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

In: Contemporary Issues in Microeconomics

Author

Listed:
  • Kiatanantha Lounkaew

    (Dhurakij Pundit University
    Australian National University)

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.

Suggested Citation

  • Kiatanantha Lounkaew, 2016. "Illustrating the Trade-Off Between Interest Rates and Aggregate Loan Recovery of the Student Loans Fund in Thailand," International Economic Association Series, in: Joseph E. Stiglitz & Martin Guzman (ed.), Contemporary Issues in Microeconomics, chapter 10, pages 169-183, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-52971-8_11
    DOI: 10.1057/9781137529718_11
    as

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