On January 15th 2010, the Income Contingent Loan (ICL) began which was issued by the National Assembly. There were two opinions on this matter; one is welcomed because they agreed to this system thinking that it is better than the former system. Other people criticized this system. They say it's not a solution to high tuition fees but rather a temporary fix. Over the past decade, university tuition fees in Korea have been raised more than three times the market price. Therefore, students have a quarrel with the government because of high tuition fees. Han-nara dang (Grand National Party) set forth the recommendation to cut tuition fees in half. Although citizens didn't expect much of the government, officials said they would do their best to reduce the financial burden on household budgets. To push ahead with the campaign pledges they introduced the ICL. So what are the differences compared to the former system?
Lee Jong-ryul, a counselor of the Korea Student Aid Foundation, explained that "the former system required students to repay interest on the principal when they take out a loan”. The new system allows students to postpone the repayment of principal and interest. When students get a job and have the ability to payback the loan, repayment begins. This new system allows students to be faithful to their studies rather than worrying about repayment of their loans while still attending school. Another difference is that previously credit delinquents could not take out a loan, but now even those with poor credit history can borrow because of the new system. Moreover, this system supports students by providing money for living expenses which is approximately one million won per semester. Consequently, the number of students who abandon their studies and become credit delinquents because of low income will decrease. There are always two sides to a story and every system has pros and cons. So, what are the problems with this new repayment system?
Firstly, the ICL sets a limit on lower-income groups. Because of this, most households which cannot afford to pay tuition fees are excluded. Secondly, interest is too high. The rate of interest on a tuition fee loan is 5.8% and it also carries compound interest. Thirdly, about 1.8 million people are excluded if they receive a grade mark of 'B' or lower. Subsequently, students must repay interest during their military service. Lastly, if 4.5 million university students get a loan through this system it is expected to generate a huge profit margin for the government, estimated to be about 52 trillion won over the next 25 years. The purpose of this system is likely to be distorted. For example, if borrowers cannot repay until 3 years after graduating (which is likely considering the average earnings do not exceed 15 million won per annum) the National Tax Service collects their income through property investigation. Moreover, after one year of this, if the borrower cannot repay the debt they are forced to convert the student loan to a general loan, which results in higher interest. Also, when the borrower gets married the married couple has to decide the method of repayment through their income and property. So, after learning about this how have university students responded?
Lee Myeong-sang, a student majoring in Mechanical Engineering gave us his opinion about the ICL. “Most foreign university students pay their tuition fees through work like a part-time job. However, Korean students usually depend on their parents for money. In this situation, I think that it is a good system, first taking out a loan for tuition fees through this system and later paying back the debt after becoming employed. Nevertheless, it is harsh to repay too much interest. If I get a job at a big company like Samsung, it is easy to repay the principal and interest, but small businesses and part-time jobs do not pay well enough and I won't be able to afford to pay high interest. Because of this, it will take much longer to repay the loan, resulting in hardship for me financially. Furthermore, in this current economy it's going to be much harder for me to find a job, the mandatory levy carried out by the National Tax Service is too harsh for students. Of course, we have to repay interest at the right moment in the former system, but this system does not allow for that. 4 years after graduation is very short, and I think extending the period of repayment would be better.”
The ICL is in theory a great system which could support all people to get a college education. Nevertheless, people who use this system are not rich. So, it could increase the polarization of wealth because of the repaying of tuition fees. We can expect a good result if the government modifies problems such as, high rate interest and the number of beneficiaries. However, as mentioned earlier, the desire of university students is not to lighten 'the psychological burden' but to find a solution for high tuition fees. If an educational expense has not been appropriated there will be no trouble between students and the government. Of course, decreasing tuition fees would be difficult for the government, but all we ask is that the government give serious consideration to this problem and make an effort to help students’ solve financial problems.
Choi Deok firstname.lastname@example.org
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