Dr. Darragh Flannery:

I wish to follow up on the point made by Dr. Doris. The UK system offers a discount and figures show that 10% of students in the UK avail of the discount. The majority of students are encouraged not to avail of the discount because the cost of their education is lower if they take out a loan. The cost is spread across a long period and the interest rate is lower than how fast their graduate wages will grow. It means that students can chip away at their debt. The people who pay upfront end up paying more in real terms for their education than those who pay back their loan over a longer period. Students who wish to pursue higher education in the UK are advised that the smartest financial thing to do is to take out a loan. It may sound counter-intuitive but students enjoy a greater Government subsidy because the cost is spread over a longer period. Students in the UK benefit more compared with the people who pay upfront. One would imagine that more people would drift towards paying 10% upfront but figures suggest that only 10% of students avail of the scheme in the UK. A similar scheme was abolished in Australia. As Dr. Doris has suggested, the upfront payment was used as a mechanism to boost initial funding. Initially, the uptake of that upfront payment was approximately 15% in Australia.

Senator Ruane mentioned the impact that household debt has on education. It is important that I mention the issue of repayment burdens. The Australian and Hungarian systems have in-built repayment burdens. Therefore, repayments in a given month or year cannot go above a certain percentage of income. The parameter can be flexible and decided upon. Mitigation of some of the impact on household debt in a given year or period is built into the system. In Australia the system is gradual and has various steps. The repayment burden increases to a maximum of 10% for higher-earner graduates. Lower-earner graduates above a certain threshold may pay only 2% in a given year or month, depending on their situation.

Senator Ruane made a few points about the redistribution effect of a free fees system and how the public should finance fees through a combination of upfront fees and State assistance. As we mentioned in our submission, one issue with the current system in Ireland is that in times of recession, spending on higher education must compete with all the other sectors. The issue becomes more acute in higher education. What tends to happen in a time of recession is that demand increases but funding decreases. There is a contradiction in Ireland because education heavily relies on direct public funding.

Senator Ruane mentioned Hungary and New Zealand. She directed her questions at Dr. Larkin and Dr. Corbet but I shall answer too. The Hungarian system is probably not the best comparator with Ireland because it initially introduced loans for maintenance grants. In other words, Hungary abolished maintenance grants and simply provided loans for maintenance grants. The matter has not been talked about here in any context, as far as I am aware. Hungary introduced loans for student fees post-2012. The impact has yet to be analysed because the students will only graduate this year. Also, the system was completely privately financed. The Hungarian Government gave a guarantee but the model is privately financed, which differs from the systems in the UK and Australia.

Emigration was mentioned a couple of times as a problem in New Zealand, which it is and was. Research has shown, however, that a bigger issue in respect of the public finances and the sustainability of the New Zealand system was the interest rate applied there. The New Zealand Government applied a zero nominal interest rate that was way below the cost of Government borrowing. The interest rate was way below the amount of money that the Government took out to loan to students. A far lower interest rate was attached to the scheme than it borrowed at, which caused repayment problems. The interest rate was by far a greater problem than the graduate emigration problem. Lately, some adjustments have been made to the system. I suspect the reason such a scheme was introduced was because an election was in the offing.

Shall I respond to the questions posed by the other Deputies?