Abstract
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.
| Original language | English |
|---|---|
| Title of host publication | Contemporary Issues in Microeconomics |
| Editors | J E Stiglitz and M Guzman |
| Place of Publication | New York, USA |
| Publisher | Springer |
| Pages | 169-183pp |
| Volume | 1 |
| Edition | 1st |
| ISBN (Print) | 9781137529701 |
| DOIs | |
| Publication status | Published - 2016 |