WASHINGTON, D.C, March 4th, 2008—The Board of Executive Directors of the World Bank today approved a $300 million loan to support Colombia’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.
“For economic growth and poverty reduction, both public and private institutions will be needed in order to double enrollment in higher education in Colombia,”—said Axel van Trotsenburg, Director of the World Bank for Mexico and Colombia—and added “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. 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.
This is the first operation to be approved under the Bank’s new maturity policy. The new operation will be swapped from dollars into pesos to avoid cash flow difficulties in the future.
“By extending the maturity and customizing the repayment of the loan we are helping ICETEX in aligning the repayment of the loan to the one offered to students after graduation, contributing to the financial viability of a student loan system that benefits low income students,” van Trotsenburg added.
The loan –with a repayment maturity of 22.5 years-- is the first under a new policy which extended the policy limits for maturities of World Bank loans.
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.
ICETEX is offering students favorable lending rates and conditions that are not currently available in the private student loan 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.