German universities, the loan amount depends on criteria such as parental income. In all three countries mentioned, there are also loans to cover, in addition to university fees, also "living costs".

In Italy or France, on the other hand, it is not possible to apply for loans disbursed by the state, but only to be guaranteed by the state a loan taken from the bank, so as not to have to provide guarantees such as a paycheck or the signature of a guarantor. In both of these countries, 70% of the "honor loans" requested from partner banks in this program are guaranteed by a public fund.

If this option exists, both in France and Italy, then why do only 1% or less of university students use it? A possible cause could be the level of university fees. If university fees are high, most families will not have the necessary liquidity to pay them, and getting into debt to be able to repay them in installments, therefore, becomes an interesting option. But this explanation does not seem to be sufficient. Even if university fees are on average lower than in some European countries where loans are more frequent (such as Holland and especially the United Kingdom, which has the highest university fees in Europe), this correlation is not true in all cases. There are various European countries where university fees are zero or almost zero,

Another important difference between countries where loans are frequent and those where they are rare lies in the distinction between a loan granted directly by the public and a loan granted by a private entity (even if guaranteed by the state). The public guarantee of the loan reduces the risk to which the bank providing it is exposed but does not eliminate it (for example in France the "honor loans" are guaranteed at 70%). In many cases, moreover, it is still up to the private body to choose whether to accept or reject the student's loan request and to establish certain conditions of the loan. This option is therefore not comparable to a system where the public provides the loan directly, fully assuming the investment risk,

Practical ideas from the rest of the world

From the experiences of the aforementioned countries, some practical ideas are born (for example those summarized in an interesting report and academic research ) for the improvement of the system of loans of honor that it seems useful to propose, also concerning possible evolution of legislation. Tip number one: propose a few payment options. When faced with too many alternatives, students fail to properly weigh the pros and cons of each and end up making decisions that they may regret later. It is, therefore, better to have a few types of installment plans to choose from, but well selected.

Tip number two: provide information to final year high school students. It is essential to inform students as soon as possible of the possibility of taking advantage of loans of honor (which are little known), to guide their choices in the best possible way. Tip number three (especially useful for loans disbursed directly by the state, which seem to us to be the most effective solution): set the payment commensurate with your salary as the default option, i.e. a system whereby the student repays the debt with a fixed percentage of their future salary, which will also be reduced only if the salary exceeds a minimum threshold. The classic fixed installment could be problematic from various points of view: it could discourage the request for a loan by the most risk-averse,

I am Alex Musk I am a content writer and Seo expert in sky ray ventures. KissAnime is the best website to watch anime online. Completely free. No registration required.