Skip to main content

Illustrating the Trade-Off Between Interest Rates and Aggregate Loan Recovery of the Student Loans Fund in Thailand

  • Chapter
  • 851 Accesses

Part of the International Economic Association Series book series (IEA)

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.

Keywords

  • Interest Rate
  • Cumulative Density Function
  • Default Rate
  • Marginal Revenue
  • Student Loan

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

This paper is based on Lounakew (2012) ‘Illustrating Trade-Off Between Interest Rate Subsidies and Expected Aggregate Loan Recovery: A Case of Student Loans Fund in Thailand’.

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1057/9781137529718_11
  • Chapter length: 15 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   34.99
Price excludes VAT (USA)
  • ISBN: 978-1-137-52971-8
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   45.00
Price excludes VAT (USA)
Hardcover Book
USD   149.99
Price excludes VAT (USA)

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Baum, S. and Schwartz, S. (2006) How Much Debt Is Too Much? Defining Benchmarks for Manageable Student Debt, The Project on Student Debt and The College Board, Washington, DC, USA.

    Google Scholar 

  • Chapman, B., Lounkaew, K., Polsiri, P., Sarachitti, R., and Sitthipongpanich, T. (2009) “Thailand’s Student Loans Fund: Interest Rate Subsidies and Repayment Hardships,” Discussion paper number 592. Canberra: Center for Economic Policy Research, The Australian National University.

    Google Scholar 

  • Chapman, B and Lounkaew, K. (2010a) “Income Contingent Student Loans for Thailand: Alternatives Compared,” Economics of Education Review, vol. 29, no.5, pp. 695–709.

    CrossRef  Google Scholar 

  • Chapman, B. and Lounkaew, K. (2010b) “Repayment Burdens with US College Loans,” CEPR Discussion Paper No. 647, Australian National University, Canberra, Australia.

    Google Scholar 

  • Chapman, B., Lounkaew, K., Polsiri, P., Sarachitti, R., and Sitthipongpanich, T. (2010) “Thailand’s Student Loans Fund: Interest Rate Subsidies and Repayment Burdens,” Economics of Education Review, vol. 29, no. 5, pp. 685–94.

    CrossRef  Google Scholar 

  • Choy, S.P. and Li, X. (2006) Dealing with Debt: 1992–93 Bachelor’s Degree Recipients 10 Years Later, NCES 2006–156, National Center of Education Statistics, US Department of Education, Washington, DC, USA.

    Google Scholar 

  • Dynarski, S.M. (1994) “Who Defaults on Student Loans?: Findings from the National Post-Secondary Student Aid Study,” Economics of Education Review, vol. 13, no. 1, pp. 55–68.

    CrossRef  Google Scholar 

  • Eaton, J. and M. Gersovitz (1981) “Debt with Potential Repudiation: Theoretical and Empirical Analysis,” Review of Economic Studies, vol. 48, no. 2, pp. 289–309.

    CrossRef  Google Scholar 

  • Gross, J. P.K., Cekic, O., Hossler, D. and Hillman, N. (2009) “What Matters in Student Loan Default: A Review of the Research Literature,” National Association of Student Financial Aid Administrators, vol. 39, no. 1, pp. 19–29.

    Google Scholar 

  • Hartman, R.W. (1971) Credit for College, New York: McGraw-Hill.

    Google Scholar 

  • Lounkaew, K. (2011) Essays in Economic Analysis of Student Loans, PhD dissertation, Australian National University.

    Google Scholar 

  • Merton, R.C. (1974) “On the Pricing of Corporate Debt: the Risk Structure of Interest Rates,” The Journal of Finance, vol. 29, no.2, pp. 449–70.

    Google Scholar 

  • National Statistical Office (2009) Labour Force Survey Statistics 2009, Bangkok, Thailand.

    Google Scholar 

  • Office of Student Loans Fund (2007) Annual Report 2007, Bangkok, Thailand.

    Google Scholar 

  • Singh, G.K. and G.S. Maddala (1976) “A Function for the Size Distribution of Income,” Econometrica, vol. 44, pp. 963–70.

    CrossRef  Google Scholar 

  • Volkwein, J. F. and Cabrera, A. F. (1998) “Who Defaults on Student Loans? The Effects of Race, Class, and Gender on Borrower Behariour,” in R. Fossey and M. Bateman (eds), Condemning Students to Debt: College Loans and Public Policy, (New York, USA: University of Columbia, Teacher College Press), pp. 105–26.

    Google Scholar 

  • Woodhall, M. (1987) “Establishing Student Loans in Developing Countries: Some Guidelines,” Education and Training Series Discussion Paper Number EDT 85 (Washington, DC: The World Bank).

    Google Scholar 

  • Ziderman, A. (2003) Student Loans in Thailand: Are They Effective, Equitable, Sustainable?, International Institute for Educational Planning, Paris, France: UNESCO.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Editor information

Editors and Affiliations

Copyright information

© 2016 Kiatanantha Lounkaew

About this chapter

Cite this chapter

Lounkaew, K. (2016). Illustrating the Trade-Off Between Interest Rates and Aggregate Loan Recovery of the Student Loans Fund in Thailand. In: Stiglitz, J.E., Guzman, M. (eds) Contemporary Issues in Microeconomics. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1057/9781137529718_11

Download citation