Student moans

With the government devoting most of its time and attention recently to attempting to ram through two completely unnecessary ministerial appointments, it is hardly surprising that it had little to spare for an initiative unveiled by MK Yuli Tamir (Labor) two weeks ago. It is, however, unfortunate – because Tamir’s idea of establishing a student loan corporation is the most intelligent solution yet proposed to the festering problem of college tuition.

While most Israelis concur that higher education should be affordable to all, this is not the case today. One recent study found that only about 14 percent of students from communities at the bottom of the socioeconomic ladder go on to higher education, compared to 59% of those from wealthier communities – and while tuition costs are certainly not the only reason for this gap, they undoubtedly play a role.

Five years ago, in a misguided effort to solve this problem, the government wound up making things much worse: Under pressure from students and their supporters, it agreed to cut annual tuition at state-supported schools in half, from NIS 10,400 to NIS 5,200, over a five-year period. Like many government decisions, this one is not being implemented on schedule, but tuition has gradually been cut, and currently stands at about NIS 8,400 a year.

Needless to say, an across-the-board tuition reduction is a lousy way of helping the poor, since it primarily subsidizes the upper- and middle-class students who make up the bulk of the university population. Such families could easily afford annual tuition of around NIS 10,000, which comes to a mere NIS 833 a month. Yet for the genuinely poor, even tuition of NIS 5,200 a year is beyond reach.

Moreover, tuition cuts of this magnitude would create a serious budgetary crisis. According to the Winograd Committee, which recommended the reduction, the full cut would reduce the universities’ income by some NIS 800 million a year. Slashing that sum from the already cash-strapped universities’ budgets would make it difficult for them to offer the quality education that is essential if Israelis are to remain competitive in an increasingly well-educated world. Yet neither can the government afford to pick up the tab: A country whose public debt, at 102% of gross domestic product, is already enormous by Western standards cannot simply increase its budget still further; nor could such a huge outlay be easily offset by cutting other parts of the budget.

TAMIR’S PROPOSAL elegantly addresses both of these problems: It directs aid to those who truly need it, rather than subsidizing the rich, while at the same time avoiding the budgetary crisis that the Winograd program would engender. Under her proposal, the government would establish a student loan corporation that would offer low-interest loans to all college students to cover their tuition. The corporation would raise the necessary funds by issuing bonds. To discourage the program from being exploited by those who do not need it, however, students who pay tuition up front instead of taking out a loan would end up saving money: While regular tuition would be set at NIS 10,000 a year, those who utilize the government loans would pay the equivalent of about NIS 12,500 a year (tuition plus interest).

By restoring tuition to its 2000 level instead of slashing it in half, this proposal eliminates the budgetary hole with which the Winograd proposal would saddle the universities. Yet at the same time, the easy loan repayment terms make tuition truly affordable for even the poorest student. Payments would begin only after the student has not only graduated, but has found a job paying at least the average wage (currently about NIS 7,000 a month). Moreover, the payments would total only 3.5 percent of his monthly salary. For a student earning the average wage, that would come to some NIS 245 a month – hardly an unaffordable sum. At that level, repayment would take 12.75 years; those with higher salaries would settle their debt in less time.

The big question is how much the government would lose each year due to defaults on these loans. Dr. Efrat Tolkowsky of Tel Aviv University, who examined this question for Tamir, predicted that defaults would cost the state a maximum of NIS 250m. a year. That is less than a third of what the government would pay if it picked up the full tab for the Winograd cuts, but it is still a nontrivial sum. Moreover, the program would clearly involve sizable administrative costs.

Yet if Tolkowsky’s prediction is reasonably accurate, the state could probably finance the program without exceeding its existing budget for higher education at all: It currently earmarks some NIS 300m. a year for tuition grants to needy students, and this program could be eliminated if student loans were instituted.

Tamir’s proposal is thus a win-win situation: It would help needy students obtain a college degree without either gutting university budgets or substantially increasing government expenditures. Moreover, it is the first proposal on the subject that has won support from both interested parties – university managements and student unions – thereby increasing the chances that it could pass the Knesset.

Nevertheless, the establishment of a multibillion-shekel-a-year student loan corporation is too massive an undertaking to be feasible without enthusiastic government backing. And though Education Minister Limor Livnat was commendably prompt in announcing her support for the idea, a government as dysfunctional as this one currently appears is unlikely to be capable of instituting such a revolutionary change.

Yet even if it has to wait until after the next election, this idea should not be allowed to die. Tamir will undoubtedly keep pushing it – but she needs and deserves the support of all those who care about making higher education truly affordable for all Israelis.