Income-Contingent Student Loans for Thailand: Alternatives compared

Abstract

In Thailand there is an ongoing debate concerning the most desirable form of higher education financing, with the critical concern being the form such a loan scheme should take. Conceptually, there are two generic possibilities: a mortgage-type loan, in which repayments are made on a consistent basis over a set period; and an income-contingent loan, in which the level and timing of repayments depend on a borrower’s future income stream. From 1996 to 2006, Thailand’s preferred approach to higher education financing took the form of a mortgage-type loan known as the Student Loans Fund (SLF). The SLF involved targeted funds being allocated for both income support and tuition, with a time-limited repayment period of 17 years after graduation. Piruna et al. (2008) analysed the SLF with respect to two important dimensions: taxpayer-financed interest rate subsidies; and measures of so-called ‘repayment hardships’—calculations of the proportion of borrowers’ future incomes that would need to be allocated to SLF repayments. Very similarly to the findings of Adrian Ziderman and others, Piruna et al. (2008) conclude that the SLF is associated with very substantial subsidies—perhaps of the order of 65 per cent. The source of the subsidy can be traced overwhelmingly to the interest rate regime. Consistent with these high subsidies, and in a unique contribution, they find also that the SLF has low rates of repayment hardship of about 4 per cent on average and only about 10 per cent for graduates whose future earnings are very low. In short, the SLF is a very generous scheme for students. Show more