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Economics of Education Review 37 (2013) 298–308

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Repayment burdens of student loans for Vietnamese higher education
Bruce Chapman, Amy Y.C. Liu *
Crawford School of Economics and Government, The Australian National University, Australia



Article history: Received 15 January 2013 Received in revised form 13 June 2013 Accepted 19 June 2013 JEL classification: I00 I20 I22 I28 Keywords: Student loans Repayment burden Government aid Vietnam

Expansion of high education in Vietnam will be undermined without an effective student, loans policy to assist with tuition and living costs. We show the significance of this issue is by, constructing a hypothetical loans system and calculating repayment burdens (RBs) (the proportion of, a graduate’s income required to repay the debt) for male and female in four different parts of Vietnam, and with respect to two levels of loans. Importantly, the exercises examine RBs across the whole, distribution of income using unconditional quantile techniques. We find that RBs involving loans for, tuition only are likely to lead to significant RBs for poor graduates, with much higher loans being, associated with critical financial difficulties for perhaps the majority of debtors. This will result in high, default rates and consumption difficulties for borrowers, implying strongly that a student loan system, with such high RBs is unlikely to be successful in Vietnam. ß 2013 Elsevier Ltd. All rights reserved.

1. Introduction As Vietnam’s institutions of higher education face the challenges of how to meet the rising demand for higher education amid enhancing quality with limited resources, greater cost sharing with students through increases in tuition seems to be unavoidable.1 It is well known that significant contributions from students can only be achieved in equitable and efficient ways with the use of a student loans system (Chapman, 2006; Friedman, 1955), but it also apparent that Vietnamese higher education

lacks a well-designed and universal financing mechanism. Currently, the student loan scheme is not a broadly-based program and only targets the most disadvantaged students.2 Below we explore the implications of the adoption in Vietnam of a typical higher education student financing system, a ‘‘mortgage-type’’ arrangement in which loan repayments are made on the basis of pre-determined amounts over a given time period.3 Our focus is on the reporting of so-called ‘‘repayment burdens’’ (RB), the proportions of graduate incomes per period that need to be allocated to repay loans. To this

* Corresponding author. Tel.: +61 2 6125 0177. E-mail addresses: (B. Chapman), (Amy Y.C. Liu). 1 In 2008, the Education and Training Ministry increased tuition fees by 30 per cent from an average of VND 180,000 per month (VietNamNet, 2008) even while expenditure on education and training as a share of total state expenditure rose from 15 to 18.2 per cent between 2000 and 2008 (World Bank, 2009). 0272-7757/$ – see front matter ß 2013 Elsevier Ltd. All rights reserved.

2 Since the introduction of the pilot student loans scheme to assist students from poor families in 1994, there have been several revisions of the original scheme – the ‘Decision on credit for disadvantaged students’ in 2002 (No. 78/2002/ND-CP), 2003 (No.153/2003/QD-TTg), 2006 (Decree No. 107/2006/QD-TTg), and 2007 (Decree No. 157/2007/QD-TTg). The latest scheme (Decree No. 157/2007/QD-TTg) was issued in June 2011. 3 These are the most common forms of loan scheme and are currently in operation in the US, Canada and Thailand, for example.

