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Student Loans and the Right to Education

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Gladys sits near the window in the small Itá office, earnestly discussing the loan that she received to finish the certification program that allows her to teach nursing. She is 28 years old and dressed inconspicuously in sweatpants and a ponytail. Despite her casual appearance, her voice carries a tone of imposing strength and authority.

Gladys speaking about her experience with Vittana’s student loan program.

“Education is the foundation of humanity,” she says. “Without education, there is no future. How will you help your country, your community, your family if you don’t have an education?”

For Gladys, there was no alternative to pay for her certification. “I could not ask my parents for support, and I did not have the economic capacity. To finish and receive my degree, a loan was the only way.” So, Gladys took out a loan from Vittana, a partner of Fundacion Paraguaya.

Vittana uses a peer-to-peer system to raise capital for small student loans. The organization specializes in providing loans for students who would otherwise be unable to afford higher education. So far, Vittana has provided more than $1,800,000 in loans to over 2900 students in Paraguay, Peru, Nicaragua, Mongolia, Vietnam, and other countries. Fundación Paraguaya was Vittana’s first partner, and continues to provide loans for university, vocational, and technical studies as well as for continuing education and training. The average loan is $610, and the student must start making payments immediately. For this reason, students typically work at least part-time to cover the cost of their installments. Other players in the micro student loan market include Qifang, an organization that raises money to loan to Chinese students; XacBank, which is based in Mongolia; and Kiva.

According to a 2010 article in the Economist, the challenge associated with student microloans is the risk. Students from rural areas have no credit history, and there is no group lending model. For those of you who are unfamiliar, the group lending process, which is widely used in the distribution of small business loans, reduces the risk of lending to those with little or no credit history and minimal collateral by lending to groups of borrowers (also referred to as a solidarity groups).  The group provides a loan guarantee and must compensate for any member who cannot pay on time. Additionally, the group offers support to fellow borrowers as well as peer pressure, encouraging individuals to take the process seriously and to work hard to make their installments.

This image is credited to http://homebrewedchristianity.com

Jason, a Vittana fellow who is helping the organization to conduct an impact assessment this summer, told me that Fundacion Paraguaya tries to reduce its risk by requiring students to have a certain level of income or a cosigner. The organization also targets the children of existing microfinance clients, who understand the loan repayment process and have successfully repaid loans in the past.

Thinking of my own student loans, I can’t help wondering whether this type of microfinance product is a good idea, especially in light o of Andhra Pradesh and the controversy surrounding extensive lending in the microfinance space. In America, the majority of students are over indebted. Furthermore, in the deteriorating job market, many have returned to school to pursue expensive graduate degrees that may or may not increase their marketability and/or get them a promotion. In fact, many people joke that the master degree has become the “new undergraduate degree,” required for many jobs but not necessarily effective in increasing one’s salary or enhancing the perception of one’s professional skills.

At the same time, many, including myself, would not have had the opportunity to pursue higher education without student loans. There are, of course, ramifications to wantonly distributing credit left and right. Responding to the incessant demand, college tuition continues to increase, and student loans have undeniably contributed to America’s debt crisis. However, access to credit has opened doors for those who cannot pay out-of-pocket for advanced degrees.

Please let me know what you think. Is education a right? Is it smart to transfer our student debt model to the developing world?

9 thoughts on “Student Loans and the Right to Education

  1. Great post, Sarah! Micro student loans are – at least to my knowledge – still a marginal part of microlending, but one that actors on the field are considering a path to growth. Will it help thousands to buy their way to a better future, or create the next credit bubble? Is access to education to be solved through helping individuals pay for enrollment or helping states provide the adequate infrastructure?
    I studied in France at what is considered an elite university virtually for free, and in the US at an Ivy League university which I paid with a student loan. Still I could not decide which system is the fairest. I did not consider normal that some French students, as a matter of principle, claimed their right to a free education that would open the doors to high-paying jobs and would stubbornly demonstrate on the streets to refuse to contribute, at the risk of breaking the system. Neither do I think it is normal that, 5 years after graduation, some of my American classmates are still delaying their start in life (buying a home, having children, seeing the world) because they are suffocating under huge student loans. It is fair for students to invest in themselves, but not at the cost of the future they are trying to make brighter.
    Which path will emerging countries choose?

