Want less student debt? Introduce student grants!

Few people outside of Finland know much about the Finnish university system. If there is one thing they know, though, it is that it is free (of tuition fees, that is.) There is no tuition fee for any domestic students or EU students, though a tuition fee (4,000-18,000 € according to this website) is charged from non-EU students. No serious plans exist to impose domestic (EU students included) tuition fees.

However, in addition to this, the state also offers student aid to all students. In many countries, students get on entirely by government-backed student loan. One such country is, of course, the United States, where student loans can balloon to considerable sums. The burden of such loans, and campaigning from the American left, recently led to Biden administration implementing a partial student loan debt freeze and forgiveness program.

In Finland, student loans also exist. However, they only form a part of student aid. The way the idea of student aid is conceptualizes is that the state provides all students a living in the form of student aid, a part of which is partially a direct student grant for living expenses (apart from rent, there’s a different mechanism for that) and partially a government-guaranteed loan.

In 2017, the then-in-power government decreased the direct student grant to approx. 250 € / month from the previous maximum benefit of 336 € /month. It has since increased to approx. 280 € / month.

In theory I guess one could just get on by on 280 € / month (taking in account the separate benefit for covering housing costs), though in practice you take loans. Or have a parent or other relative give you money, or work part-time while studying, or in the richest-paying fields get enough money by working the summers that it suffices for the rest of the year. Still, most students end up taking loans – approximately 58 % of all student support receivers in 2019.

One could make the argument that the chief function of the direct grant is keeping the amount of student loan debt manageable and payable. While the Finnish government decreased the grant, they simultaneously increased the amount of student loans guaranteed by the government by a roughly similar amount – the student benefit, in theory, stayed the same, a part of it just became loans instead of grants. As a result, the amount of student debt has increased considerably.

Considering the even higher amounts of student debt in the US, it is understandable that the student debt question is important to the American Left (well, that covers a clear majority of the current American left anyway). Student debt forgiveness is also evidently a popular demand.

Some of the criticisms of debt forgiveness ring true. It is true that those who have dutifully paid their loans do not benefit, those who skimped on down payments do. This text was inspired by Matt Bruenig asking me about the Finnish student benefit system, and Bruenig has criticized debt forgiveness as a policy measure, while simultaneously admitting that within the current American system there might not be other easy alternatives.

However, more importantly, it’s not a good way to make policy with supposed “one-time” jubilees, since they just create an expectation that such jubilees will continue, leading to bad incentives - chiefly for the US government, which now has a tool to bring down student discontent instantly whenever there’s trouble in the universities or among graduates. Such a tool would be useful not only to Democratic presidents, but also unorthodox Republican ones like Trump.

Of course, there are all sorts of difficulties when implementing such a policy in America, as there always are, starting with the fact that university system is more uniform in Finland than the hodgepodge of public and private institutions that exists in the US. Naturally, this would only affect cost-of-living issue, not the tuition – that is a question of its own.

Even when it comes to student benefits, there would probably be a constitutional roadblock to federal direct student benefits. It seems that student debt relief, too, might get in trouble with the Supreme Court. I am certainly not enough of an expert in the American constitution to know how it will all end out, and it would be odd if I would be.

Still, whether on a federal level or a state level, or some local level, if one wants to combat debt, the best way to do it is at the source – by reducing the amount of debt one takes. A monthly grant, even a small one, like in Finland, would be one way to do it. It could be combined by stricter limits on the amount of government-backed debt, to balance it out.

It would not help those with existing debt, but then again, those are the ones who just had their debt reduced. Indeed, at some point US might simply have to find a way to implement something like this, just to avoid an endless cycle of student debt growing until it reaches some breaking point (due to external events, or otherwise) and then being followed by haphazard, politically motivated debt forgiveness.

Image: Midjourney, with the following ChatGPT-generated prompt: “Create an image that showcases the contrast between the Finnish and American university systems, with a focus on student debt and financial aid. On one side, depict a Finnish student receiving a mix of grants and loans, with a manageable debt load. On the other side, portray an American student burdened by a heavy debt load, possibly with a partial debt forgiveness symbol. In the background, include elements representing the Finnish and American education systems, such as university buildings and flags. This image will capture the essence of the article and illustrate the differences in financial support for students in Finland and the United States.” It didn’t do what it was told, but I still liked the result well enough.