Ziderman (1999). and the adverse consequences for both students and the government.B. a loan repayment burden is the proportion of a person’s income that needs to be allocated to service a debt per period. Second. Chapman (2013) analyzed a much smaller subset of Vietnamese graduates by focusing only on those living in urban areas that can be considered to be relatively rich. We follow a series of papers4 (in simulating RBs for graduates at different parts of the graduate earnings distribution using the unconditional quantile regression (UQR) approach) that has been used in analyses of student loans schemes in Thailand. The current paper reports a considerable expansion of an analysis using a similar approach for Vietnam (Chapman. A.C. In Section 2 the concept of repayment burdens is examined and Section 3 describes the hypothetical loans scheme. and importantly.Y. Chapman (2013) examined repayment burdens only with respect to very large loans. This paper is organized in five sections. Thus the exercise has important lessons for even quite modest changes to the contemporary Vietnam higher education financing landscape. for the first time we show the RBs for graduates from all geographic areas who experience relatively high (in the top quartile) incomes. This section follows Chapman et al. using actual incomes from the Vietnam Households Living Standards Survey of 2006. See Woodhall (1987). or. 2013). mortgagetype student loans scheme. which differs in the following ways. in the poorest areas it is clear that even the most advantaged graduates in terms of income will face significant difficulties with loan RBs for relatively high loan levels. Finally. with the current paper reporting estimates for much smaller levels of loans designed to facilitate tuition payment only. Liu / Economics of Education Review 37 (2013) 298–308 299 end we design a hypothetical. Chapman and Sinning (2012). different mechanisms will be required. used to finance both tuition and living expenses. Beyond the Vietnamese higher education reform debate our exercises also contribute to the literature in an understanding of the importance of the design of student loans schemes for low income developing countries in transition more broadly. it obviously being the case that the higher is a debtor’s RB the lower are disposable incomes. but plausible. What is a loan repayment burden?5 Education economists and others have examined the concept and implications of RBs for more than a quarter of a century. This issue is substantiated by the 4 Chapman et al. It follows that given the types of student loan reforms that might be expected in the near future. Section 5 estimates and discusses the repayment burdens. such as the most common form in the US (Stafford student loans) and Canada are quite different to income contingent loans (ICL) in this respect. the situation with respect to repayment difficulties across all of Vietnam will be roughly twice as difficult for just about all borrowers and constitute a key difficulty and constraint to the expansion of higher education for that country. The exercises reported imply strongly that propitious reforms to Vietnam’s higher education financing system cannot be resolved with the adoption of a traditional student loan policy. the prospects for consumption hardship and default. including analysis of relatively poor urban and relatively rich rural communities as well. What this might mean for policy is considered briefly. The research reported below has three major findings: (i) RBs for a ‘‘mortgage-type’’ loan system are extremely high for a minority of Vietnamese graduates even with loans designed to cover only tuition charges and such loans will also pose financial difficulties for the majority of borrowers. 2. the US. Chapman. (2010). (2010) and Chapman (2013). are implicit and clear. for example. Schwartz and Finnie (2002). 7 In the Australian income contingent college loan scheme. mortgage-type loans. The current paper covers all of Vietnam. and (iii) Surprisingly. The first is motivated by the importance of difficulties faced by debtors in meeting obligations. This is of importance in comparisons of different student loan policies: specifically. 6 5 . describes the data and presents ageearnings profiles for four different Vietnamese regions by sex. Germany and Vietnam. The meaning and international comparisons of repayment burdens 2. (ii) With the much higher loans needed to cover living expenses as well as tuition. formally: Rapayment burden in period t ¼ loan repayment in period t income in period t (1) There are several policy design issues usually raised with respect to RBs. Thus it is the case that even for many relatively rich graduates a traditional loan system will have important operational concerns. First. the maximum percentage of taxable income of the debt that is repaid is 8 per cent per annum.7 A second is that greater RBs are associated with higher prospects that debtors will default on loan repayments because of low incomes. Chapman and Suryadarma (2013) and Chapman (2013).1. 2010a). and in rural areas that can be considered to be relatively poor. Salmi (2003) and Baum and Schwartz (2006). it would appear that a significant expansion in both the size and coverage of mortgage-type student loans for prospective Vietnamese higher education students is unlikely to facilitate the type of reforms in higher education graduation rates that seem to be warranted. Chapman and Lounkaew (2011). This is due to the fact that the latter are explicitly designed to avoid high repayment burdens and this is achieved through per period debt servicing obligations being capped by legislation (Chapman & Lounkaew.6 Defined simply. In the case of large loans financing both tuition and living expenses. Section 4 presents the case for the use of unconditional quantile regression methods. and simulate RBs for graduates in four different parts of the country.

