Effectiveness of the reforms of student financial aid in the 2010s

The National Audit Office has audited the achievement of the objectives set for the most important reforms of student financial aid in the 2010s, their impacts on central government finances, and the reliability of the knowledge base of the reforms. Students are paid study grants and general housing allowance for more than EUR 1 billion a year. In addition to the direct benefit expenditure, the reforms of student financial aid can be reflected in central government finances through changes in employment. However, the effectiveness of the reforms of student financial aid has been assessed only marginally.

The audit was targeted at the structural reform of the student financial aid scheme in 2011, the student loan compensation and the increase in the study grant in 2014, and the housing allowance reform and the increased emphasis on loans in student financial aid in 2017. The reforms aimed to improve the adequacy of student financial aid, to increase the use of student loans, to speed up studies, and thereby to promote a positive employment trend.

Based on the audit, significant unforeseen expenditure have arisen from the student loan compensation introduced in 2014 and the transfer of students from the housing supplement of student financial aid to the general housing allowance in the 2017 reform. The additional expenditure estimate made for the housing allowance reform had been exceeded by at least EUR 75 million by 2018 and the additional expenditure estimate for the student loan compensation by EUR 48 million by 2021. The expenditure on benefits targeted at students increased after 2017.

The overrun of the expenditure estimates is explained by the use of outdated information on students’ accommodation costs in the preparation of the housing allowance reform and the fact that more students than expected probably moved to more expensive accommodation after the housing allowance reform.  The student loan compensation, in turn, has increased the use of student loans more than expected. However, the student loan compensation is likely to shorten the degree completion times, which has a positive impact on employment and central government finances.

The income of those receiving student financial aid has improved based on Kela’s income data, as real income increased at all levels of education during the 2010s. Labour income is the most important source of income for the recipients of student financial aid. The adequacy of student financial aid should be monitored based on personal level data to provide up-to-date information on the income formation of the recipients of student financial aid by income type, household type, and region. It would also be important to conduct a register-based study on the impact of working during studies on future employment.

The audit findings suggest that the increased use of student loans has increased financial management problems, particularly among vocational students. The indebtedness of students may have a negative impact on employment and central government finances if debt problems reduce the incentives for young people to undertake further education after upper secondary education. The issue should therefore be examined based on registers. It would also be important to seek ways to increase the loan security of upper secondary students.