Higher education loans in Vietnam ripe for reform

New CGHE working paper examines the potential of reforming the higher education student loan system in Vietnam

As developing countries transition into more knowledge-based capital-intensive economies, human capital deepening plays a critical role. This in turns depends on an efficient and sustainable financing system that not only expands higher education access but also promotes access equality.

Working Paper 51 by Dung Doan, Jiacheng Kang and Yanran Zhu examines the potential of reforming the higher education student loan system in Vietnam – a rapidly aging middle-income country – as a solution to further invest in human capital and meet the country’s evolving demand for skilled labour.

The paper finds that Vietnam’s current loan scheme not only supports a negligible number of credit-constrained students amidst rising tuition fees but can also create excessive repayment burden to debtors.

The paper then explores three potential income-contingent loan schemes and analyses how they might perform in Vietnam with respect to government subsidies and debtor’s repayment experience.

Using data from the Vietnam Household Living Standard Survey 2012-2016 and the Labor Force Survey 2016 and a recent econometric innovation that involves Copula functions to project graduate lifetime earnings, the paper concludes that it is feasible to design an income-contingent loan scheme that is both gentle on the fiscal budget and generous on borrowers in terms of borrowing limit and repayment obligations.

You can read the full working paper HERE.