There are critical issues from these findings because of what they imply for both loan default probabilities and/or large government subsidies taking the form of unpaid debts. 9 For recent analyses see Ziderman (2003) and Chapman and Lounkaew (2010a).. The numerator can be calculated from the characteristics of the student loan under consideration. the following features have been assumed: total debts per student of 16 and 32 million dong. Given these assumed debts and parameters Figs. 2010). the lower are interest rate subsidies the higher will be repayment burdens. and Schwartz and Finnie (2002) which presents repayment burdens for hypothetical debtors in the Canada Student Loans scheme. As well. Introduction To derive RBs for Vietnam estimates are required for the nominator and denominator of Eq. 1955). and Sitthipongpanich (2010) illustrates taxpayer subsidies associated with the Thai Student Loan Fund.2. The interesting aspect of these exercises is the adoption of the method described below. The loans scheme explained Because Vietnam does not have a broadly based higher education student loans system. Liu / Economics of Education Review 37 (2013) 298–308 finding of Dynarski (1994) and Gross. 2012) and 50 per cent for US lawyers working in the public sector (Chapman & Lounkaew. International comparisons of RBs There have by now been several studies of RBs. With this as policy background we now examine several empirical aspects of the debate. for those in the lowest 20 per cent of graduate incomes in Sumatra (Chapman & Suryadarma.C. 2011). and that these hardships are greatest the lower are the incomes of the countries studied. 2010) and the US (Chapman & Lounkaew. 1 and 2 illustrate the annual repayment obligations in nominal and real terms (assuming a price inflation rate of 3 per cent per 8 It is commonly understood that the commercial financing sector will not provide loans to students because of their lack of collateral in the event of default (Barr. Important research is provided by Shen and Ziderman (2009) which offers calculations of taxpayer interest rate subsidies for a large number of student loan schemes from many countries. A related important question concerns the optimal size of a RB. There is a significant literature on this topic (see Chapman et al. for actual student loan schemes in Thailand (Chapman et al. which is still surprisingly the case for those earning incomes well above the lowest. 2003. RBs in of the order of 10–15 per cent are generally seen to be undesirable with respect to default probabilities and consumption hardship. for example. These assumptions have been informed by the levels and structures used in the student loan systems of other countries. As a guide to the characteristics of a ‘‘standard’’ student loans system for Vietnam. such as the US. There are some common findings for these different countries. graduating at age 22. in which it is clear that while there is no consensus on this. It is assumed that students enroll at age 18 years. and the time allowed for full repayment of the loan. and a repayment period of 10 years. 2012) and Indonesia (Chapman & Suryadarma. 2010b).2. The repayment burden empirical method 3. 2. (ii) The majority of all graduates living in poor countries are likely to experience significant difficulties in repaying student loans.. 2006. Lounkaew. A. Woodhall (1987) integrates these concerns by stressing that governments face a balancing act in the design of mortgage-type loan schemes. the hypothetical student/ graduate path in terms of age and time. The design complexities do not end with this obvious trade-off because the lower are interest rate subsidies the greater is the prospect of default. the rate of interest on the debt. Polsiri. Cekic. in which the first figure roughly reflects average tuition charges currently charged in Vietnamese universities and the second adds to this an estimate for minimal living expenses. Sarachitti. What now follows shows the time stream of loan repayments. Hossler. Chapman. Friedman. For our exercises we need to be clear also about the ‘‘typical’’ student/graduate experience that underlies our illustrations. 10 This is the case. which uses unconditional quantile approaches to calculate RBs for graduate debtors across ranges of incomes by age and sex. ceteris paribus. Chapman. 3.1.9 which are presumably designed to diminish consumption hardship and default probabilities.8 which means that taxpayers subsidize the loan scheme. For these purposes. Typically student loan schemes (such as Stafford loans) come with a government guarantee to cover the debts when a student defaults. including that for debtors in the bottom quartile of graduate income distributions: (i) Relatively poor graduates living in relatively poor countries face extremely high RBs. An associated policy mechanism relates to the provision of interest rate subsidies on student loans. Canada and Thailand. (1). with this adding to taxpayer contributions. which can be as much as 80 per cent in some cases10. . and for hypothetical schemes designed for Germany (Chapman & Sinning.Y.300 B. and (iii) Even graduates in relatively rich countries face high repayment burdens. and Hillman (2009) that student loan defaulters in the US are much more likely to have low levels of income. ranging from 70 per cent for East German women (Chapman & Sinning. We assume a real rate of interest of 3 per cent per annum. 2013). 3. The important policy point is that schemes with repayments based on time (‘‘mortgage-type’’ loans) result in significant difficulties for a minority of debtors in a range of circumstances across different countries. given that the consumption difficulties experienced by debtors with low incomes need to be traded off with the size of public sector subsidies associated with loans taking relatively long periods to be repaid. Chapman. and complete a four year degree in the minimum time. 2013). Specifically. with the factors pertinent to the expected annual repayments of a student loan are: the sums of money provided in the study period. the system now described is hypothetical but plausible.

