Loans to Grants: University Funding Plan for a New Venezuela

No more student loans. No more paperwork. The Venezuelan government’s done away with them. From now on, the process for higher education funding is purely electronic, and those selected by Fundayacucho software go to college for free.

By Simone Baribeau - Venezuelanalysis.com
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“As Victor Hugo says in Les Miserables, while a woman has to prostitute herself because of hunger, a child loses himself in darkness for lack of education and a worker is exploited by capitalism. Books like this, like Les Miserables, have not been [written] in vain,” comments Venezuelan President Hugo Chávez on his five-hour weekly television show, which is riddled with literary quotes and a segment akin to Oprah’s book club.

With his military roots, dark complexion, and direct manner, Chávez doesn’t have to worry about being confused with Venezuela’s elite. So when he speaks about education, Venezuelans don’t appear to hear talk about a pass-time of the well off—as university study has been portrayed by some US politicians—but rather of a human right which had been poached by the upper classes.

And Chávez’s pro-education banter isn’t just rhetoric. Higher education hasn’t been more within the reach of the majority of Venezuelans for decades. Between 2000 and 2003, according to the World Development Index, the number of Venezuelans enrolled in college as a percent of the college aged population jumped 11 percentage points to 39%—well exceeding the regional average (which, according to the most recent numbers, Venezuela still lags behind in primary and secondary education, despite recent improvements). This comes after a decade where the percentage of Venezuelans enrolled in tertiary education fell by one point.

According to officials, increased enrollment is due, in part, to the gradual growth in higher education institutions in Venezuela, and the creation of the Bolivarian University, a free college with a liberal admissions policy, similar to community colleges in the US. 

But the newest development to encourage students to seek higher education isn’t so much a development, but a return to the 1980s, when those seeking tertiary education were funded by the state: the Venezuelan government’s student loan program, Fundación Gran Mariscal de Ayacucho (Fundayacucho), has announced that it will no longer lend money, but is instead giving out about 13,500 grants to students in the 2006 academic year. The grants will be worth $38 to $47 million combined, up from about $28 million in loans and grants given out in 2005.

“This year we were planning to reduce the interest rates to 3%, the lowest we could, but still people had to pay. But President Chávez [told us], ‘No, higher education cannot be paid, not even a Bolivar should be paid, it’s our duty to make it free, it’s a constitutional provision.’ ‘Okay, President, they won’t pay anymore, okay, very good,’ [we told him],” said Jorge Arreaza, president of Fundayacucho.

This vision of higher education stands in sharp contrast to that of the foundation’s leadership in the early 1990s, when then Fundayacucho President Leopoldo López Gil approached the World Bank to help the foundation change its program from grants to loans. A commercial bank then determined which students would be able to repay their loans, even though all money continued to come from the state.

Jamil Salmi, Coordinator of the World Bank’s Network of High Education Specialists, said the goal was to ensure the financial health of the program. Money lent out one year would be repaid by students in future years to be used to finance future students’ education, helping the program to be more self sustaining. 

“We were the managers of a bank, not a political person interested in social change, in making people study,” said Arreaza of the program in the 1990s. Arreaza argued that before World Bank involvement, loans were given out at a ¨social¨ interest rate, but after Bank involvement, the interest rate reached 58%.


These interest rates, combined with what was in some cases dollar denominated debt and a falling exchange rate, made it very difficult for some students to pay back their loans.

One of these students, Grecia Delgado, took out a loan in 1999 to get her master’s degree in Connecticut in Neurological Rehabilitation. She received a loan from Fundayacucho, but it only covered part of her studies. When she initially found work after returning, it paid Bs 6,000 an hour (approximately $3.00), and she paid Bs 350,000 (approximately $175) a month back to the foundation every month, a huge slice of her salary.

“They’re now treating education like an investment in the country, rather than like a bank,” she said, adding that monthly payments on the loan had been a hardship.

But the original decision to switch from grants to loans was not only to ensure the financial health of the program, but in response to the view that students studying abroad on grants came from the upper classes and did not always value their education because it cost them nothing.

“When Venezuela was very rich in the 1980s, they started sending people with lavish scholarships to Canada and United States. Students didn’t realize what they’re getting. I talked to admissions officers, and they said Fundayacucho grants were the best thing ever to happen to the Venezuelan students. They’d drive around in expensive cars, and not focus on their studies,” said Salmi, adding that the grants normally went to those who were already well off.

One of the goals of switching the program from grants to loans, Salmi said, was to increase the number of low-income students receiving aid. While the bank running the program required two guarantors from students from higher income families, Fundayacucho itself could be the guarantor for poor students. Fundayacucho also organized a media campaign to encourage low-income prospective students to apply.

Fundayacucho officials challenged the effectiveness of these measures, saying that most low income students were eliminated by what they characterized as a classist test, and even though in some cases Fundayacucho could be the guarantor, that requirement still  proved prohibitive for some students. But according to a document provided to Venezuelanalysis.com by Fundayacucho, between 1995 and 1998, out of five income groups, those selected by Fundayacucho in the bottom two brackets rose from 5 percent to 40 percent.

