Student loans are increasingly used to provide financial assistance for students in higher education, in both industrialized and developing countries. The need for financial assistance to enable students from low-income families to meet direct and indirect costs of education (tuition fees, books, and living expenses) is widely recognized, and the case for student support programs to ensure equality of opportunity, equity, and social justice is rarely questioned. What is a matter of dispute however, is whether financial support should be provided by governments, private agencies, employers, or institutions, and whether it should be in the form of scholarships, bursaries, grants–either available to all students or means-tested (i.e., targeted by financial need)–or repayable loans. Fierce controversy has surrounded the idea of student loan programs since their inception.
National student loan programs were first established in the 1950s in countries as diverse as Colombia, Denmark, Norway, Sweden, Japan, and the United States. The following decades saw a steady expansion of student loan programs, through the introduction of student loans in new countries and expansion in the number of loans available and their average size. In response to higher education expansion, combined with increasing financial stringency and concern for equity, there was a surge of interest in student loans in the late 1980s and 1990s, with new programs introduced in Australia, New Zealand, and the United Kingdom; several countries in eastern Europe and the former Soviet Union, including Hungary and Russia, considering introducing student loans for the first time; and some developing countries in Asia, Africa, and Latin America establishing or expanding student loan programs. Yet student loans remain controversial, and advantages and disadvantages of loans continue to be widely debated. Debate also surrounds the question of how student loans should be administered: in particular, eligibility and terms of repayment of loans, appropriate rates of interest, and mechanisms to target disadvantaged students while minimizing default. This entry summarizes the recent growth of student loan programs, reviews the literature analyzing the international experience of student loans, both in developed and developing countries, and examines some implications of the growth of student loans for student and labor mobility.
Development of Student Loan Programs
Early examples of national student loan programs included the National Defense Student Loan (NDSL) program, introduced in the United States in 1958; state loan funds for students established in Denmark, Norway, and Sweden in the early 1950s; and a small-scale program introduced in Colombia in 1953, the Instituto Colombiano de Credito Educativo y Estudios Tecnicos en el Exterior (ICETEX). During the 1960s and 1970s student loan programs were set up in many countries, including Canada (the Canada Student Loan Program began in 1964), several Latin American countries (by 1980 student loan programs existed in at least fifteen countries in Latin America and the Caribbean), and a few developing countries in Africa and Asia (including Ghana and India). But many programs were either small-scale, as in many Latin American countries, or short-lived–the loan program in Ghana lasted only a few years.
During the 1980s there was continued growth in student loan programs and many countries, including Japan, Scandinavian countries, and the United States, began to rely increasingly on loans as a means of student support. Many countries, particularly in Europe, still offer student support through a combination of grants and loans, but there has been a marked shift towards greater use of loans. In the United States, the College Board noted in 1999 that "Over the past quarter century, federal student aid has drifted from a grant-based to a loan-based system, producing a sea change in the way many students and families finance post-secondary education" (p. 4). In the United Kingdom the first student loan program was set up in 1989 to provide "top-up" loans to supplement maintenance grants for students' living expenses. However, since the introduction of tuition fees in 1998, loans have been the main form of student support, with the abolition of grants for all but a minority of financially needy students in England and Wales; a different scheme has operated in Scotland since 2000. In Australia, the Higher Education Contribution Scheme (HECS) was introduced in 1989, with students able to opt for deferred payment through income-contingent loans with payments collected by the tax authorities, and support for living expenses in Australia is now also in the form of income-contingent loans.