Thus we estimate age-earnings profiles for the 25th. a feature which cannot be captured by the use of standard OLS.13 0 1 2 3 4 5 18 20 22 24 26 Age 28 30 32 34 36 Nominal Annual Repayment Real Annual Repayment Fig. differentiated by sex. It is useful to examine briefly the technical basis for the use of the unconditional quantile method underpinning the approach. where i = 1. 3. . and/or does not have a unique mode. 2. A. with this technique being chosen to address the shortcomings associated with the use of OLS.’’ (p.000. in the 11 For example.which may be effortlessly repaid out of higher income received on courses of schooling.12 A second attractive feature of (and the most important reason for us to use) unconditional quantile regression is that it provides a disaggregated picture of earnings distributions. Chapman et al.Y. Chapman and Lounkaew (2010a) found an R2 of around 0. From this Ziderman concludes that ‘‘The annual repayment burden in terms of annual income is very light. with the method used now described. 83).000 dong). 13 These profiles have been adjusted using OLS standard errors (see Wooldridge. 83). annual nominal repayments required will be just over 4 and 2 million dong. Machado & Mata. is critical to the exercise. such as that received by graduates on average. Calculating disaggregated earnings data The denominator of Eq. (2) 0 1 2 3 4 5 Nominal Annual Repayment Real Annual Repayment Fig.the Thai student loan scheme is overly generous. and that in real terms the annual repayment requirements will fall to about half by the end of the 10 year repayment period.. (1). j = graduates differing by income. in an analysis of the repayment burdens associated with the Thai Student Loan Fund. 2010a. . n represent individuals. 1998. social security payments and unemployment insurance payouts of individual I.C. 2005). a plethora of other earnings function studies typically explain no more than 20–30 per cent of the variance. Vietnamese hypothetical loan repayments (16. in two senses. 3. The first is that OLS estimates the mean value conditional on the distribution of the dependent variable.4 for Thai earning functions. beyond average graduate earnings there are wide dispersions of income received by graduates. 2010).11 Like many issues in economics. this problem being common in the context of wage determination given the asymmetry in wage distributions. Ziderman (2003). defined as: PE ¼ age in years À time to complete a degree in years À age at which schooling begins The unconditional quantile regression (UQR) technique is employed to estimate earnings functions. Liu / Economics of Education Review 37 (2013) 298–308 301 18 20 22 24 26 Age 28 30 32 34 36 region of only 2–4 per cent annually’’ (p. . 2006). asymmetric. Ii is the sum of annual earnings.000. . Using OLS estimates may not give robust results. 1 and 2 show that for loans of 16 and 32 million dong. To complete the basis of calculations of RBs requires estimates of the distributions of graduate earnings. Figs. 12 Many recent studies have used disaggregated approach to analyze wage distribution and wage determination (Buchinsky. 1. . and adds that ‘‘. Chapman. With this method variants of the standard earnings function of the following form can be used: ln Ii j ¼ b0 j þ b1 j experiencei j þ b2 j experience2 ij þ ei j . with a concern arising if the conditional distribution of dependent variable is skewed. To capture differences in increases of income with age these are also interacted with potential experience (PE) and its square.000 dong). Vietnamese hypothetical loan repayments (32. compared debt servicing obligations to the earnings of graduates using predictions from Thai earnings functions. the per-period income received by student loan debtors.B. annum) for typical students borrowing in our hypothetical Vietnamese student loan system. with separate estimations being carried out for males and females. This advantage is crucial to our analysis of student loans since repayment burdens must be highest for those in the lowest parts of the distribution (Chapman & Lounkaew. 2. for example.. many of the most interesting empirical aspects for policy are not to be found with averages but concern the tails of the distributions. .3. However. An important point is that significant research so far has used very aggregate proxies of incomes. a fact highlighted by the relatively low explanatory power for these models. . . 50th (median) and 75th quantiles of graduate earnings distributions by age.

72 27. 4. The individuals sample includes wage earners between 22 and 60 years old14 with an undergraduate degree who worked in the preceding 12 months and who supplied earnings data (we have excluded the very small number of unemployed).72 277 S.66 20. Estimating graduate age-earnings functions 4. but no important differences emerged. Fortin.64 401 2.50 1.44 405.302 Table 1 Summary statistics. Earnings function results To construct the earnings profile of degree holders we estimate an equation for men and women with the log of 14 The official retirement age is 60 and 65 for men and women. Accordingly. South Central Coast. 4.78 Â 107 12.69 195 2. B. We also repeated the exercise by excluding graduates who were older than 40 years of age to avoid the complications due to older individuals obtaining their degrees under very different education regimes from the one that is currently in place.D.375 0.19 584 3.29 Â 107 17. as revealed with respect to both shift dummy and slope coefficients.Y. q ˆt Þ t À Dð I  q fˆI ðqt Þ . in-cash and in-kind bonus in the main job. 15 For countries such as Vietnam earnings are essentially equivalent to incomes for the vast majority of those in wage and salary employment. Liu / Economics of Education Review 37 (2013) 298–308 Males Mean Urban poor Annual earnings (VDN) Potential experience Potential experience2 No.787.08 Â 107 0. with this transformed variable being used in place of the original dependent variable. The RIF for the quantile of interest qt is RIF ðI. of observations 2. (3) where fI(Á) is the marginal density function of I where D is an indicator function.29 1. a technique which relies on a transformation known as re-centered influence function (RIF). and by location.25 326. hence its sample counterpart is used instead: ˆt Þ ¼ q ˆt þ RIF ðI. One crucial distinguishing feature of the UQR is that it provides us with a way to recover the marginal impact of the regressors on the unconditional quantile of I.43 16. South East. and Mekong River Delta.27 789 1. Chapman.D.1.42 Â 107 12.108.74 2. In practice RIF(I .36 8. (4) ˆ t is the sample quantile and fˆI ðqt Þ is the kernel where q density estimator.79 23.56 232. qt) is not observed. not income. because there were critical differences apparent in earnings in this context as well. . separately for males and females. qt Þ ¼ qt þ t À Dð I  q t Þ f I ðqt Þ .15 588 1.913 0.32 Â 107 19.42 14. we disaggregated the analyses by regions revealed to have relatively high earnings (labeled ‘‘rich’’ regions) and low earnings (labeled ‘‘poor’’ regions). with the poor regions being North East. and Central Highland.45 341. The data In what now follows the Vietnam Households Living Standards Survey 2006 (VHLSS06) is used to illustrate graduate annual earnings by age.64 Â 107 0. North West.15 and includes measures of wage and salaries.2. in the context of this study it is the marginal impact of additional years of potential experience on income of Q25 and Q50. of observations Urban rich Annual earnings (VDN) Potential experience Potential experience2 No. North Central Coast. 8.85 Â 107 15.03 172 S.28 The unconditional quantile regression method follows Firpo.37 14. 1.088. A. Table 1 shows the main statistical characteristics of the data.81 6.97 429.09 Â 107 15. of observations Rural rich Annual earnings (VDN) Potential experience Potential experience2 No.61 22.63 Females Mean 1.63 Â 107 15.22 476. Rich regions are Red River Delta.26 120 1.29 335.19 Â 107 0.121 0.57 6. and Lemieux (2009). of observations Rural poor Annual earnings (VDN) Potential experience Potential experience2 No. Preliminary estimates revealed that there are very significant differences in earnings between regions and urban/rural locations in Vietnam.67 Â 107 17.09 Â 107 0. Our dependent variable is earnings.C. We further divided the regions into ‘‘urban’’ and ‘‘rural’’. The VHLSS06 was conducted nation-wide by the Vietnam General Office of Statistics and contains very rich information with respect to individuals and households.48 16.39 229.371.192 0.

