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Student loan interest rate in S. Korea higher than OECD average
SEOUL, March 9 (Yonhap) -- South Korea's interest rate on its "study-now-pay-later" loan is the highest among countries that have the same program, bucking a global trend of lowering the rate amid an economic downturn, according to data collected from multiple sources.
The South Korean government introduced the so-called Income Contingent Loan (ICL) system in January this year, allowing college students to take out loans for tuition and basic living expenses. The students start paying back the loan after graduation once they find employment and begin earning stable income, reducing the likelihood of default.
Five member countries of the Organization for Economic Cooperation and Development (OECD) -- Britain, Sweden, New Zealand, Australia and the Netherlands -- run same loan programs.
South Korea set the annual ICL interest rate at 5.7 percent, which is higher than the country's base mortgage rate of 5.2 percent and more than double the average level of the five OECD member countries during the 2004-2005 period, according to data received from embassies and information available on-line.
Britain set its rate at 2.6 percent during the cited period and lowered it to 2.5 percent in January 2009 and further to 1.5 percent in March last year. It cut the rate to zero from September 2009 to August this year.
Sweden's ICL rate was 2.8 percent in 2004-2005 and was brought down to 2.1 percent in 2008, which will be maintained throughout this year.
The Netherlands' ICL rate this year is 2.39 percent, a record low since the system was introduced in the 1990s.
"The number of borrowers at the end of last month was around 430,000, much less than the expected 1 million," said an official in South Korean People's Solidarity for Participatory Democracy, a Seoul-based civic group. "The rate needs to be reduced to 2 to 3 percent in order to help ease the burden on students in real terms."
graceoh@yna.co.kr
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