World Bank-Colombia-first country for poor student loans

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  • Colombia becomes the first country to benefit from extended loan maturities.
  • This new education loan will help the poorest students of the country.

World Bank. Last March 2008, Colombia became the first country to benefit from a new World Bank policy that significantly extends loan maturities. The approval of a $300 millions loan to support tertiary education in Colombia for the poorest students is part of the new loan maturity initiative formulated to improve the World Bank Group’s efforts to overcome poverty in middle-income countries and support key issues in the region. It follows a major reduction in loan pricing announced in September as well as measures that have accelerated loan processing times.

The loan is the first under a new policy that extends average repayment maturities to 18 years from a previous 10 years and three months to 14 years and three months, depending on per capita income.

Under the new repayment schedule, this loan will support the country’s national student loan agency – Instituto Colombiano de Crédito Educativo y Estudios Técnicos en el Exterior (ICETEX) – to finance access to higher education for low-income students.

ICETEX aims to offer financing to 100,000 new students to enroll in higher education for the first time in 2008-10 and will also finance 432,000 loan renewals for students who are already attending programs. ICETEX will award loans based on a blend of need and academic merit, and loans will target students from the lower end of the socioeconomic range.

“In the absence of student loan opportunities open to both public and private institutions, many talented low-income students would be unable to enroll in tertiary education,” said Axel van Trotsenburg, Director of the World Bank for Mexico and Colombia. “The revolving nature of student credit makes the use of this demand-side mechanism more fiscally attractive for the Government and students alike.”

Tertiary academic institutions must register their programs in a national registry system to be eligible to enroll students with ICETEX financing. This is to ensure students are attending schools that meet basic quality standards.

In addition, ICETEX is placing particular attention to students enrolling in post-secondary technical programs, given the importance of the skills that these graduates bring to the job market.

The student loans are tailored to effectively address the needs of low income students by:

  • Establishing very low partial interest payments during the in-school period and differentiating payment levels by borrower profile;
  • Granting a grace period of one year after graduation before the borrower has to start repaying interest and principal in full;
  • Establishing a long (but flexible) repayment period of up to 22 years after graduation;
  • Subsidizing interest rates for poor students, leading to interest rates that are well below market levels;
  • Allowing for prepayment without penalty.
  • Incorporating new flexibility features that may apply in the event of temporary unemployment. These include: the option to defer any payment for up to two semesters and/or the option to renegotiate terms or restructure the loan by establishing a new repayment schedule.

In its national development plan, Colombia sets a target to increase enrollment in higher education by 1.5 million students by 2019. With the help of this project and ICETEX, the country is well on the way to reaching its goal.

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