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Evaluating South Korea’s Introduction of an Income Contingent Loan Program

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Abstract

In 2010, South Korea introduced a new student loan program that was income contingent (ICL). One of the main expected outcomes of the new loan program was to provide credit-constrained students the ability to focus on their college education rather than having to work while enrolled. To this end, this study investigates the effect of ICL on college attendance as well as two first year outcomes, including students’ dropout or stop-out and working behaviors while enrolled. Using data from the Youth Panel and a difference-in-difference estimation strategy, we analyze whether or not the introduction of this new loan program improved students’ educational outcomes. Our results indicate that ICL’s introduction increased ICL eligible students’ probability of enrolling college. On the other hand, we found insufficient evidence that ICL reduces students working part-time while enrolled in college. While the findings are contrary to the policy intensions, the current study suggests areas for future research to fully understand the impact of ICL on students and to improve the loan policy.

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Notes

  1. See Table 1 for summary.

  2. While the actual take-up information is not available in the data, the study aims to estimate intention to treat. According to the MoE (2017), the total amount of borrowing under ICL was $114,700 for the first year of implementation (Spring 2010) which increased to $155,524 in 2011 and $161,388 in 2012. About 13–14% of the college students are borrowing with ICL for the average amount of $2,900 per semester to cover tuition and stipend.

  3. The variables include gender, age at high school graduation, father and mother’s education, whether or not one’s family owns business and number of people in the household for the college attendance model. For the college outcomes models, we controlled for gender, age at the entry of college, completion of military service prior to college, English and Math scores from the national exam for college entrance, parental education, family business, number of people in the household, college type (4-year, 2-year, and other) and location of the college (Seoul, Metropolitan, and other).

  4. The results were similar when the same model was estimated with logistic regression. The marginal probability of attending college ranged from 8.7% to 10.3% across the models. The results are available from the authors by request.

  5. Stop-out does not consider military leave.

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Authors and Affiliations

  1. Mary Lou Fulton Teachers College, Arizona State University, Tempe, USA

    Jeongeun Kim

  2. Iowa College Aid, Des Moines, USA

    Mark Wiederspan

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  1. Jeongeun Kim
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Kim, J., Wiederspan, M. Evaluating South Korea’s Introduction of an Income Contingent Loan Program. Res High Educ 62, 1–25 (2021). https://doi.org/10.1007/s11162-019-09579-3

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