The Cassells report, widely leaked (remember when government decisions were made and then announced and when leaks were newsworthy not news?) has good and bad points in plenty.
The good news, although to those of us in the system it is hardly news, is that the group has come firmly down on the side of the need for extra resources. All sectors, all the time, cry for extra resources. What marks this sector out is the depth and duration of the per capita cut. Students and faculty have been quiescently grafting as part of the national recovery. Despite what the screeching idiotocracy of the right would have us believe higher education has transformed. Some retrenchment now and again is not a bad thing in an organization. It forces it to think what is the main aim. It forces it to look hard at the cost structure and how it is organized. Too much however and the system both begins to stutter and worse, the organizational culture drifts towards that of management as if it were a permacrisis. We, as a college and as a sector, have gone there. The Cassells group acknowledgement that greater resources are needed is welcome. It should allow a move back towards normal, hopefully without losing the good lessons learned in the crisis.
Where it is less welcome is in how it seems to see resource flows operating. Two flows are seen as now – a state grant, and an income contingent loan system. There is a pious hope that the state grant will increase. The loan system, on which I have written in the Irish Examiner last week, is the one that will attract most comment. In principle it is attractive – take out a loan, pay back only when the income level reaches a “certain” level. But like so much in Ireland the devil is in the detail. Leaked though the report may be it seems that there is little detail available. Some questions then, which people may wish to lay to their public representatives. None of these are insurmountable but before we move to a loan system we should expect to see some answers:
1. At what level will the income contingent loan begin to be repaid? The median income for graduates on graduation is a shade under €20,000.
2. If graduate incomes dip below the threshold for a period what then? Will repayments pause, and if so on what terms and conditions such as penal interest or additional charges? Or will it be a full stop?
3. What provision will be in place to ensure that tax planning is not used to artificially reduce incomes below thresholds?
4. What provision will be in place for graduates who step off the repayment ladder for a part of their earning career?
5. What guarantees about repayment will be required, from whom? Will parents or guardians be required to guarantee, and what if they are not able or willing to do so? Will graduates be able to take unsecured loans and will that cost them more than unsecured (as would be normal lending practice). If it is the state who guarantees what moral hazard does that inject to the system? What if a guarantor dies, becomes bankrupt or otherwise becomes unsuitable over the lifetime of the loan?
6. What provision is made for those who emigrate? Will there be a reverse-tax provision or will the loan clock up until people return? What if then they are under the income threshold?
7. What analysis has been done on the repayment burden and actual ability to pay given that new graduates also face costs of housing and other loans?
8. What analysis has been done on the likelihood of cross loan default for this cohort given they will now face an additional burden?
9. Will the cost of those who will not be able to repay be levied on those who will be able or will it be borne by the state? What is the contingent liability to taxpayers there? What EU issues if any arise?
10. Will this loan be treated as a regular loan for credit scoring purposes? If not, what moral hazard effects have been modelled?
11. Given that the loan is for investment in human capital, has thought been given to taking this to its logical conclusion, and allowing both the interest payments to be offset against tax and for a depreciation charge?
12. What modelling has been done on the behavioural aspects of this? We know people have an aversion to debt so what percentage of possible graduates will be discouraged simply from that? What of those who will migrate to avoid this?
13. What of those who refuse to repay – will the guarantee be called in, will it be for full amount outstanding or will it be on a new loan basis?
14. What provisioning will be in place for default? How will these loans be recouped? If it is the state, via revenue, how does this differ from a tax?
15. Who will be the lender – will it be an existing state body, a new one, or commercial lenders? If it is existing lenders what analysis has been done, given they are still deleveraging, on crowding out of other loans?
16. What rate will be charged, and will it be fixed or variable, and over what tenor (length)? Will there be early repayment opportunities and if so will they be on a no fee or a penalty fee basis?
17. How will this loan, if done via commercial institutions, be treated for bank capital or prudential purposes?
18. What analysis has been done on the macroeconomic effect on sectors which would otherwise see this money such as restaurants and bars and travel?
19. The rate is set, it seems, at €4,000. That does not cover the full economic cost of any degree. While there is a promise of an additional state grant, what provision is in place for differential rates for different courses, or over time?
20. How much additional funding will be entering into the system, over what what time frame will this be , and most crucially of all, will this be enough to bring the system up to the required resource level?
Brian Lucey is Professor of Finance in Trinity Business School
