Education costs money, especially higher education: the more specialized a school is, the more expensive it is.
As a reminder, higher education can cost from €10,000 to sometimes €40,000 a year, and even more in top institutions in the US like Harvard and Yale. If you’re going to spend 5 years to get a Master’s degree, it could cost you between €50,000 and… €200,000! 😱
Obviously, not everybody has that much money in their bank account. So how can people pay?
Self-funding
First option: you pay by yourself.
It could mean that you’re rich. Or somewhat rich. Or that you have a rich uncle. Good for you.
It could also mean that you’re working part-time to pay for your studies. Many students do this (more than 20% in France according to some studies), although it means less time to focus on their studies, which could put them at risk.
Either way, it is an option: some people have the money or will work to have enough money to pay for their studies directly.
Student Loans
Ok, so you can pay by yourself. But in most cases, you won’t have enough money for this, and working part-time won’t be enough.
This is why many students choose to finance their studies through debt. They go to a bank and ask for a loan. Banks have special loan options for students. Banks know that a good education and a good qualification will help them get a higher-paying job, meaning that they will be solvent and therefore able to pay back their loan. Students will usually have to pay back their loan after their studies: they don’t have to pay while they’re studying.
These loans are usually not free: there are interest rates. Banks make money out of these interest rates. If you borrow €100,000, it means you could end up paying back €115,000 to the bank.
While student loans are an important source of funding, it is also criticized, especially in the US where the amount this debt represents is very high because education is expensive. Some people start to wonder if this is sustainable over the long term (one day, will students not be able to pay back, causing a financial crisis?).
🇺🇳 Country by Country
🇺🇸 USA
In the US, student debt has become bigger and bigger over the years as education became more expensive. In the past, students used to receive more grants (money they didn’t have to repay), but the policy has shifted towards loans (which means student debt) that have to be repaid.
There are 2 types of loans:
Federal loans sponsored by the federal government (also called Federal Title IV loans)
Private student loans
The vast majority of loans are federal loans. They are less expensive than private student loans.
Students might need to combine a loan with grants, scholarship and work/study initiatives.
Student debt has been rising over the years, reaching 1.6 trillion dollars in 2020 (that’s 1,600 billion dollars! 😳). Some people argue that this is not sustainable. Should education cost this much in the first place? Should we find alternatives to student debt, like apprenticeships or ISAs (income-share agreements)?
🇬🇧 UK
In the UK, student loans for undergraduate and postgraduate degrees were introduced over 10 years ago and the amount that students are required to pay for their tuition has risen dramatically. Tuition fees are a minimum of £9000 per year.
Student loans are provided by the state-owned Student Loans Company. Before loans were introduced, studying at university was free for eligible students. Students from low income households can apply for other grants and forms of funding from a university which do not have to be repaid but extra help has been reduced over the years.
Interest starts to accumulate when the student contracts the loan, but repayment is not expected before the end of their studies. Repayment of a student loan is dependent on the salary that a student receives after completing their studies and usually it is payable over 10 years. Typically a student will pay 9% of their salary towards repaying their loan.
If the borrower’s income is below a certain level, no repayment is required, which is kind of a protection, although interests continue to accumulate.
The debt that a student will have after their studies has been a factor in the significant rise in Degree Apprenticeships where students do not pay tuition fees and receive a salary while they study so this path is proving very popular. Degree Apprenticeships have in the past sometimes been perceived as being of lesser value to traditional undergraduate degrees but this has changed and currently over 30 UK universities provide them.
🇫🇷 France
In France, students can borrow money directly from banks who offer student loans (eg. BNP Paribas, La Banque Postale…).
Banks require a guarantee that you’ll be able to pay them back. Some students can apply for a state-guaranteed loan (”prêt étudiant garanti par l’Etat”). The loan is still managed by the bank, but it is guaranteed by the state in case students can’t pay back.
Income-Share Agreements (ISAs)
Income-share agreements (ISAs) are a more recent alternative to student loans. When a student subscribes to an income-share agreement, they don’t owe anything until they’ve found a job that pays at least a certain amount of money. It is considered less risky than debt for students, because with debt you usually have to repay, whether you have a job or not. With ISAs, you don’t have to pay anything if you don’t find a job.