Importantly. Repayment burden estimates 5. 17 A full set of RB results are available from the authors. (vi) There are significant earnings differences between urban and rural areas. Chapman. with the independent variables being potential experience and potential experience squared. with the former averaging around double those of the latter.B. A.16 Graphical representations of the results are now shown in Fig. 5. Because they are critical to calculations of RBs. and (iv) That are not markedly different between men and women. These are shown in Figs.3. which is entirely consistent with a plethora of international findings. For loan levels about at typical tuition charges. Low graduate earnings repayment burdens: 16 million dong loans The most important aspect of our exercises relates to the calculation of repayment burdens for low earning graduates. 5. At the mean and at different points of the graduates’ earnings distribution the signs of experience and its square indicate the usual concave relationship between age and earnings. . (ii) Of around 50–80 per cent of earnings for young graduates living in poor rural areas.2. some attention is accorded RBs for the highest earning graduates (those in the top quartile of graduate earnings) with relatively high debts of 32 million dong. and the coefficients are very similar to those found for other countries. totaling 16 and 32 million dong. (ii) Male graduates generally earn more than female graduates. (iv) Graduates of both sexes in rural rich areas generally earn about 50 per cent more than graduates from urban poor areas.C. with respect to both loan sizes.Y. graduate earnings generally increase with potential experience at a decreasing rate. The main points from the RBs presented in Figs. and (iv) That are not markedly different between men and women. the RBs for the doubled level of loans are twice as high as those calculated for the 16 million dong loan. graduates in the Q75 part of the earnings distribution in rural areas earn about the same as graduates in the Q25 part of the earnings distribution in urban areas. aside from estimating OLS we also did estimations using the unconditional quantile method described above. those earning in the bottom 25 per cent of the graduate earnings distribution by age and sex will face RBs: (i) Which average from about 30 to 50 per cent across the repayment period of ten years. those earning in the bottom 25 per cent of the graduate earnings distribution by age and sex will face RBs: (i) Which average from about 15 to 25 per cent across the repayment period of ten years. 4 and 5 for the lower loan total. Q50 and Q75 the main findings are: (i) For all groups. These data may now be used in calculations of RBs. (ii) Of around 25–40 per cent of earnings for young graduates living in poor rural areas.1. (2010) for Thailand for example. 5. and the ratio is slightly less for females than it is for males. for loans totalling 32 million dong. assumed to be a total of 16 million dong for a four year degree. our focus is on the results for both Q25 and Q75 (lowest and highest 25 per cent of earnings by age and sex). High graduate earnings repayment burdens: 32 million dong loans We are also in a position to address the question of what RBs would be for those in the estimations earning the 16 See Chapman et al. and (vii) Consistent with this. 4 and 5 are as follows. of the order of 20 per cent per year. (iii) Of at least 10 per cent at their lowest point for the least disadvantaged of the groups. Introduction This section combines the data from the age-structures of the hypothetical loan scheme illustrated in Figs. Low graduate earnings repayment burdens: 32 million dong loans The same exercises have been repeated for the higher loan level totaling 32 million dong and the results are presented in Figs. and Q50 (the median earnings group by age and sex). (iii) Graduates of both sexes in urban rich areas generally earn about 50 per cent more than graduates from urban poor areas. The focus is on the RBs for low earning graduates (those in the bottom quartile of graduate earnings). 5. 4.4. (v) Average Q75 graduate earnings are between 50 and 100 per cent higher than average Q25 earnings.17 As well. 6 and 7. defined as those in the lowest quartile of graduate earnings (by sex and age). By construction. 1 and 2 and the age-earnings profiles reported in Section 4 to show expected RBs for a Vietnamese student loan scheme. (iii) Of at least 20 per cent at their lowest point for the least disadvantaged of the groups. Thus from the figures. Discussion With respect to the results for Q25. Liu / Economics of Education Review 37 (2013) 298–308 303 annual earnings in the main job as the dependent variable. 3. The OLS and the UQR regression results are presented in Appendix 1.3. the second of which combines loans for estimated tuition costs to a representation of the financial resources assumed to be needed for income support. and these are now reported.

