APICE Curso de Credito Educativo

1. APICE Curso de Credito Educativo The Promise of Student Loans in Latin America And the World Bank’s Experience Andreas Blom, Cancun, October 4, 2004

2. What is the role of student loans? And how to fulfill this role? Overview The need for investment into tertiary education The role of Student loans The HUGE promise of student loans in LAC How to fulfill this promise? World Bank experiences Key Messages

3. Education as a poverty killer Education for Competitiveness The Need for investment into Education

4. The role of student loans: Promote Tertiary Education with two key objectives: • Expansion • Equity

5. . Finly Australi 80 United S Korea Sweden New Zeal 60 Canada Argentin Tasa de enrolamiento terciario bruto, 1998 Singapor 40 Chile Panama Costa Ri Barbados Thaily Peru Venezuel Philippi Hong Kon Bolivia Bahamas Colombia 20 Mexico Ecuador Brazil Honduras Nicaragu Guyana Malaysia Indonesi Paraguay Jamaica Guatemal Suriname China Trinidad Haiti Belize 0 5 6 7 8 9 10 11 Log de PIB per capita, 1998 The need for Expansion of tertiary education:

6. Mexico: Financial aid increases probability of access to tertiary education by 24 % The role of student loans in Expansion:

7. The need for a more equitable Tertiary edu

8. The Case of Mexico PRONABES The role of student loans in Equity:

9. What is the potential demand for student loans in Latin America?

10. The potential is HUGE US$ 3,400 million per year 1.1 million students per year

11. How to fulfill this Huge Promise? Who could finance such an expansion? The graduates? Yes , Tertiary Education is a fabulous investment BUT, only after graduation, we need capital

12. Who could bring capital? The government? A little bit, more if money returns (Fiscal restraint and Inequitable) The World Bank (through the government)? A little bit, (US$ 60-80 million a year) BID (through the government)? A little bit Private investors? Yes, but only if the money returns(through the government) Without Financial Sustainability, student loans will not fulfill its promise

13. World Bank experiences: Tertiary education projects in the World Bank Student loan projects (components) in LAC: Jamaica (ended in 2002), Venezuela (ended in 2001), Chile (2005), Mexico (2005), Colombia (2008), and new in Mexico Student loans as vehicle for investment into tertiary education Student loan: an integral element of a well-functioning tertiary education system (For example: Student loans depends upon the system’s quality, relevance and institutional reform of tertiary education, among others)

14. WB Experiences I: Design and incentives are critical • Professional management (not politically appointed management) • Strategic guidance from the government • Separate Loan from Scholarship • The student loan organization need incentive to collect • Cooperation and risk sharing: • Universities should contribute: Be the windows to the student (and share the risk, especially non-governmental providers) • Outsource: ICT, collection of overdue debt, management of funds etc.

15. WB Experiences II: Effective and flexible collection is critical • Inform and maintain close contact with the client (the student) • Provide flexibility in repayment (grace periods and postponement, multiple ways to pay etc.) • Sanctions are NECESSARY (credibility of the government) • Report to credit bureau

16. WB Experiences III: Efficient organization Outsource /Alliances Professional staff Internet based system (completely)

17. Thank you for the attention, Andreas Blom, World Bank Key Messages Education is critical for poverty reduction and competitiveness The key role of student loans is expansion of the tertiary education system Student loans have a HUGE potential in LAC Without financial sustainability, student loans can NOT fulfill its promise Healthy design, risk sharing, flexibility, sanctions for non-payment and outsourcing are good practices