How the Income-Contingent Loan （ICL） Scheme Reduces Burdens on Student Loan Borrowers : Focusing on South Korea

Abstract

With the growing number of student loan defaulters drawing attention in East Asian countries, expectations are growing for the Income-Contingent Loan （ICL） scheme, in which the monthly amount of repayment can be adjusted in accordance with the borrower’s financial situation. Previous studies, however, have primarily focused on the feasibility and effectiveness of the ICL scheme. Few studies consider which factors reduce repayment burdens on borrowers.

To better understand the relevant variables, this paper examines cases in South Korea, which in 2010 became the first nation in East Asia to introduce the ICL scheme. To analyze the conditions influencing the design and introduction of the ICL scheme, interviews were conducted with 16 ICL borrowers, demonstrating that they regard student loans as “rational investments” rather than “debts”, and revealing that both the internal mechanism of ICL, such as its flexible repayment process, and the external conditions, i. e., the government’s utilization of national student loans as a social service to support young people, help to ease repayment burdens on borrowers.