Q50 and Q75 Age-Income Profiles 18 20 22 24 26 28 Age 30 32 Q50 34 36 18 20 22 24 26 28 Age Q25 Q75 30 32 Q50 34 36 Q25 Q75 40 35 30 25 20 15 10 5 0 Predicted Annual Income. Q50 and Q75 Age-Income Profiles 40 35 30 25 20 15 10 5 0 Rural Rich Female: Q25.304 B. Million Dong Rural Rich Male: Q25. Million Dong Rural Poor Male: Q25. 3. Million Dong Urban Rich Male: Q25. Q50 and Q75 Age-Income Profiles 18 20 22 24 26 28 Age 30 32 Q50 34 36 18 20 22 24 26 28 Age Q25 Q75 30 32 Q50 34 36 Q25 Q75 Predicted Annual Income. Q50 and Q75 Age-Income Profiles 10 15 20 25 30 35 40 10 15 20 25 30 35 40 Rural Poor Female: Q25. . Million Dong Urban Poor Male: Q25. Q50 and Q75 Age-Income Profiles 40 35 30 25 20 15 10 5 0 Urban Poor Female: Q25. Chapman. Vietnam age-earnings profiles: Q25. Q50 and Q75 Age-Income Profiles 5 0 18 20 22 24 26 Age 28 30 32 Q50 34 36 0 5 18 20 22 24 26 Age Q25 Q75 28 30 32 Q50 34 36 Q25 Q75 Fig.Y. Q50 and Q75. Q50 and Q75 Age-Income Profiles 18 20 22 24 26 28 Age 30 32 Q50 34 36 18 20 22 24 26 Q25 Q75 28 Age 30 32 Q50 34 36 Q25 Q75 40 35 30 25 20 15 10 5 0 Predicted Annual Income. Q50 and Q75 Age-Income Profiles 40 35 30 25 20 15 10 5 0 40 35 30 25 20 15 10 5 0 Urban Rich Female: Q25. A. Liu / Economics of Education Review 37 (2013) 298–308 Predicted Annual Income.C.

a majority are likely to face considerable consumption hardship in the repaying of loans designed to cover both tuition and income support. Liu / Economics of Education Review 37 (2013) 298–308 305 Male Q25 (Loan size: 16 mln) Annual Repayment Burden (%) Male Q75 (Loan size: 32 mln) Annual Repayment Burden (%) UrbanP RuralP RuralR UrbanR UrbanR RuralR RuralP UrbanP Fig.Y. and (iv) Are not markedly different between men and women. Fig. Q25 male RBs by region. 6. Q75 female RBs by region. Female Q25 (Loan size: 32 mln) Annual Repayment Burden (%) (i) Are around 35 per cent for the youngest graduates in the poorest regions. loan of 32 million dong. Conclusions and a possible institutional way forward Using hypothetical yet plausible student loans scheme for Vietnam we have explored empirically the issue of likely RBs in the light of the clear need in the future for a different and expanded system of higher education financing for this country. 5. 7. Q25 female RBs by region. (ii) Average around 15–25 per cent for the whole repayment period. Fig. These are presented in Figs. Q25 male RBs by region. The main findings for the highest income graduates are that RBs: UrbanP RuralP RuralR UrbanR Fig. Chapman. the calculations RuralR RuralP UrbanP UrbanR Fig. 8. loan of 16 million dong. Q25 female RBs by region. The findings for the Q75 sub-population are arguably the most striking of the exercise. Importantly. loan of 32 million dong.B. loan of 32 million dong. They imply strongly that even in the case of the highest earning graduates. 9. loan of 32 million dong. that is. 4. for Q75. 8 and 9 with respect to the repayment of the higher loan of 32 million dong. A. . 6. loan of 16 million dong. (iii) Are at least 10 per cent for the highest earners in the most advantaged regions. Q75 male RBs by region. Female Q25 (Loan size: 16 mln) Female Q75 (Loan size: 32 mln) Annual Repayment Burden (%) UrbanP RuralP RuralR UrbanR Annual Repayment Burden (%) UrbanR RuralR RuralP UrbanP Fig.C. Male Q25 (Loan size: 32 mln) Annual Repayment Burden (%) highest incomes.

