Income Contingent Student Loans for Thailand: Alternatives Compared

This paper illustrates the extent of implicit taxpayer subsidies under four possible income contingent loan (ICL) arrangements for Thailand: TICAL, implemented in 2007 only, a variant of TICAL, and two alternative ICL schemes. The implicit taxpayer subsidy calculated with respect to average graduate earnings for TICAL-type arrangements is between 25-40 per cent; however, the average implicit subsidies for the two alternatives are close to zero. When account is taken of disaggregated graduate earnings, the subsidies for TICALtype schemes increase to about 30-55 per cent. The subsidy is between 3-18 per cent for our alternative ICLs, depending on the form of the real rate of interest incurred. These results show that there is a viable ICL alternative to TICAL, which are of greatest benefit for low levels of debt. When the debt is relatively large the subsidies of even well designed schemes can be as high as 50 per cent.income contingent loans; student loans; higher education financing

Reforming Youth Allowance: The “Independent-at- Home” Category

Several of the Youth Allowance eligibility criteria for independent status were subject to severe criticism in the recent Review of Australian Higher Education (2008). Specifically, it seems to be the case that many students are able to qualify for socalled “independent-at-home” financial support even though they may be living in circumstances of relative economic advantage. The paper examines the policy and statistical basis for these claims with the use of data from the HILDA survey and reports apparently strong support for the notion that the rules result in important inequities; the evidence was important to the deliberations of the Review Committee. The Commonwealth Government has recently announced changes to YA consistent with these findings.Youth Allowance; student income support; grants; “independent-athome”’ HILDA.

Thailand’s Student Loan Fund: An Analysis of Interest Rate Subsidies and Repayment Hardships

This paper presents analysis of the implicit subsidies and repayment hardships of Thailand’s Student Loan Fund (SLF). Comparisons are made between the current SLF with alternative similar schemes, assuming different rates of interest and loan repayment periods. We find that the implicit interest rate subsidy is about 66 per cent, with much of this being due to the fact that the scheme charges only a 1 per cent per annum nominal interest rate. The repayment hardships, measured as the proportion of a graduate’s income allocated to servicing the debt, are around 4 and 3 per cent, for female and male graduates earning average incomes by age. However, these increase to 12 and 10 per cent for female and males whose earnings are in the bottom deciles. The current SLF is generous in terms of repayment hardship for the borrowers. However, the scheme appears to be unsatisfactory in terms of the extent of implicit subsidies.can generate a large (non-marginal) switch to home production and the ensuing deadweight losses are large. Using a cross-country panel, we find that gender differences in labour supply responses to tax policy can explain differences in aggregate labour supply and years of education across countries.student loans; higher education financing

How Much Do Student Loan Sizes Affect Returns on Tertiary Education for Thai Persons With Disabilities?

This paper is motivated by the fact that there were about 1.5 million disabled persons in Thailand in 2011. A year later, 234,390 of them had died; many of the deaths were premature. The major causes of their deaths could be traced back to deprived socioeconomic conditions. At present, registered disabled persons are entitled to a monthly payment of 500 Baht (17 USD), and have access to low cost medical services. It is inevitable that a new initiative is needed to promote better quality of life. Access to tertiary education is one of the viable options. Disabled persons are usually credit constrained; access to sufficient student loans is, therefore, a pre-requisite to access tertiary education. Using a unique health literacy data set of Thai persons with disabilities, this paper examines how different student loan sizes affect returns on tertiary education. Propensity Score Matching is used to estimate the differences in the log of earnings between disabled persons with tertiary degrees, and disabled persons with basic education qualifications. A subsequent exercise on the effects of different loan sizes is conducted using the Thai Student Loans Fund (SLF) arrangement. The exercise reveals that rates of returns do not vary significantly with loan sizes. These findings suggest that promoting greater access to tertiary education for disabled persons will be beneficial to individuals, as well as the society at large. Supplementary in-depth interviews highlight the importance of post-graduation placement services

Illustrating the Trade-Off Between Interest Rates and Aggregate Loan Recovery of the Student Loans Fund in Thailand

Previous research has consistently identified strong associations between borrowers' debt burdens relative to incomes and the decision to default on student loans (Dynarski, 1994; Volkwein and Cabrera, 1998; Choy and Li, 2006; Gross, Cekic, Hossler and Hillman, 2009). These analyses imply that there is very likely to be a trade-off between interest rate subsidies and the ability to recover loans. For example, by raising the interest rate, the loan-administering agency is able to recover a higher proportion of the loan disbursed to borrowers who repay the loans at the new level of interest; however, the higher interest rate will also increase the repayment burdens experienced by all borrowers. As a result, some debtors may find it hard to devote more income than they already have to repay the loan, and hence will default. Thus, there is a trade-off involved in the determination of the total amount of loans that can be recovered for a loan scheme. It is of great research and policy interest that, with the exception of Lounkaew (2011), this trade-off has not been explored in a rigorous manner, either conceptually or empirically

