Kiatanantha Lounkaew

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.

How Many Jobs Is 23,510, Really?

It is commonplace in Australian policy debate for groups presumed to be adversely affected by proposed policies to provide estimates of the undesirable consequences of change. A highly public example of the above is the claim by the Minerals Council of Australia (MCA), based on work done in 2009 by Concept Economics (2009), that the then-planned Emissions Trading Scheme (ETS) would result in 23,510 fewer jobs in Australian mining than would otherwise be the case. Our research reports findings using three different data series and methods, and presents analyses aimed at improving the understanding of, and putting into an aggregate economy context, the projected mining sector “job losses” as a result of the 2009 planned ETS. The essential points concerning the size and meaning of mining sector employment effects should not be in dispute; the alleged “jobs loss” aspect of the climate change policy debate is not in any sense important to the overall policy discourse. Our major motivation lies well beyond the potential mining jobs implications from the ETS, which is used only as an example to illustrate the use and misuse of employment data in policy debate.

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.

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.