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Financing tertiary education in Indonesia: assessing the feasibility of an income-contingent loan system

Abstract

This paper examines the feasibility of an income-contingent loan system to finance tertiary education in Indonesia. Using graduates’ income data from the 2015 National Labor Force Survey, we modeled the life-cycle income distribution of university graduates using unconditional quantile regression. We used these estimates to simulate different income-contingent loan (ICL) schemes to observe the effect on the amount of repayment, length of repayment, government subsidy, and repayment burden of males and females in different quantiles of income. We simulated three loan schemes: without real interest, with a 25% surcharge on the total loan, and with 2% real interest. Implicit government subsidy was lowest with the 25% surcharge scheme. Results showed that ICL with a lower repayment burden is feasible in Indonesia and can increase access to tertiary education. We also discussed the administrative capacity among tax authorities.

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Notes

  1. 1.

    The use of age 22 comes from the 16 years required to graduate with a 4-year university education, including 12 years of primary and secondary education, assuming a student first enrolls in school at the age of six (i.e., 22 = 16 + 6).

  2. 2.

    In Dearden (2018), the dataset used has an average of 330 individuals per age transition for men and 400 for women.

  3. 3.

    The IFLS contains a total sample of 1015 university graduates aged 21 to 60 that we observe in at least two waves. The average sample for each age is 25 (10 females, 15 males).

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Correspondence to Daniel Suryadarma.

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Elmira, E., Suryadarma, D. Financing tertiary education in Indonesia: assessing the feasibility of an income-contingent loan system. High Educ 79, 361–375 (2020). https://doi.org/10.1007/s10734-019-00414-3

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Keywords

  • Income-contingent loan
  • Student loan
  • Tertiary education financing
  • Indonesia