Explaining urban-rural differences in educational achievement in Thailand: Evidence from PISA literacy data

Using the Thai PISA 2009 literacy test, this paper offers two contributions to the literature on the achievement gap between students in urban and rural areas. The first contribution relates to the estimation of the student-level education production fun

Modeling Aggregate Loans Recovery of the Student Loans Fund in Thailand

This chapter contributes to the student loan literature by providing empirical evidence of the trade-off between interest rate subsidies and expected aggregate loan recovery. In particular, the paper explores the potential impact of eliminating, or radically reducing, interest rate subsidies of the Thai Student Loans Fund (SLF), which takes a mortgage-type form. Three important policy implications can be drawn from the exercise. First, the consumption premium exercise stipulates that obligation to repay the loan should not involve more than 8 to 10 per cent of borrower�s income. Second, it has been found that an attempt to solve the high interest rate subsidies problem by setting the real rate of interest to 3 per cent is not a viable option because it is very expensive for taxpayers given the association with loan repayment obligations and default probabilities. The model predicts that, at this level of real interest rate, the expected loan recovery rate will be around 40 to 50 per cent. Third, the current design of the SLF does not facilitate consumption smoothing because it does not adequately take into account the variations in the labor market outcomes of Thai university graduates. It is argued herein that these deficiencies can be addressed by moving from a mortgage-type loan to an income contingent loan

Essays on economic analysis of student loans

"This thesis contributes to the student loan literature by addressing the issues of interest rate subsidies and repayment burdens; it also demonstrates both conceptually and empirically how the interactions between these two components form the basis for trade-off for government between the interest rate charged on student loans and the expected aggregate loans recovery. Chapter 2 measures the extent of interest rate subsidies implicit in the design of Thailand's 2006 scheme, Thai Income Contingent Allowances and Loans (TICAL), and two alternative hypothetical income contingent loan (ICL) arrangements. The subsidies for TICAL-type arrangements and for a typical debt size of 200,000 Baht are between 25 and 40 per cent on average, but about zero for the alternative ICLs. With a disaggregated earnings approach and typical current debts, subsidies for TICAL-type schemes are estimated to be about 30 to 55; the two alternative ICLs are associated with interest rate subsidies of 3 and 18 per cent. With very large debts, however, the subsidies of all schemes are as high as 25-60 per cent. The results from two alternative ICLs suggest that, with appropriate first repayment arrangement and effective collection agency, ICL can be a viable option for a moderate level of debt. Chapter 3 attempts to estimate empirically optimal levels of interest rate subsidies. Based on Diamond and Mirrlees (1971) Production Efficiency Theorem and Bovenberg and Jacobs (2005)'s optimal income tax and subsidies model, the chapter proposes several empirical strategies to make the model operational. It is found that if policy-makers chose to use this mechanism to correct the distortions associated with the imposition of income taxes on graduates, the current implicit interest rate subsidies on Thai student loans would be considerably lower than they currently are, but not zero. Chapter 4 contributes to the student loans reform debate by demonstrates empirically the inverted u-shaped relationship of this trade-off using current Thai Student Loans Fund (SLF) repayment arrangements as a case study. The empirical exercise reveals that with a typical loan size of 200,000 Baht and repayment burden of 8 per cent, the maximum expected aggregate loans recovery is about 40 per cent; this means that interest rate subsidies are in the order of 60 per cent. Given the fact that the expected aggregate loan recovery of the SLF is around 35 per cent, any reform in the context of current SLF design will not offer much improvement in terms of collection. There is a clear policy implication from these exercises. A mortgage-type loan such as the SLF does not function properly as a student loan. Generous subsidies offered by the scheme make it a grant system, requiring financial support from the government. An ICL arrangement similar to the two hypothetical ICL schemes proposed in Chapter 2 can offer a potential improvement in terms of reducing interest rate subsidies. This new ICL scheme can be implemented through the existing social security system whose coverage is as extensive as the tax system." -- provided by Candidate

Income Contingent Student Loans for Thailand: Alternatives Compared

Thailand, Income Contingent Student Loans, Higher Education

The effects of different loan schemes for higher education tuition: An analysis of rates of return and tuition revenue in Thailand

In recent times there has been considerable change and instability with respect to Thailand student loans policy. The contribution of what follows is to compare and contrast the consequences of disparate possible approaches to the payment of tuition in two main respects: the effect on internal rates of return for higher education investments; and the implications of different approaches for the time stream, and thus the present value, of tuition payments to the government. The authors find that, in general, income contingent loans are preferred to the current scheme, although this would not be the case if such a policy reform is poorly designed