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Understanding regional differences in study loans

Katie Schenk - July 11, 2016

Note paper, calculator and mobile phone on wooden table

Student loan debt in the United States continues to reach shocking peaks. Every year, there’s at least one major story in the news regarding the current state of debt attributed to higher education. These days, it feels a little melodramatic, given that spikes in debt and the inability of graduates to make payments are nothing new. It’s just been building since the US government began issuing loans for education.

Current estimates of US student loan debt sit at US$ 1.3 trillion. That figure is spread out over 43 million Americans.

But, what is shocking is that the American people and government aren’t demanding a rapid overhaul of the educational loan (and repayment) system. It’s not the same everywhere. Different systems of educational financing have created differing norms throughout the world.

Where you’re from (and the way study debt is handled there) will impact your view on educational loans. And, you’ll likely battle confusion when considering international study and the money you need to complete your degree.

Student loans in the United States

As an American, you could walk into just about any bank in the United States and request a student loan. But, the bank manager would raise a skeptical eyebrow while scrutinizing your paperwork. Why go to a private bank for such a loan when it’s generally the business of the government to finance college studies?

The US Federal government offers a variety of loans to American students. While the list of products isn’t endless, each one is slightly different. Students apply for and are given loans based on their income, their parents’ incomes, tuition and related fees, and anything else that affects finances. Loans are dispersed to schools in most cases (though not all). And, after graduating, students have 10 years to repay the government for their education.

This process works alongside scholarships and fee reductions offered at many colleges and universities through the financial aid department. And, for most American students, the process and outcome are ingrained; that’s the way it works. Surprisingly, many American students still qualify for federal government loans even when they choose to study overseas.

The American loan system isn’t universal

For all the ruckus caused by the student loan debt in the world’s largest economy, it’s hardly a universal problem – even when the government provides the financing for higher education.

Australia has become the poster child for student loan success in recent years. Australian students essentially tick a box to receive their loan, and it’s more or less handled. Once that student’s salary reaches roughly US$40,000, he or she will begin to repay the government. Loan payments are automatically deducted from salaries, and the amount is usually around the five percent of income mark. The more that graduate earns, the faster the loan is repaid and the process continues until the debt is paid in full.

That’s not to say the Australian system is without flaws. Consider the graduates that never really crack the minimum earnings to repay their loan. And then there are those that seek international employment where the government has no ability to deduct repayments. And, there are those that are very concerned about the rising level of student debt – even if it’s nowhere close to the frightening figures from the US.

In France, all (French) students pursuing higher education are guaranteed loans of EUR 15,000. Students may be eligible to apply for more, but this amount is on the cards for everyone. The government also provides grants to students from eligible categories provided they can also demonstrate need.

Swedish and German public universities are generally tuition-free (as long as you speak the language) which is, in itself, a major saving. Still, living expenses and non-academic learning experiences cost plenty of money and loans are a common means of paying for them. Loans for these expenses may come from government or private banks, depending on the financial capacities of the students themselves.

Some governments don’t do as much to subsidise education

But, some governments just aren’t in a position to subsidise student loans (even if they arguably need more college and technically trained graduates).

In South Africa, university students almost always turn towards private banks to finance shortfalls in their education budget. There is a National Student Financial Aid Scheme (NSFAS) loan, but it doesn’t have the resources to promise money to everyone. Indeed, only 400,000 students benefited from these loans in 2016, though it’s worth considering this is more than double the number of students assisted when the organisation formed in 2009.

A benefit of procuring an NSFAS loan is that up to 40 percent of it can be forgiven for students that do well in class. Another perk is that repayment rates are calculated based on income with minimum and maximum caps.

But, it’s the private banks that handle most of the student loans in the country – and they’re not limited to South African nationals. International students can qualify, though that ever important co-signer is required. Of course, South African students face the same hurdle, unlike American or European scholars.

Tuition is much lower by international standards, however; the cost for a year of undergraduate study usually doesn’t surpass US$2000. Living expenses aren’t included in that figure but are certainly lower than you would find in North America or Europe. Still, it’s a stretch for many Africans (including South Africans) to pay these fees without a loan. Sadly, it’s sometimes difficult for students to find co-signers that meet the banks’ minimum requirements for income and residency resulting in low numbers of university graduates in the country.

You’ll find a similar situation in India where student loans absolutely require a co-signer. And that’s just the beginning of the student loan crisis. When loan amounts exceed a certain minimum (roughly US$ 10,000, though it varies by bank), collateral is also required in most cases. Families wishing to go this route will be asked to put their house on the line – and therefore decide which child will be able to attend university.

Sure, that is a dire picture, but it’s a reality for a number of academically deserving (would-be) students who just don’t have the financial backing they need to complete their education. And, as you can imagine, the situation becomes even more complex for graduate level studies.

Securing loans for education, though, is clearly complex wherever you are. There is no such thing as a universal standard for financing study. And regional differences play a role in the products any potential student can expect to secure. However, this doesn’t discount the need for education – or the need to consider the effects any loan will have on your (and your family’s) financial life.

Want to know which programmes Prodigy can assist with funding? Take a look at this list or read more about Prodigy's investment community here.

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