In this context it is useful to canvass possibilities for the design of higher education student loans that in general will not be associated with potentially very costly repayment burdens. and for different levels of projected student loans.C. heavy repayment burdens also mean considerable financial pressure on graduates generally as they enter the labor market.679 Prob > F 0.850*** (0.19 Further.855 0. and currently operate in Australia.019) (0. or including loan forgiveness under certain circumstances are some possible ways to ease the heavy RBs for low and very low income borrowers. Liu / Economics of Education Review 37 (2013) 298–308 have been undertaken at different parts of the graduate earnings distribution using unconditional quantile regression methods. Variables Exp Exp2/1000 Constant (1) OLS (2) Q25 (3) Q50 (4) Q75 0.5 per cent of the ASEAN-4.000 Robust standard errors in parentheses.Y.000) (0.21 Thus while the successful institution of an ICL would markedly diminish (perhaps to zero) the adverse potential of high repayment burdens for student borrowers in Vietnam.01.1171*** 0.085*** 0. 10 and 9 per cent.243 32.18 In addition. high repayment burdens often are associated with high risk of default despite there being measures such as guarantors and legal actions which can be used to reduce loans repayment risk.20 to facilitate consumption smoothing and to provide loan default insurance.062 4. 22 A full discussion of these issues is in Chapman (2006).496 0. like all student loans that do not have an income contingent collection basis. potentially prompting them to shy away from low-pay occupations. 18 This could potentially undermine the government’s effort in reforming higher education if there is a shortage of qualified teachers.103) (0.968*** 15.000 584 0.055) 584 0.000 584 0. OLS and unconditional quantile regression results See Tables A1–A8.306 B. allowing small affordable payment.166) (0.049*** 0. The critical characteristic of an ICL is that maximum repayment burdens are set by legislation. Discussion needs to be informed by the reality that there are essentially two types of student financing schemes: mortgage-type and income contingent loans (ICL). our calculations illustrate quite clearly that there will be heavy repayment burdens for low and very low income graduates. particularly those living in poor areas of Vietnam.249 (0. such a policy reform debate needs to start in the area of governance institutional reform with respect to the income tax system. New Zealand.009) (0. . such as teaching. In line with previous studies.092) (0.000) 15. An ICL takes the form of students committing to repay debts depending on their future incomes.7725*** À0.2669*** À0. .22 Appendix 1. The downside of a case for an ICL in Vietnam is that loans of this type require accurate identification of borrowers’ lifetime incomes and consequently usually rely on a country’s personal income tax system to collect debts.357*** 16.012) (0.000) (0. These results imply strongly that such reforms will not be a viable response to future higher education financing needs in Vietnam. and that these heavy burdens will persist for quite a number of years into the repayment period even if students borrow money only to cover tuition costs.000) (0. 2007).879 0. Even for loans just covering reasonable tuition costs. *** p < 0. New Zealand and England these proportions are 8. It would seem to follow that a better designed student loans scheme that reduces RBs to minimize both consumption hardship and loan default risk is critical in the future development of higher education and thus to Vietnam’s future economic growth prospects. And even for those graduates earning in the top quartile of the graduate earnings distribution the RBs will apparently be very high for a significant proportion of these groups. Vietnam is still a poor country despite recent impressive economic achievements. Hungary and South Korea. accounting for 0. will coordinate with local authority and mass organization for debt collection’ and ‘individuals and organization using employees as disadvantaged students who borrow preferential credit. Chapman. A. However. 19 In the case of default. Table A1 OLS and unconditional quantile regression results for males in urban poor regions. England. .take responsibility for urging them to send money to their families for repayment or directly repay for VBSP’ (Social Republic of Vietnam.210 F-Test: exp exp2 51. Vietnam’s tax system collects very little revenue from personal income tax. 20 In Australia. which administers the loans.6737*** À2.398*** 16.008) À1. our results show that estimating repayment burdens at the mean hide the variations at different parts of the graduate earnings distribution and this is critical to the policy debate. Alternative arrangements such as setting a higher minimum income threshold for repayment. 21 See Adams (2004). both the existing and out hypothetical schemes have a fixed repayment period. Our results highlight the pressing concern for providing access to higher education for students.023*** (0. the Vietnam Bank of Social Policy (VBSP).4 per cent of its GDP compared to 10 per cent for OECD countries and 2.156 20. Also. especially those from poor families (with students from ethnic minorities mostly residing in these households). For larger loan levels that include financial assistance to help cover living expenses the RBs are extremely high indeed – about double the RBs for tuition loans only.008 584 Observations Adjusted R-squared 0.

