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Student loan compensation policy enters fifth year, results still unclear

The Finnish state now pays off 40 percent of university students' debt if they graduate within a target timeframe. Study loans have doubled in the last decade.

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The policy was enacted to encourage university students to graduate promptly. Image: Toni Pitkänen / Yle

Legislation came into force in Finland in 2014 that was intended to encourage more university students to graduate on time. According to the new policy, students who began their higher education studies on or after 1 August 2014 and completed their degree within the appointed target period were eligible for state compensation of 40 percent of their total student debt that exceeded 2,500 euros.

Students studying towards bachelor's and master's level university degrees and applied science university degrees are eligible to receive the compensation, which is administered by the state benefits agency Kela. Students completing bachelor's degrees are also free to defer the one-time-only compensation until they have completed their master's, for example.

The target graduation times range from 3.5 to 4.5 academic years for bachelor's degrees, and 6 and 7 academic years for master's degrees.

Too early to assess policy effectiveness

It is still too early to say whether the system has encouraged more university students to graduate sooner, but Kela chief coordinator Ilpo Lahtinen says the new system has certainly resulted in a jump in the number of young people applying for and receiving state-guaranteed student loans. He pointed out that the number of university students with student loan debt has doubled over the last decade.

"The use of student loans has grown enormously since the introduction of the compensation policy. We foresee a lot of students will expect the compensation when they graduate, as they are certainly very aware of it," he said.

In early 2016, the Finnish government announced it was cutting 70 million euros from student aid over the next three years, as part of a public finance savings drive. Several opposition politicians protested the financial aid cuts, saying that the move would force university students to take on more debt.

Earlier reforms to university financing have made the number of awarded degrees the single most important quantifier for determining annual funding of academic institutions. Higher education facilities also receive additional funding for every student that completes at least 55 credits of coursework a year.

This new kind of financing model has led Finnish universities to increase their targets for the overall percentage of on-time graduates. Last year, the goal was to have 43 percent of enrolled students graduate within the target timeframes, up from 28 percent in 2005-2006.

The fiscal plan for the years 2017-2010 that Finland's centre-right coalition government agreed upon in 2016 states that "student loan compensation will be maintained within the framework of financial constraints", thereby continuing the policy for the time being.

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