Buying Down Loans For Education

The “Buying Down Loans for Education” Report, supported by the Global Partnership for Education (GPE) explores the viability of buying down loans as one mechanism among others, to increase funding to ensure inclusive access and improved learning in education. Buy-downs are an arrangement whereby a third-party pays down part of a loan (by softening the terms of the loan or reducing the principal outstanding) for the borrowing country on behalf of the lending organization, thereby releasing the borrowing country from all or some of its future repayment obligations.

Buy-downs have the potential to “crowd in” resources for basic education, especially for those countries that have serious basic education challenges and the ability to take on some debt. This experience now becomes much more relevant as grant aid declines and as aid terms harden, both for education in general, and for basic education. Buy-downs can help to keep education “competitive” with other sectors, all of which will try to adapt to the tougher aid environment.

Drawing on recent evidence, a literature review and interviews with experts, this report provides as background the necessary contextual information of the basic education needs of low- and middle-income countries; trends and prospects in aid and concessional finance for basic education; and the basic mechanics of buy-downs, along with a description of the limited experience of their actual use in various sectors, especially health. It provides recommendations regarding the next steps that can be taken to further assess the potential of buy-downs.

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