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INTERNATIONAL HIGHER EDUCATION

Student Loans in Thailand: From Social Targeting to Cost Sharing

Adrian Ziderman
Adrian Ziderman is professor of economics at Bar-Ilan University, Israel, where he holds the Sir Isaac Wolfson Chair in Economics and Business Administration. Address: Economics Department, Bar-Ilan University, Ramat Gan 52900, Israel. E-mail: zidera@mail.biu.ac.il.

The purpose served by government-sponsored student lloan schemes varies from country to country. Two major but contrasting objectives for loans schemes may be identified.

Cost sharing: public universities throughout the world, and particularly in developing countries, are underfinanced; budgetary parsimony has resulted in public universities turning to greater cost recovery, in an effort to tap alternative sources of funding. This may take the form of higher, more realistic tuition fees or increased payments for subsidized lodgings and meals. Recourse to the banking system for a regular loan to ease this payment burden may be unavailable to students; banks are notoriously loath to lend for educational programs-a clear case of market failure. Hence there is a role for a government-backed student loan scheme to fill this gap.

Social targeting: these schemes are concerned explicitly and directly with enhancing the access to higher education of the poor. Where targeted specifically at disadvantaged groups, loan schemes (particularly where subsidized), can lead to greater access of the poor to university education, thus contributing to social equity.

Social Targeting in the Thailand Scheme
The student loan scheme in Thailand is a leading example of the social targeting model. The scheme, which began operations in 1996, is aimed specifically at disadvantaged students, enrolled in both tertiary education and in upper-secondary general and vocational schooling.

The declared aim of the Thai loan scheme to increase the access of the poor to upper-secondary and tertiary education-through the targeting of loans to needy students under extremely favorable repayment conditions-has been complemented, de facto, by other objectives. Thus while the scheme was not designed as a vehicle for extensive cost recovery, the introduction of the scheme in 1996 was accompanied by increases in tuition fees at public educational institutions, though not at all of them.

The Thai scheme is of considerable interest, as one of the few examples of a national loan scheme that is both unambiguously aimed at serving disadvantaged groups of the population and also relatively large in size and wide in student coverage, ensuring a strong national impact. The scheme is run through the national Students Loans Scheme Committee (SLSC), which receives annual subventions from the national budget.

Major Shortcomings
The scheme has been less than successful in realizing its central objective of reaching out to assist the poor. Targeting is not effective. The SLSC has set the family-income ceiling for loans eligibility at three times the income officially designated as defining poverty; thus many nonpoor students receive loans. Moreover, the maximum loan sizes, notably for living expenses, are set more or less arbitrarily by the SLSC with no account taken of actual levels of student expenditure needs. Yet many loan recipients receive considerably smaller loans than designated by the SLSC; this is the result of the decentralized system adopted to distribute loans to students.

Each university receives a loans budget, which it distributes among eligible student applicants. One advantage of this decentralized system is that it might facilitate proactive targeting, since educational institutions are better placed both to identify students in need and also to encourage potential students to take up loans.

However, two conditions are necessary for a decentralized system to work successfully. First, the total loan scheme budget should be distributed to higher education institutions on the basis of objective needs-related criteria-that is, based on the socioeconomic profile of the student body in each institution. Second, actual individual loan size and eligibility criteria (including the cutoff ceiling for parental income) should be standardized across all institutions, to ensure horizontal equity.

These two conditions are not met in the Thailand scheme. Individual education institutions receive loan budgets through a system of top-down budget allocation, from the central SLSC. Institutional loan budgets are fixed in relation to enrollment size rather than the number of low-income students. The result is that some institutions with large numbers of poor students receive too few funds to provide loans to all students in need, while other institutions are able to offer loans to eligible but not highly disadvantaged students. More important, the considerable autonomy granted to education institutions in fixing the size of individual loans results not only in considerable inequities across the system but also in inadequately sized loans. Some private institutions use the loan system as a mechanism for attracting students, by offering loans for tuition only to a larger number of students, not all of whom are highly disadvantaged. Consequently, many poor students do not receive loans for living expenses at all. Likewise, the amounts received may fall considerably short of the loan size recommended by the national SLSC, with negative effects on access.

Finally, the rapid growth of the scheme, considerably in excess of plans, led to budgetary cutbacks. In consequence, education institutions have evidently preferred to spread declining loan budgets over a broader student population, reducing individual loan size below recommended (maximum) levels; this has blunted further the effect of the scheme in assisting the most needy students.

Toward Cost Sharing
The scheme has been subject to much criticism, and public debate has ensued on ways to reform the system. In April 2004, the Thai cabinet passed a resolution endorsing the plan for a new (rather than reformed) loan scheme for Thailand. The new scheme-the Thailand Income Contingent and Allowance Loan (TICAL) scheme-is closely modeled on the successful Australian Higher Education Contribution Scheme (HECS)-arguably too closely, given the very different institutional contexts in the two countries. As in HECS, repayment collection is to be assigned to the tax authorities and would be income contingent-that is, set as a percentage of current income, with a higher percentage being due on larger incomes.

The introduction of TICAL will lead to a complete reorientation of the objectives being pursued by the national loan scheme, with many of the shortcomings relating to inadequate treatment of the poor remaining intact under TICAL.

Rather than being aimed at assisting the poor to gain entry to, and continue with, tertiary-level studies, TICAL focuses on easing the heavy burden on the government to fund tertiary education. A massive reduction in direct budgetary allocations to institutions and considerably greater cost recovery are envisaged. A substantial increase in university tuition fees will be accompanied by the introduction of TICAL. As with HECS, loans will be available to all members of the student population but will be restricted to covering tuition fees; alternatively, students may pay tuition fees up front, at a discount. Loans for living expenses are no longer available, but a special fund is to be set up to provide grants to poor students, the amount of grant support depending on family income; this, again, parallels HECS provisions.

The availablity of maintenance grants for the poor serves as a kind of safety net, designed to contain any deleterious effects of the new loan measures on the access by the poor. But it does little to reach out to poor potential students, to attempt to raise the proportion of poor youngsters enrolling in tertiary education. Will the new scheme place additional barriers in the path of increased access for the poor? Will it be consistent with raising their participation in higher education? The available evidence for HECS is not encouraging. True, there is no evidence of a fall in the proportion of lower socioeconomic status groups enrolling in university studies since HECS was introduced. But while not damaging the prospects of the poor for enrolling in tertiary education, HECS has done little positively to promote their access.

In sum, under the new TICAL scheme the aim of facilitating cost recovery is of central concern, displacing the more direct social objectives of broader access to higher education for the poor that were dominant under the old scheme.

[Online] Available: http://www.bc.edu/bc_org/avp/soe/cihe/newsletter/Number42/p6_Ziderman.htm