Fausto Torella, the Fundayacucho’s Vice President of Operations said that the numbers refer only to those selected by Fundayacucho, not those who ultimately signed an agreement. “The loans never benefited low income people,” he maintained.

Another issue with the grant program, which remained a problem even as it changed to loans, was that students who studied abroad were unable to find jobs in Venezuela in the fields they had studied. The situation was so common in the 1980s that unemployed grantees of Fundayacucho started a group called the Association of Unemployed Former Scholarship-Holder Professionals, whose membership numbered in the thousands.

Even when students found jobs, many did so only after extensive job searches. Delgado, the student who studied in Connecticut, is now the Coordinator for the Department of Research for Graduate Studies at the University College of Rehabilitation May Hamilton, but in 2001 she was unemployed for a year while searching for work, and then initially found only a part time teaching position. 

Arreaza said that the foundation is going to address this problem by giving grants for fields of study where Venezuela is hiring and focusing on job placement. “When we select the students, we’re going to be sure that there’s some area in Venezuela that they can come back and work in…we’re going to keep in touch [with our students], not only to know if [their] grades are adequate, but…[also] what [they’re] researching, so when [they come] back we can help [them] find a job in the state or in the private sector,” he said, contending that this policy would also help fight the brain drain.

Another difference with this program, versus the previous grant program, is that the focus is on domestic rather than foreign studies. Of the 13,000 scholarships, all but 500 will be undergraduate, which will be granted for studying inside Venezuela. The 500 postgraduate fellowships will be split between foreign and domestic.

“When the [Foundation] started in 1974… in Venezuela there weren’t enough universities, nor were there enough graduate programs for people to get their master’s…As time passed, undergraduate programs, higher technical schools, and master’s programs in Venezuela grew, and so we were no longer dependent on outside education for these programs because we were already working on this. But we still don’t have everything we’d like, so we’re complimenting the program with [grants for foreign schools],” said VP of Operations Torella.

Arreaza also said they were going to address the problem of corruption within the program. “There’s a big difference between the past governments and this one. Past governments worked for the elite…and so they helped…the children of their friends…But this government is related to the people, so…I wouldn’t help a friend [or] a cousin [or] my brother…I want to [help] the poorest of the poor study, we’re a different kind of government, so it’s not going to happen again.”

Arreaza conceded, however, that corruption within Fundayacucho had already been a problem under the Chávez administration. “The last [Fundayacucho ] president…was from a political party, and she benefited the people from the party, the MVR, which is a party I respect, but you cannot give the forms only to people [of your party]. It was really corrupt. We changed it.”

Among the mechanisms Fundayacucho is going to put in place to control corruption is an internet based application system. Any student with internet access will be able to apply using a short online form, which will weigh factors such as desired field of research, family income, state of residence, grades, and parental status. Fundayacucho’s software will then generate the list of students who receive grants, though, at the graduate level, applicants of the computer generated list will also be interviewed. 

According to Arreaza, the purpose of the fund is not only making higher education more obtainable, but to expand internet access throughout the country. “Chavez didn’t like the [idea of applying by] internet because he said, ‘Well, poor people don’t have access to the internet,’ so I asked him to give us the opportunity to demonstrate that we can also democratize it. So we are going to go to the smallest towns to make people apply for the grants,” Arreaza recounted.

Starting the 22nd of this month, he said, he and his staff will travel to remote regions of the country, setting up internet stations and encouraging people, particularly indigenous, to apply for scholarships.

In Petare, a run-down barrio in the far east of Caracas, students hadn’t yet heard of the changes in the program, but liked the idea.

Matilde Suárez, a teenage girl working at one of the many stalls that lined the street, had dropped out with one year of high school left to finish. She looked surprised when asked if she wanted to go to college. “Of course,” she said. “I want to study teaching or criminology.”

“Now that there’s no obligation to pay [for college]…they’ll teach more [of us],” she said, commenting on Fundayacucho’s return to grants. She was planning on returning to school the next year.

“It’s important because low income students can study with the grants, go to university,” agreed Luis Flores, who had three more years left in high school. He said he didn’t want to go to university, but that, even so, the program was important to him personally, because he wanted the option to be open.

Future college students aren’t the only beneficiaries to the grant program. Former recipients of loans are seeing their debt forgiven.

“Those who owe money [to the Fund], now they owe nothing,” announced Chávez earlier this month.

Some have criticized the debt relief as a giveaway to the upper classes, who received most of the loans. “By and large students from rich communities are going to benefit from [the debt forgiveness], unless [it is] targeting [students based on income],” said World Bank Education Coordinator Salmi.

However, the relief is across the board. And Fund officials admit that largely this is a subsidy to the wealthy.

“It’s going to benefit the middle class and upper class, but in terms of socialism we cannot judge a person for the class he comes from…We have to look to the future and those people who already [received a grant or loan from Fundayacucho] we’re going to approach them and try to make them work with the state to teach in the public institutions,” said Arreaza, saying that they would encourage people to work in the government’s social missions or provide free services to low income people out of their own offices.

Recipients of the debt forgiveness reacted positively to the news. “That was a huge surprise. I’m really happy,” said Grecia Delgado, the physical therapist. “It’s an investment in the country.”