Higher Education Financing and Inequality The Critical Role of Student Loan Scheme Design: Illustrations from Indonesia, Vietnam and Thailand

Arndt-Corden Department of Economics

Event details

ACDE Seminar

Date & time

Tuesday 07 May 2013
2.00pm–3.30pm

Venue

Seminar Room B, Coombs Building, Fellows Road, ANU

Speaker

Bruce Chapman, ANU
Higher education is a critical engine of growth in all countries and has become particularly important with respect to the recent success of many of the emerging economies of South and East Asia. It is also the case that access to higher education is a key issue concerning economic inequality and poverty. What follows examines the role of government in the financing of higher education expansion, a matter of great significance in ensuring the maintenance of recent economic growth successes in many countries. It is explained that having government-based student loans systems with the right design characteristics is vital to the future capacity and equity of higher education. However, it is becoming clear that the use of typical (mortgage-style) student loan systems (such as those in place in Thailand and the US) have the strong potential to subject some debtors to major repayment difficulties, essentially because for many graduates incomes will be insufficient to facilitate the repayment of student loans; this implies both access and default problems. The major contribution of the paper is the illustration that these repayment issues are (or soon will be) empirically very important for three emerging economies: Indonesia, Vietnam and Thailand. The application of unconditional quantile regression methods to age-income profiles reveals that the proportion of expected future incomes required in the repayment of reasonable levels of student loans can be as high as 40-80 per cent for low income graduates in Indonesia and Vietnam, and smaller but still large for Thailand. This implies two things, particularly for Indonesia and Vietnam: relatively disadvantaged prospective students are likely to be reluctant to participate in loan arrangements with such high expected costs; and that the supply of adequate finance to underwrite the required expansions of higher education in many countries will be compromised with the use of standard student financing policy. An alternative approach to student loans which avoids these difficulties, income contingent loans, is examined, but there are key administrative challenges associated with this type of policy intervention.

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