020 (0.935 0.027) À1.342 22.1408*** (0.5232 (0.000) 16.000 Observations Adjusted R-squared F-Test: exp exp2 Prob > F Robust standard errors in parentheses.107) (0.199 F-Test: exp exp2 27.037) À2.001) 15.7213*** À0.081*** (0.0291 (0.031** (0.199) 120 0. * p < 0.020 Table A6 OLS and unconditional quantile regression results for females in rural poor regions.023 (0. Robust standard errors in parentheses.159 3.162 4.017 (4) Q75 0.661 Prob > F 0.091 0.280*** (0.000) 16.1.053*** (0.8463*** (0.199 (0.7599* (0. Liu / Economics of Education Review 37 (2013) 298–308 Table A2 OLS and unconditional quantile regression results for females in urban poor regions.284* (0.139 16.009) À0.01.071*** (0.013) À0.000) 16.4585** (0.000 (3) Q50 0.05.104*** (0.009) À0.089 1.163) 120 0. Variables exp exp2/1000 Constant (1) OLS 0.035) 0. Variables exp exp2/1000 Constant (1) OLS 0.011) À0.027** (0.C. Table A4 OLS and unconditional quantiles regressions for females in urban rich regions.104*** (0.8362*** À2.144) 277 0.000 (2) Q25 0.804*** (0.436 Observations 588 Adjusted R-squared 0.000) 15.012) À0.574*** (0.063 0.014 (0.602*** (0.045 (4) Q75 0.529*** (0.013) (0.001) 15.788 0.1.591*** 17. Robust standard errors in parentheses.101*** (0.337 0.190 (0.000) 16.782 Observations 789 Adjusted R-squared 0.866 0.05.015 3.001) 16.017) À1.002 (4) Q75 0.656*** (0.000) (0.017) À0.000) (0.071) 588 0.001) 16.086*** (0.087*** 0.000 (3) Q50 0.1081 (0.338*** (0.153 0.000) 17.073*** 0.000 Observations Adjusted R-squared F-Test: exp exp2 Prob > F Robust standard errors in parentheses.058 12.033) À1. Variables exp exp2/1000 Constant (1) OLS (2) Q25 (3) Q50 (4) Q75 Table A7 OLS and unconditional quantiles regression results for males in rural rich regions.015) (0.9521* (0. ** p < 0.131) 195 0.208) 195 0.9022*** (0.000 (3) Q50 0.01.000) 16.015) À0.012) À1.170) 277 0.088 4.1.039*** 0.000 (3) Q50 0.0766* (0.000) 15.Y.077) 401 0.053*** (0. *** p < 0.001) 15.008 (0.887 0.000) 16.081) 789 0.014) À0.094*** (0.018) À1.220 0. ** p < 0. A.05. *** p < 0.549 Prob > F 0.806*** (0.000 (4) Q75 0.001) 16.000) 16.023) À2.000) (0.029*** (0.071) (2) Q25 0. *** p < 0.028*** (0.613 0.044*** (0.000) 16.000 (2) Q25 0. *** p < 0.010) À0.126 0.8023 (0.019) À1.832 0.766*** (0.068) 789 0.246 0. .008 307 Table A5 OLS and unconditional quantile regression results for males in rural poor regions.936 0.144 6.015) À0.106*** (0.01.106 0.465*** 15.095) (0.125) 401 0.8004** (0.000 Observations Adjusted R-squared F-Test: exp exp2 Prob > F Robust standard errors in parentheses.873 0.124 29.120 0.439 6.4661 (0.270*** (0. Chapman.162 0. *** p < 0.000) 16.792*** (0.238 Observations 401 Adjusted R-squared 0.196) 120 0.009) (0. Robust standard errors in parentheses.8023*** (0.318 0.964*** 16.220 0. Variables exp exp2/1000 Constant (1) OLS 0.095** (0.889*** (0.000 (2) Q25 0.100 Prob > F 0.045 7.981 0.083 F-Test: exp exp2 18.358*** (0.9515** (0.001) 15.3514*** (0.127) 277 0.070 16. * p < 0.117 13.172) 120 0.119) 195 0.01.026 0.361*** (0.032*** (0.074) (0.000) 16.000 588 0.110) 401 0.009 0. Variables Exp exp2/1000 Constant (1) OLS 0. * p < 0.040*** (0. Variables exp exp2/1000 Constant (1) OLS 0.106) 277 0.140 13.000 588 0.214 5.170 12.016) À2.0007*** À0.5197 (0.115) 195 0.089) 789 0.B. Table A3 OLS and unconditional quantiles regression results for males in urban rich regions.01.233*** (0.392*** (0.044*** (0.000) 15.050 F-Test: exp exp2 19.146 18.226*** (0.01.018) 0.008 (3) Q50 0.447 0.285 0.108) (2) Q25 0.002 (4) Q75 0.433*** (0.047*** (0.952*** (0. *** p < 0. ** p < 0.

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