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

Kiatanantha Lounkaew

    Research output: Chapter in Book/Report/Conference proceedingChapter

    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 languageEnglish
    Title of host publicationContemporary Issues in Microeconomics
    Editors J E Stiglitz and M Guzman
    Place of PublicationNew York, USA
    PublisherSpringer
    Pages169-183pp
    Edition1st
    ISBN (Print)9781137529701
    DOIs
    Publication statusPublished - 2016

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