10. STUDENT LOANS IN EUROPE: AN OVERVIEW 1
Education is expensive. In 1995 the average global effort in favour of education
represented 6.7% of GDP in OECD countries, and this effort is still largely due to the
The conjunction of three reasons might explain the recent developments in the
efficiency of this financing. First, education is not a pure public good. Second, as a
consequence of the spectacular rise in the number of graduates and students since the
end of the 1960s, especially in Europe, public budgets on education experienced a rapid
growth and are nowadays one of the most important public budgets in many countries.
Third, at the same time government budget constraints became harder, leading to an
extended period of financial stringency.
In developed countries, the debate focuses on the financing of higher education for
several reasons: the rapid growth of this budget; the persistence of social inequalities
despite extensive public financing, especially in Europe; and primary and secondary
education being almost entirely free and publicly funded, which is generally admitted.
Because education is not a pure public good, one response to this funding crisis is to
increase, at a significant scale, private funding of higher education. This strategy is
supported particularly by the World Bank, whose recommendations, based on efficiency
and equity considerations, are relayed by numerous studies. In most cases, they
recommend first of all an increase in tuition fees and second, a reform of student aid
schemes. This reform is often oriented towards the creation of a public credit market of
education in order to finance the costs of higher education by specific loans to students.
According to this system, the State has to advance this financing only during the first
years of its creation, since students re-pay their loans once they have completed their
1 The full paper is available at the PURE web-site www.etla.fi/PURE.