Evaluating South Korea’s Introduction of an Income Contingent Loan Program

In 2010, South Korea introduced a new student loan program that was income contingent (ICL). One of the main expected outcomes of the new loan program was to provide credit-constrained students the ability to focus on their college education rather than having to work while enrolled. To this end, this study investigates the effect of ICL on college attendance as well as two first year outcomes, including students’ dropout or stop-out and working behaviors while enrolled. Using data from the Youth Panel and a difference-in-difference estimation strategy, we analyze whether or not the introduction of this new loan program improved students’ educational outcomes. Our results indicate that ICL’s introduction increased ICL eligible students’ probability of enrolling college. On the other hand, we found insufficient evidence that ICL reduces students working part-time while enrolled in college. While the findings are contrary to the policy intensions, the current study suggests areas for future research to fully understand the impact of ICL on students and to improve the loan policy.