So how does it work? Students agree to pay back a percentage of their income for several years. If they are paid more, they owe more money. If they don’t find a job, they don’t have to pay it back.
There are specific operators running ISAs (investors). Usually, the school/university partners with an operator who signs and handles the ISA contract with students.
ISAs have a number of advantages, as I just mentioned, but there are also some concerns: that the money only goes to fund elite institutions, or that there is discrimination, or that ISAs are “indentured servitude” (in a way, if students owe a percentage of their income, it would mean that investors own… a piece of the student 😬).
ISAs being relatively new, it will take a bit more time to properly measure their impact. They are starting to be more scrutinized by authorities.
🇺🇳 Country by Country
🇺🇸 USA
Students are authorized to subscribe to Income Share Agreements in the US.
ISAs first appeared in the US. Several institutions offer ISAs as a way to pay for studies: Northeastern University, Purdue University… The Bloom Institute of Technology (formerly Lambda School) has been one of the first to make ISAs popular.
Remember that schools & universities don’t manage ISAs directly. They partner with an operator who will manage the financial aspects of the ISA with the student (like a bank for a student loan).
🇬🇧 UK
Students are authorized to subscribe to Income Share Agreements in the UK.
There is a specific regulatory framework for ISAs in the UK. Only one operator is authorized so far (StepEx).
🇫🇷 France
Income Share Agreements are not developed in France. The regulatory framework is still not clear.
Grants and Scholarships
From the student’s point of view, grants and scholarships are the best option to finance their studies. Why? Because by definition they don’t have to be repaid! It’s basically free money.
Of course, not everyone qualifies to get them. There are usually some rules: if you come from a socially disadvantaged background, you are more likely to get a grant or scholarship. There are also special grants if you have a disability.
Grants vs Scholarships
The words “scholarships” and “grants” are used interchangeably (people tend to mix them up), but there is a little difference:
Grants are based exclusively on financial needs. Only students who are financially underprivileged will get grants.
Scholarships can be based on financial needs but also other criteria, including merit (you have to be among the best students to qualify for a scholarship), and also sometimes athletic performance.
Grants and scholarships can pay all or just part of a school’s fees. Sometimes, students will combine them with loans or other financing options.
Who Offers Them?
There are many sources of scholarships:
The school or university may offer scholarships directly. Well-established universities like Harvard have funds for talented students.
Non-profit and charitable trusts, that can be established by wealthy individuals or companies (the Gates Millennium Scholarship, the Coca-Cola Scholarship…)
Governments may offer scholarships
Foundations
Labor/trade unions
Chambers of commerce
etc.
There are so many options that there are tools to search for scholarships like Scholarships.com!
🇺🇳 Country by Country
🇺🇸 USA
There are lots of scholarship options in the US to help students finance their higher education. There is a lot of money coming from charitable trusts and foundations established by companies and wealthy individuals. It is quite common to see millionaires and billionaires devote a lot of their wealth to funding scholarships.
The federal government also offers scholarships through Title IV (which is the name of the federal student aid programs). Title IV contains 9 parts, which offer a broad array of financing options, including loans and scholarships/grants. Pell Grants are one of them.
🇬🇧 UK
Scholarships in the UK have been a traditional way of providing access to study supported by a wide range of trusts. Similar to the US, these charitable trusts are administered by industry and wealthy individuals as well as universities.
Some scholarships are available from:
Industry to attract the best talent
Universities based on academic excellence, sporting achievement or musical talent
Other scholarships are based on personal circumstances, eg where you live, what school you attend or what your parents do, to encourage and promote diversity particularly in the older, more historical universities such as Oxford and Cambridge. More traditionally, scholarships are granted on the basis of financial need. Demand for those is always high and increasing.
Overall there has been an increased awareness of the benefits that scholarships bring to create a more diverse, inclusive and accessible educational platform.
🇫🇷 France
In France, scholarships have existed since the beginning of universities (back to the XIIIth century!).
Today, scholarships are handled by the CROUS/CNOUS for the Ministry of Education and the Ministry of Higher Education. There are social criteria that you have to meet to access them. There are also additional scholarships based on merit.
On top of this, regions, departments and even cities can offer scholarships.
