Reducing Inequality, Boosting Mobility and Productivity
Edited by David Neumark, Yong-seong Kim and Sang-Hyop Lee
Chapter 5: Korea’s college loan program
The aim of this study is to improve a college loan program in Korea by investigating an impact of the program. It considers a simple theoretical model to compare each level of human capital investment among various financial aid programs. It estimates the effect of the program on students’ academic achievements and the characteristics of defaulters. Empirical results suggest that the recipients of the government’s Income Contingent Loan (ICL)program show better academic performance than recipients of the General Student Loan (GSL) program. With regard to default, the probability of delinquency of students who receive a loan for living expenses and tuition becomes higher than that of students who receive a loan for tuition. These findings suggest that the ICL program is more effective in reducing the student’s financial burden, and the repayment system should be improved. Nonetheless, a rapid change of the GSL to the ICL may cause a financial burden to the government budget. Thus, a gradual change of student loan policy is required.
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