ICETEX - the Financial Lifeline to Higher Education
Stories like Julieth’s are common. “ICETEX allows many young people to achieve their dream of studying, whether technical, technological, or professional higher education,” says ICETEX’ former President Mauricio Toro. “We have more than 574 funds that are directed for victims of the armed conflict in Colombia, for youth, for people from Indigenous populations, and people with academic merit…” Since its establishment as the world’s first student loan agency in the 1950s, ICETEX has been making higher education financially possible for populations with fewer economic possibilities and good academic performance - a core pillar of the government’s strategy for unlocking the potential of the nation’s youth through education.
Emerging from the tumultuous 1990s, Colombia made remarkable gains in literacy and schooling. Primary school enrollment neared universality by 1998, while gross secondary school enrollment rates soared from 55 percent in 1991 to 85 percent in 2004. Yet by 2002 tertiary education lagged at only 27 percent enrollment, and the continuation rate from secondary to tertiary education had halved from 60 percent in the late 1980’s to 37 percent in 2000. For ICETEX beneficiaries with refundable loans, high interest rates and the difficult economic situation in Colombia, were causing defaults and a general discontent with the institution. This gave impetus to government actions, to revisit ICETEX student loans to support more young people to attain the professional, technical, and technological knowledge and skills needed to expand Colombia’s economy.
World Bank/ICETEX Partnership for Economically Disadvantaged Students
To bridge the funding gap between ICETEX’s own resources and the financing need for tertiary education, the Colombian government reached out to the World Bank in 2002, securing a $200 million loan to on-lend to Colombia’s most economically disadvantaged and promising students. Called Access with Quality to Higher Education (ACCES), the program achieved all its targets. By 2007, 69 percent of the new beneficiaries brought in through the Program were among the poorest (compared to 20 percent in 2002), and the retention rate (not dropping out from school) among the beneficiaries of the Program was almost three times higher compared to other students. ICETEX and the World Bank continued the partnership, scaling up the Program and building on the insights of what worked and what needed to be improved.
Custom Loans to Match Students’ Realities
One of the learnings was a mismatch on the financial side of the equation between the beneficiaries’ repayment capacity to ICETEX and loan terms. Students did not earn enough after graduation to repay loans with maturities less than 16 years. In addition, it took students an average of five years to complete education, plus a year to find employment - beyond the limits of grace periods normally granted with traditional loans. “Recognizing this, ICETEX sought longer-term and improved financial conditions from the World Bank for the next phase to better match the repayment capacity of students after graduation.” said Miguel Navarro, Manager of World Bank Treasury’s Financial Products and Client Solutions. “Coincidentally, the World Bank was revamping its financial terms and conditions, including the extension of loan maturities that aligned perfectly with ICETEX's new student loan program requirements.”
On March 26, 2008, Colombia became the first country to benefit from a new World Bank policy that significantly extended loan maturities for all countries, with a $300 million loan to ICETEX. Leaning on World Bank Treasury’s deep experience in financial risk management, the team also worked to shield the loan from external financial shocks. The custom loan structure protected ICETEX against exchange rate fluctuations by converting the loan into local currency. And allowed them to manage cash flow risk by stretching out repayment terms according to the students’ repayment schedule.
Transforming Lives on Mass
The results of the second financing to ICETEX were strong. By 2014 over 187,000 students were able to access loans for higher education, 60.4 percent more students were able to graduate from higher education institutions, enrolment amongst the poorest beneficiaries increased by 26 percent, and graduation rates amongst the poorest students more than tripled between 2006 and 2013.
In 2014 ICETEX secured another $200 million for the ACCES Program and twice again in 2017 ($160 million)- 2018 ($160 million) for the “Program for Higher Education Access and Quality (PACES, in Spanish) that helped to open out the Program’s boundaries to benefit more economically disadvantaged students and expand into post graduate education.
A Testament to Sound Public Policy Choices Backed by Demand-Driven Financial Innovation.
According to ICETEX, , with women representing from 56% to 58% of beneficiaries in these periods.[1]
The innovative, custom-made financing terms, structured back in 2008, proved to be extremely robust, allowing the Program to sail through multiple global financial crises, and be reused with each renewed loan to ICETEX. As former President Mauricio Toro reiterates: “The World Bank has the possibility of lending for a longer period than when we take the debt from other places. These credits, because they are long term with these conditions, guarantee us to be able to lend to young people for a longer period.”
The long maturities were only one of the enablers for the Program to work. , driven by financial innovations that have supported its financial sustainability like (i) establishing alliances between ICETEX and local governments and private sector hence increasing sources of alternative funding, (ii) establishing dedicated funds for higher education institutions to incentivize accreditation, improve quality of education, and reduce dropout rates. This partnership also enabled ICETEX to increase its financial standing in the capital markets to mobilize private sector as an alternative source of funding, as highlighted by their Triple-A rated social bond program.
Julieth's Story Exemplifies the Transformative Power of Investing in Youth
As for Julieth, the Program has allowed her to pursue her dream towards becoming a nurse. She is even considering applying for another ICETEX loan for a graduate degree abroad or in Colombia. Her message to other students? To “fight for their dreams despite the difficulties they face. - Not to give up at the first opportunity they are told ‘no,’ but to insist.” The new generation of students like Julieth, determined to look for all the financing options to realize their dream, will be poised to form the backbone of the new Colombian society, strengthening the human capital, and leveling the playing field across regional, racial, gender or financial divides.
[1] The population considered from disadvantaged backgrounds is measured differently from the period 2003-2014 than for 2015-2023 given the change in the National Social Registry (SISBEN) that changed during those years.
