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Another blow to the funds for public universities

Relieving the responsibility of the government to finance higher public education for Icetex debtors is the real undertone of Law 74 of 2017. This initiative approved by Congress last April 12th is now ready for the presidential signature.

The project relieves short-term Icetex new debtors with measures such as paying for the credit when they begin work and in proportional percentages of their income. However, this opens the door for this new indebtedness system to be funded with the same resources the Colombian National Budget destines for public higher education and Icetex.

The specific purpose of the initiative is that the funds of the VAT that the tax reform of 2016 destined for public universities and Icetex credits may now also fund the Higher Education Comprehensive Service Fund (Fosies, for its Spanish acronym), which will manage the funds for the new system.

When the tax reform increased the VAT from 16 to 19%, half of the three percentage points were earmarked for healthcare and the other half for education, which in practical terms meant COL $1.3 billion for each sector. Half of the percentage point earmarked for education was distributed as:

  • 40% for higher education, (approximately, COL $520 billion)
  • 60% for preschool, middle and high school education

Article 369 of the tax reform determined that 40% could also be destined for scholarship programs and loans granted by Icetex, such as the program known as Ser Pilo Paga (It pays to be an Honor Roller). However, according to Universidad Nacional de Colombia (UNal) Professor Gerardo Mejía, en 2017 of these COL $520 billion, public universities only received COL $160 billion and the remaining COL $360 billion were destined to the abovementioned program which is mainly directed at private high-cost universities.

For UNal Political and Social Sciences Professor Leopoldo Múnera, this opens the door for Fosies to get resources that were earmarked for public universities, confirming the policy of needing to get in debt to have access to higher education in Colombia.

From bank to fiscal debt

Another concern created by the bill are articles 16 –which determine the credit interest as a function of the taxable income of the revenue of the debtor and article 30 – which links the collection procedure of this rate with the tax law.

For Múnera the law transforms student loans into tax burden. Therefore, although the new system avoids generating interests on overdue payments, reports to the consumer reporting agencies and excuses applicants to have a co-debtor in some loans with Icetex, it also obligates them to pay the whole amount of the loan, including administrative, operational costs, as well as fiduciary commissions and financing expenses updated according to the inflation rate of each year.

Loans grated before the project is in force cannot be transferred to the new financing system, meaning that 406,000 current debtors cannot access the new mode.

Furthermore, it creates a fiscal mechanism for ending college desertion, as if this depended on the universities. According to a report of the Colombian Ministry of Education, desertion greatly obeys on family issues, lack of time to study and stress management. However, the bill penalizes the budget the government provides the universities, including public universities, in a manner as to apply 1% of the rate if desertion is low and 3.5% if desertion is high.

The paradox is that these funds go to a common fund which will finance both private and public universities; hence it could be a new mechanism to privatize state monies.

According to Professor Mejía, a recently graduated professional could earn around COL $ 1,500,000 of which with this model, the government takes 10% for social security and 15% to pay the loan, leaving approximately Col $ 1,100,000  to pay for housing, food clothes, transportation and maybe sustain a family; so when will they end up paying for the loan?

The same occurred with the CREE

The same happened with the income tax for equity (CREE), which increased the tax rate from 25 to 34%. Of the nine percentage points, 0.4% was initially supposed to be earmarked for higher education. But with the National Development Plan for 2016, it was increased to 0.6% but it divided the funds for public higher education as well as for Icetex loans, which also funds the Ser Pilo Paga program. That year of the COL $ 600 billion earmarked, most were destined for this program.

Consejo Editorial