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Rethinking student loan repayment burdens: evidence from Korea

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

ACDE Seminar

Date & time

Tuesday 01 May 2018
2.00pm–3.30pm

Venue

Coombs Seminar Room B, Coombs Building 9, Fellows Road, ANU

Speaker

Dung Doan, Research School of Economics, ANU.

A burgeoning pool of research argues that time-based repayment student loans (TBRLs) create an excessive repayment burden (RB), and thus contribute to hardship and a high risk of default among low-income graduate debtors. This view relies on calculations of RB as a proportion of a debtor’s earnings required to repay a student loan.

This paper explains that this conventional measure of RB depends on a set of restrictive assumptions that are unlikely to hold in practice in many countries. Using the Korean Labor and Income Panel Survey 2011-2015, it shows that the repayment-to-income ratio potentially overestimates the difficulty associated with repaying TBRLs, especially for those at the bottom of the graduate income distribution. Four alternative measures of RB are proposed that consistently suggest a more affordable RB, less inequality in RB across the income distribution, and a less volatile RB over a debtor’s life-time.

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