Maureen Woodhall
Maureen Woodhall is senior research fellow, Department of Education, University of Wales Aberystwyth, U.K., and author of several books and articles on higher education finance and student financial support, including Lending for Learning: Designing a Student Loan Programme for Developing Countries (London: Commonwealth Secretariat, 1987) and booklets on four International Forums on Student Loans organized by the International Institute for Educational Planning IIEP: <http://www.unesco.org/iiep> . E-mail <mqw@aber.ac.uk>.

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Significant shifts have recently taken place in attitudes of governments, international agencies, and donors toward higher education. Optimism and growth in the 1960s and 1970s, when budget allocations for education tended to rise, driven both by rising social demand and by belief in the economic benefits of investment in human capital, gave way in the 1980s to stagnant or declining budgets, as governments in many parts of the world grappled with political and economic crises, structural adjustment, and widespread poverty and unemployment. At the same time, many donors switched priorities and emphasis away from higher to primary education, partly as a result of arguments that primary education was a more profitable social investment than higher education.

Demands of the “Knowledge Economy”
In the 1990s the balance again shifted, as increased emphasis on the “knowledge economy” and on the social and economic benefits of higher education led to reassessment of its role and to pressure for expansion, more equitable access, and improvements in quality of higher education. The recent report, published by the World Bank, Higher Education in Developing Countries: Peril and Promise, by the Task Force on Higher Education and Society, argued that “Higher education simultaneously improves individual lives and enriches the wider society, indicating a substantial overlap between private and public interests.” At a time of severe financial constraints, however, the crucial question is how these “overlapping interests” should shape the financing of higher education, in particular what should be the role of cost sharing. The fact that university graduates can expect better job opportunities and higher lifetime earnings than those with only primary or secondary schooling has been widely used by governments and international agencies to support greater cost sharing in higher education, through tuition fees and student loans, rather than grants or bursaries, to provide financial support for students.

Higher education in many countries is still mainly concentrated in public universities and largely publicly financed, but the 1990s saw two significant changes in many industrialized and developing countries: first, the growth of private institutions and, second, financial diversification in public institutions, through introduction of or increases in tuition fees, and increased reliance on nongovernment sources of funding, including research and consultancy income and income generation.

Privatization
With increasing recognition that private institutions can play an important role in meeting excess demand for higher education many countries now permit or even encourage the growth of private universities, colleges, or other post-secondary institutions. New private universities have been established in several African countries, including Kenya, Mozambique, Uganda and Zimbabwe; in Asia, including China, Indonesia, Thailand and Vietnam: and in many European transition economies. In some cases the growth in private enrollments has been dramatic.

Cost Recovery for Public Institutions
Another common development has been the growth of cost recovery in public institutions. The Task Force report describes how the University of Makerere in Uganda “moved from a situation where none of its students paid fees to one where more than 70 percent do. Where previously the government covered all running costs, now more than 30 percent is internally generated,” and concluded that this experience “puts to rest the notion that the state must be the sole provider of higher education in Africa.” University tuition fees have become a contentious issue in recent years in countries as diverse as Hungary, India, Russia, South Africa, the United Kingdom, and Vietnam. So far, the overall contribution of cost recovery is relatively small in many of these countries, but as demand for higher education increases, the pressure to relieve financial burdens on government, by introducing or increasing tuition fees, is likely to grow.

Attempts to shift part of the costs of higher education from the state to students or parents has reemphasized the crucial role of financial support for students, and there has been growing interest in student loans to supplement or replace grants. The World Bank’s report, Higher Education: The Lessons of Experience, argued that “cost sharing cannot be implemented equitably without a functioning student loan program to assist students who need to borrow for their education.” Student loan programs now exist in over 50 countries, including Canada, the United States, several European countries, much of Latin America and the Caribbean, and in increasing numbers of countries in Africa and Asia. The Australian Higher Education Contribution Scheme (HECS) has attracted particular interest, since it uses the tax system to collect repayments on an income-contingent basis. In many developing countries, however, student loans have been beset by problems, particularly administrative failures and high rates of default. A 1995 study by Ziderman and Albrecht, Financing Universities in Developing Countries, found that average rates of loan recovery varied from 67 percent in Sweden and Barbados to virtually zero in Kenya and Venezuela (although both countries have since then introduced significant reforms to boost loan recovery).

Designing Student Loan Programs
The International Institute for Educational Planning (IIEP) organized four international forums on experience with student loans in Europe and the United States, Asia, English-speaking Africa, and Latin America. Their overall conclusion was that student loans can help facilitate cost recovery and improve equity, but only if they are well designed and efficiently administered. Ideally, loans should be regarded as one element of student financial aid policy—supplementing rather than replacing targeted scholarships for the most financially needy students. International experience suggests that to make an effective contribution to cost recovery, while ensuring equitable access to higher education, a student loan program should meet at least six criteria for effective design and management: (1) efficient institutional management, including adequate systems for selection of borrowers, disbursement of loans, record-keeping, data storage and processing; (2) sound financial management, including setting appropriate interest rates to reflect inflation and maintain the capital value of the loan fund, and cover administrative costs; (3) effective criteria and mechanisms for determining eligibility for loans, targeting interest subsidies and deferral or forgiveness of loan repayments; (4) adequate legal frameworks to ensure that loan recovery is legally enforceable; (5) effective loan collection, using either commercial banks, the income tax system (as in Australia and the United Kingdom), national insurance mechanisms (as in Ghana and Singapore), or employers (as in China and Kenya) to ensure high rates of repayment and minimize default; and (6) information and publicity to ensure understanding and acceptance of the terms for borrowing and repayment of loans.

In the past, many student loan programs failed to meet these criteria, but a number of recently introduced reforms in several countries, including Kenya, have improved the performance of management and loan recovery. A new student loan scheme has been established in China, and several countries—including Hungary, Mozambique, and the Philippines—are currently considering introducing student loans and hope to profit from international experience in designing and implementing an effective and equitable student loan program. As demand for higher education continues to grow—both from individuals and from the labor market—tuition fees and student loans are likely to remain firmly on the international higher education agenda.