Raising income caps for student financial aid could cost 100 million euros, Etla warns

A GOVERNMENT PROPOSAL raising the income caps associated with student financial aid would result in at least a €100 million increase in public spending if the increase translated into a one-year increase in the average time to graduation, according to Etla Economic Research.

The Finnish government agreed earlier this month to permanently increase the annual limit by 50% to around 18,000 euros.

The Ministry of Finance estimated in a document attached to the proposal that the amendment would increase the number of people employed by around 2,500 and have a net positive impact of €12 million on the public economy. His estimate, however, was based on the assumption that the amendment does not increase the average time to earn the degree.

“The measure’s impact calculations have been made to look positive only on the assumption that work does not increase time to graduation,” Etla research adviser Tarmo Valkonen wrote on Feb. 16. .

“It is impossible to believe that this extra work does not have an effect on the studies. If this were not the case, it would be advisable to abolish the income limits entirely.

Valkonen argued that an increase in the time it takes for students to graduate will hurt both students and the public economy – students because the pay for work while in school is on average considerably lower than for work. after graduation and public economics because an annual increase in graduation time would increase public expenditure by around 100 million euros.

The impact on public finances has been demonstrated in a study by Valkonen and Jukka Lassila of Etla in 2021. It is explained not only by the differences in wages and working time before and after graduation, but also by tax progression and the longer-term use of security benefits social by students.

The calculation did not take into account costs incurred by education providers or consumption tax revenue lost to the central government.

Valkonen also argued that the proposed amendment also treats students unequally.

“It’s most beneficial for high-paid students, who have a better opportunity to work more without extending their studies. On the other hand, [it] does not benefit students who struggle to cope with their studies on time while working to the extent permitted by current income caps,” he wrote.

“In light of the obvious problems detailed above, increasing student financial aid income limits has met with surprisingly little criticism from the public and particularly from policymakers, given that its effects are likely to go to against the government’s own objectives.”

Aleksi Teivainen – HT