Most students could repay a €10,000 college fees loan within 15 years of graduation if the Government decided to introduce such a scheme, according to University of Limerick research.
Although the study assumes a debt at graduation of €10,000, compared with figures of up to €30,000 that were being considered in the Department of Education, it still gives a picture of how an income-contingent loan scheme might impact on student and public finances.
It was one option proposed to then education minister Batt O’Keeffe over two years ago, and would have involved students repaying some of their college tuition costs once they started earning above a pre-determined income.
Student representatives and other opponents say the debt burden would deter some from going to college, and would lead to a “brain drain” of graduates emigrating to avoid repayment.
The study has been published in an economic journal by UL economics lecturer Darragh Flannery and Cathal O’Donoghue of Teagasc’s Rural Economy and Development Programme Research Centre.
They factored in interest rates that matched inflation and found that, if a graduate paid 10% earnings above the average industrial wage, 82% would repay the debt fully, in an average of 15 years. But even charging interest at 2% higher than inflation, 74% of graduates would clear their debt within an average of almost 16 years.
“The evidence here suggests that an income contingent loan scheme would not create an Armageddon scenario, of huge numbers of students not being able to repay,” Dr Flannery said.
An interest rate linked to inflation would see the Government recover 65% of the debt, but that rises to 81% if interest was charged at 2% above inflation. But the Government already subsidises student contributions, as 41% of those in higher education qualify for grant supports.
The undergraduate fee will rise from €2,000 to €2,250 later this year but Education Minister Ruairi Quinn confirmed it is likely to reach €3,000 in the next few years, bringing the cost for somebody starting college close to €10,000.
The paper also examines the impact of a graduate tax. The research shows that if students paid no fees up front but paid an extra 1% PRSI for the rest of their working lives, more revenue would be raised as the tax would continue to be paid after the cost of a college education has been met.
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