If you’re joining late, we’re talking about the policy decisions that need to be made when creating a student aid system.  Read up on student loan origination, student loan repayment parameters and the loans/grants balance.

So now we’ve got all the big pieces in place – where the money comes from, how much is going to be loan vs. grant, and how loans are going to be recuperated.  Now we get to the really fiddly bits: how to ration the aid (warning: this is a stupidly long post)

To some, this might seem a horrible question: why ration?  The reality is, no country has a genuinely universal loan program.  Even in the few places where, in theory, 100% of undergraduates can access loans, this access is usually limited by degree (you can only get one, or at least one at any given level) or to a certain number of years.  Elsewhere, a variety of limits exist.  Here are few of the limitations on eligibility for loans and grants:

• Type of institution.  This type of limit is more common on grants than loans, but there are systems of assistance (Chile’s for instance) where loans are more easily available for students at public institutions than at private ones.
• Field of study.  It’s rare that loans systems are only available for certain fields of study, but there are certainly a number (Tanzania, for instance) where they are preferentially available to students in high demand fields, such as STEM.
• Merit.  This is an obvious filter for grants, though it can affect loans.  In Japan, having higher high school grades gives you access to a different loan system with lower interest rates (I’m not sure how important this is in a country where interest rates are routinely negative anyway, but still).  And in some of the earliest proposals for loans in the US (pre-1964), many thought grades should have an effect on loan availability.
• Time/Degrees.  Most systems have some kind of time limit for years of borrowing (in Canada, it is usually 340 weeks, or roughly twenty academic terms; in Europe it can be as short as ten academic terms), or only allow borrowing for one degree at the same level (no getting two different bachelor’s degrees), or in a few cases, not providing for anything above a bachelor’s degree (the UK, until quite recently).
• Study Intensity.  Nobody makes loans available to part-time students on the same basis as full-time ones; many don’t allow aid for part-time study at all. 
•  Prior Criminal records.  In the US, anyway.
• Prior credit events.  Easily the most offensive part of the Canadian Student Financial Aid system is a mid-90s addition to the program to deny aid to independent students taking out loans for the first time if they have three credit events in the past three years on amounts over $1,000.  Yes, really.

And all of this is before we start rationing based on financial criteria.  Some places don’t do this part: in Scandinavia, as long as you are eligible for aid, you simply have access to a standard set amount.  In most places, there is some kind of income test which usually involves determines whether i) someone is able to receive assistance and ii) how much assistance they can receive.  The process for doing this can be completely different for grants and loans; in Australia, loans for tuition are universal but grants for living expenses are stringently means-tested. 

Complicated?  Wait, we’re not close to done yet. There’s the question of which types of income (and, occasionally, assets) to measure.  In many places, it’s simply “parental family taxable income”.   But how long should you include parental income in the calculation (i.e. when should a student be considered “independent”?) What if you want to adjust for family size?  Or the number of children currently in PSE?  What about parental assets?  Student income (Canada has among the world’s most arcane rules here, although we are gradually simplifying them)?  Student savings?  Student assets (cars, for instance)? Scholarship income? Spousal income?   You can really tie yourself up in knots here.  And it gets worse if you decide you want your aid to match up with student costs.  For instance, you can try to adjust aid amounts for things like where the student lives (at home/away from home; travel allowances; different living allowances depending on exact location), presence of children, etc.

Now, most countries don’t get to this level of granularity.  The prevailing global norm is that people who qualify get access to a set amount of loans and that’s that.  In North America – and Canada in particular, we are really big on trying to engineer micro-equity among students.  Student X gets $8000 in aid, but student Y gets only $6000 in aid, because they have a slightly higher scholarship, study in a different program and has slightly higher-income parents.  It’s frankly exhausting and costs a fair bit of money to administer.

Then – I know, this is getting crazy complicated – there is the question of who gets to decide the amount of the aid and, if there are multiple sources of aid, who gets to package it.  In unitary states with no significant philanthropy to speak of, it’s usually a single government agency that decides how much money to give and then hands it to students.  But this isn’t always the case.  In some countries, governments actually prefer to let institutions work out what “need” is, judging them better placed to do so since they are closer to actual student conditions.  But this working means telling each institution what their overall allocation budget is going to be in advance, which, depending on the formula for giving out grants to institutions, may mean that some institutions get a lot more than they need to meet need and others a lot less. 

In North America, federal rules assess each student individually, but for a variety of reasons the actual assessment and packaging of aid gets done by someone else.  In the US, it’s individual colleges and universities who perform this function, whereas in Canada, it’s provincial governments.  On both sides of the border, the entity that packages aid usually gets to be the “last dollar”, which is a big advantage.  Say the provincial formula says that student X, based on a full assessment of income and assets, should get $7000 in loans and $2000 in grants.  Then someone – say a new scholarship foundation, or some local Rotary club – gives that student another $1000.  Well, providing they know about the transaction, the province is perfectly within its rights to say “ah, student X’s income just rose $1,000.  So that reduces need by $1,000.  Guess we can reduce our aid by $1,000 then.”  Being the “last dollar” means you save every time someone else gives a student money.  Pay attention to this over the coming months, because this could become an issue when the federal government moves to implement its promised increase in Canada Student Grants.

Long story short, there are a whole load of levers one can use in order to ration aid.  Jurisdictions with relatively sophisticated student aid systems can broadly predict how much money each policy adjustment will cost or save.  So, if a minister says, “I want to get rid of required parental contributions”, the ministry staff can usually cost this out reasonably well.  Or, if the Minister says, “I got us another $50 million this budget round”, staff can provide options about various ways one could use that money to either increase aid under existing rationing parameters, or tweak the rationing parameters, or both.

But remember, we’re designing a program from scratch and that creates a completely different set of problems.  How, exactly, do you cost a program if you have no prior experience of running such a program?  The answer is “it’s extremely tricky”.  In Africa, governments often just set criteria and hope for the best.  But often they a backstop measure, which is simply to impose a hard limit on spending each year.  In Canada (and many other OECD countries), this is unthinkable because we inscribe our rationing rules in legislation and regulation, meaning that once the rules are set, governments are required to hand out however much money the rationing formula requires.  If that amount turns out to be too much, governments can alter the criteria for the following year, but in the current year there isn’t a lot anyone can do.  Developing countries, on the other hand, often use first-come, first-serve rules and at a certain point just say: “sorry, we’re out of money”.  It’s very rough and harsh justice, but it works (n.b. because of the very odd rules which governed the Millennium Scholarship Foundation – requiring it to spend a more or less fixed amount of money in a fixed number of years, it broadly had to work this way, though it was integrated with provincial systems in a way that largely disguised that this is what it was doing)

So, after four days of this, you may well be saying to yourself: Good Lord this is complicated.  And yes, it is.  Absurdly so.  Aside from pensions, student aid is the only policy field where you have to work out both how to distribute funds and how to collect them (just in reverse order), and it has a stronger redistributionist flavour than pensions. 

If you’ve managed to read this far, you’re probably a serious policy nerd, and so you can probably see why this makes student assistance so much fun.  The amount of detail over which one can and should geek out while mastering these files is immense.  It’s wonk heaven, really, and I have always felt quite privileged to be able to work in it.  I hope after the last four days you can see why.