Robert Fomer
Robert Fomer is director of the Colorado Student Loan Program. Address: Denver Place 999 18th Street, Suite 425, Denver, Colorado 80202-2471. E-mail: <bfomer@cslp.org>.

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Student loan policy goals and the social, political, and economic conditions that drive them certainly vary from country to country. Even within a country, conditions change, and their ebb and flow play a significant role in a loan scheme’s success. With 20 years of experience in managing (what I believe to be) a very successful state student-loan agency within the Federal Family Education Loan Program (the largest single source of financial assistance for American students), I offer a few observations on the essential components of an effective student loan scheme.

First, the need for sustained commitment by government to the goal of expanding access to tertiary education for all its citizens is essential. Government does not have to operate a student loan scheme directly, but government must play an essential role in at least overseeing it. Government is in the best position to identify and target its nation’s educational needs, for it can mandate eligibility criteria to promote equity in educational opportunity and, if necessary, devote resources to targeted subsidies and other interventions promoting awareness and access among its nation’s poorest citizens. In its oversight capacity, government can monitor the scheme’s effectiveness, administrative integrity, and financial viability.

Clearly, no one single blueprint for a student loan scheme would work in every country or region. However, there are certain characteristics and requirements common to any sustainable system of credit. Under the aegis of reliable, long-term government support and oversight, these factors can be accounted for in the context of student loans by a broad template consisting of “the five M’s” of student loan fundamentals.

1. Mission. The program’s mission is its roadmap, to be used for decision making at all levels. The various stakeholders in the program need to be considered. For example, it is not really enough simply to state that you want to provide educational opportunity for your citizens. Government and lenders require accountability; citizens are entitled to reliable information and responsive, equitable service; schools expect efficient delivery of funds, and so on. The program’s scope and specific operational functions should be specified early on as well, along with its short- and long-term objectives.
2. Money. How will you finance the program? Will government fund the program directly, or are commercial capital sources available, perhaps backed by a government-subsidized reserve fund as a backstop guarantee against defaults? Once funding is secured, how will loans be disbursed—directly to students or to schools on the students’ behalf? What about additional money to students for books and living expenses? What will the interest rate be for students and should it be subsidized by government? (Some analysts, notably Nicholas Barr of the London School of Economics and Political Science, contend that interest subsidies, particularly in an environment of scarce resources, are costly, inefficient, untargeted, and unfair.) How will your program protect its funds against fraud and abuse? How will loans be serviced throughout repayment? Is an income-contingent or a graduated repayment schedule feasible?
3. Management. What managing technologies and reporting capabilities will be available? How should the organization be structured to meet its stated goals? How will staff be hired and trained? How will the program’s assets be managed for maximum returns? Will management be in a position to develop partnerships among other public and private organizations to enhance program performance with such services as job placement and borrower location assistance?
4. Marketing. How will you let people know about your program? What media channels are available and most likely to be effective? What kind of campaigns can develop positive values and attitudes among the public toward debt management and a commitment to repayment?
5. Maintenance. Each loan account must be maintained on a centralized system to accurately reflect its repayment status, current balance, and payment history. Decisions to be made include the repayment process itself. How will contact with students be maintained after they graduate? Will students receive monthly statements or coupon books? Will payments be deducted by employers, or will some other repayment system be employed? What channels will be established to respond to borrower inquiries and complaints?

The “five Ms” as presented here are limited in detail, but they can serve as a starting point for creative and productive planning. They are excerpted from the Student Loan Program Workbook, developed by the Colorado Student Loan Program. This and other information regarding student loans in developing countries will be posted on the World Bank’s website for tertiary education at: <http://www.worldbank.org/education/tertiary>.