Income-Contingent Loan: International Models And The Design For China

Based on Chinese social and economic background, this article conducted comprehensive research on the implementation model and required conditions of Income-contingent Loan (ICL). This article explored the feasibility of ICL from empirical and systematic perspective and practical student loan scheme in China.The theory of risk on educational investment is the basis of ICL. This article analyzed the sources and characteristic of educational investment risk and make empirical analysis. This thesis estimated the risk value is 0.18 which is higher than average value 0.14 by using the CHIP 2002 data and the co-efficiency of variance of Mincer rate of education return. Furthermore, the author analyzed the risk-shary mechanism of ICL in theory.The article described the reform of Chinese college fee and student loan policy. Based on the average income, the author explained the difficult of "up-front payment" and "fixed-time repayment" under mortgage student loan, and the necessisity to carry out ICL. To compensate for the low income group justified the exploration of ICL since the low income group shouldered the cost of economic reform and it's the responsibility for the government to provide the subsidy and ensure their right.This article categorized ICL into classical and flexible ICL and also classifies classical ICL into "progressive repayment on total income" and "fixed ratio repayment on extra income". The thesis discussed the background, characteristic and condition for all the different types of ICL.The required conditions for ICL are indespensible. This article indicated the importance of five core conditions as following: (1) repayment ability related with suitable tuition fee and debt-to-burden ratio, low educational investment risk and low repayment burden ratio; (2) Income tax or pension system with widespread coverage and high development; (3) Homogeneous income level for streamlined repayment threshold and repayment rate; (4) macroeconomics condition: low inflation rate and interest rate; (5) persistent and far-sighting research conducted by scholar.This thesis designed the ICL scheme for China and summarized two challenges from 2 perspectives: graduate income and government financial ability. As for graduate income, the part analyzed the repayment of different student loan scheme using the average income from "China Human Resource Web". The result indicated that the schemes will be faced with different challenges: the repayment burden ratio is extremely high under the Mortgage Student Loan; the repayment periods are too longer under the Income-contingent Loan; the present value of repayment can't meet the private cost of higher education under graduate tax. In the terms of financial ability, the peak of financial capital from government is in 2017 and it's difficult for the government to mobilize 21billion Yuan for student loan.