Three quick hits:
Islamic Student Loans in the UK. Loans and Muslim students are always a hot topic. That’s partly because there are a number of Muslim students who don’t like the idea of loans with interest (not very many, but enough to be noticeable), and partly because certain soi-disant “progressive” white kids like to use Muslims’ reticence about interest as an excuse to argue that loans are effectively racist, and therefore should all be replaced by grants (yes, really). So it’s interesting to note that buried in all the hoopla of the recent UK Green paper on higher education is a firm commitment from the UK government that it will move ahead with offering Shariah-compliant loans, making it the first non-majority Muslim country to do so (Malaysia has had them for some time).
Now this isn’t wholly surprising; the government indicated about a year ago that it was headed in this direction, after a series of public consultations on the matter. The results of that consultation are here, and anyone interested in student aid should read from about page 6 on, because it goes into some useful detail about how to design Shariah-compliant loans that are neither more nor less generous than “mainstream” loans. In the end, it recommends a “takaful” system, which is basically a co-operative lending fund in which participants mutually insure each others’ liabilities (n.b., for true student aid nerds: the mutuality aspect actually makes this system somewhat resemble the Yale Tuition Postponement option, which I described back here).
I said four years ago that the Government of Canada should consider offering Shariah-compliant loans. Now that the UK government, in conjunction with Islamic banking experts, has done the heavy lifting on this, it’s time to pick up that torch.
How Difficult is it to go Full Australian? Many people admire Australia’s HECS system (or HELP. Or HECS-HELP. It’s all a bit confusing because they keep changing the name). No fees required at time of enrolment. No real interest on the “contribution” (let’s not call it a loan). No repayments required until the borrower is making $50K/year. Repayment tied to income after that. And from a convenience point of view, the idea that collection is handled through payroll witholding is pretty sweet.
It’s a system that of late has attracted a lot of attention in the US, especially because its own income-based relief program (which is HECS-ish in the way that our own Repayment Assistance Program is) would work a whole lot better if relief was automatic, which effectively would require a payroll withholding system. But making HECS work is actually pretty complicated. It requires a certain type of tax system, as well as practices in tax collection, and they don’t necessarily translate well. The trade-offs required to do this – some of which would apply here in Canada too – were well explained in a recent New America Foundation paper called Promise and Compromise: A Closer Look at Payroll Withholding for Federal Student Loans. It’s a useful reminder of how tough some of the practical issues in student loan collection really are, and how going “full Australian” is much more difficult than casual admirers appreciate.
Malaysia Gets Tough on Loan Defaulters. Really Tough. For years, Malaysia’s loan system, the PTPTN (which longtime readers may recall has it’s own quite excellent anthem, available here) has been a disaster where repayment is concerned. When I was there four years ago, I worked out that the agency was barely recouping a third of its money on an NPV basis. More recent investigations by local researchers come to similar conclusions.
The government has gradually been tightening the system, mostly by starting to squeeze out private higher education providers (quite numerous in Malaysia). But now it has decided to get tough by actually imposing a travel ban on people in student loans arrears. The ban apparently applies to about 600,000 Malays, or about 2% of the country’s population. This is actually somewhat more draconian than Kenya’s practice of refusing to renew the passport of anyone in arrears on their loans. Interestingly, all student loans in Malaysia are required to have a guarantor (usually parents), but the government actually thinks a travel ban on the kids is politically more palatable than asking parents to make good on their guarantee. Which of course makes you wonder what the guarantee was for in the first place.
Have a good weekend.