    • Very interesting points Charlene. I also studied my undergrad back in Europe and just joined an American university for my grad degree but, after a few years of living in the US, my feelings are not mixed anymore. I believe that, in order to have a truly fair and equal-opportunities society, you need to grant access to higher education for lower-income people, and that just does not happen very often with the current US system. It was shocking for me to find out that intergenerational social mobility is way higher in Europe than in the US, the so-called land of opportunities (http://www.oecd.org/dataoecd/2/7/45002641.pdf) and almost-free access to higher education (at least at undergrad level) is the base of such mobility. Besides, if we consider that the future development of a country has to have higher education as one of its pillars, let the State (aka All of Us Tax Payers) bear the burden, instead of giving 100k in credit to an 18-year-old kid.

      That said, I see no application of the European model to a country such as Paraguay, where taxes are practically 0. Much else should change before the Government can decide between funding a national higher-education program or not.

      PS Great post Sarah!

      • Great post Sarah, and very interesting points Juan and Charlene! I agree with all of you that excessive student loans and high costs of attendance contribute to a highly stratified and socially immobile society. When I entered a US public university 10 years ago, the cost of attendance was almost half of what it is today, and only a fraction of what it cost to go to a private school (http://nces.ed.gov/fastfacts/display.asp?id=76).

        However, the rising cost of higher education in the US is beside my point :). If, as Juan says, government funded education is not currently possible in Paraguay, I wonder what options exist for people from humble backgrounds. I believe that a European model would be best in the end, but such change requires a vast amount of time to implement. In the meantime, maybe a system of student loans can offer opportunities.

        I look forward to reading more about all of this!

  2. For now, creating part time jobs related to the student’s field of study can provide both income for repayment and valuable work experience. Thanks for a thought provoking post!

  3. Hi Everyone,

    Thanks for your comments! I wish to clarify that I do think higher education provides many with the opportunity to follow a career path that would otherwise be impossible. The students who I spoke to asserted that with their degree they are more economically stable, they are enjoying their work, and they have become a role model for others in their family. Obviously, Paraguayan university degrees and certifications are much less expensive than those in the US, and degrees are designed to be professional (Law, Business, Nursing, etc.) Also, according to some locals, there is a national university in Asuncion that has no tuition, although students must pay small fees for books and exams. I think access to education is much more difficult for those who live outside of the major cities.

    I agree with you, Charlene, Juan, and Elyse. Without adequate tax revenues, I am not sure how the government would implement a European-type model. Also, there are so many different types of certifications here, some of which seem a bit dubious regarding professional/educational value. Perhaps the student loan model helps to weed out these programs (i.e. people will not invest in degrees which will not be useful to them).

    Helene – unfortunately, part time jobs are not necessarily related to the student’s field of study. More often, the student finds whatever work he or she can do part time. One woman, for example, would work for half the day as a domestic worker, although she was studying to be a nurse. However, Gloria (mentioned above) worked as a nurse as she received her certification in education, so it does vary.

    • Education provides opportunity for the rest of one’s life. Getting that opportunity is a challenge in Paraguay and many other countries, so I applaud any efforts to assist the student in their quest to obtain an education. I think that programs that allow payback later, following graduation would be the most helpful to students. Perhaps the community at large in the vacinity of the university can assist the students with housing or meals, with a small payment from the funding program. This type of giving also instills upon the student the sharing with community that they may well adopt in their own lives.

  4. Correction: in the previous comment, I meant Gladys, not Gloria.

  5. Great post, Sarah. It’s led to an interesting conversation! As a country in development, Paraguay may not be able to adopt U.S. or European models for higher education–at least not yet. The good news for now is that micro loans to students can help during this transition phase. As a Vittana Fellow I’ve had the opportunity to interview students in person and gather data about the impact of our students loans. I’ve found the results surprising: 99.8% of students repay their loans. Even better is the fact that they increase their income by 2.8x on average. Whether they follow the U.S. or Europe, or if they innovate a better model themselves, it is clear that education is one of the surest ways out of poverty for those in the developing world.

  6. Thank you for the article. It is really use full. Such a hard subject to
    talk about but so many women have this problem. I definitely will do the exercise.

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