[Youth Debt] Student Loans Without Employment... First Step into Society Is Personal Rehabilitation

[Asia Economy Reporter Song Hwajeong] Following the COVID-19 crisis and rising interest rates, the economic difficulties faced by ordinary citizens are intensifying, and the hardships of young people are also deepening. More young people are falling into the debt trap even before taking their first steps into society, being forced into personal rehabilitation while starting their social lives.

Ha Yoonjung (24), who graduated from university earlier this year, is currently working three part-time jobs. She works at a fast-food restaurant during the day and serves at a beer pub at night. In her spare time, she also grades papers at a math academy. Still, life is very difficult. Just daily living expenses such as accommodation and transportation costs are tight, and she also has to bear the interest on her student loans. As a result, her student loan payments have been overdue for three months. If she could at least ask her family for help, it would ease her burden, but her parents, who run a restaurant in the provinces, are struggling due to increased debt from COVID-19, so she cannot even bring it up. Her parents keep urging her to just come home if she cannot find a job. However, if she goes back home now, she feels her life will end helping at her parents’ restaurant without trying anything else, so she is stubbornly holding on. She had no choice but to apply for debt adjustment of her student loans through the Credit Recovery Committee (Shinbokwi). If the debt adjustment is approved, all overdue interest will be waived, and she can repay in installments over up to 20 years, which she expects will somewhat reduce her debt burden.

Kim Jaehan (30), who was preparing for the civil service exam, ended up in debt after investing based on a friend’s advice. The friend worked in finance and occasionally lent Kim money for rent and bought him meals and drinks while Kim was busy studying for the exam. The friend recommended an investment method promising high returns, and since Kim had received help from him several times, he trusted him and even took out a loan to invest, but it turned out to be a multi-level marketing scam. To repay the debt, Kim gave up preparing for the exam and got a job. However, once employed and earning a steady income, his student loan repayments were automatically deducted from his salary every month. Kim had taken out an income-contingent student loan during university. His entire salary went toward repaying debt, making it impossible to maintain a living. Kim applied for the Credit Recovery Committee’s expedited debt adjustment youth special case. If approved, the interest rate on existing loans is reduced by about 30-50%, and repayment in installments over up to 10 years becomes possible. He can also apply for repayment deferral.

Kang Sumin (29), who recently got a job, applied for personal rehabilitation. After graduating from university, Kang started a business but eventually closed it at the end of last year due to COVID-19. She opened a salad cafe targeting young office workers in the Pangyo area, which has many IT companies, but as more companies shifted to remote work due to COVID-19, the cafe did not operate well. Believing location was important, Kang took out a large loan to secure a good spot, but location was no help against COVID-19. She was struggling to pay the expensive rent, and her debt kept increasing. Feeling she could no longer endure, Kang closed the business and looked for a job. She wanted to apply for personal rehabilitation but needed a fixed income to do so. Kang hopes the personal rehabilitation process will start quickly so she can escape the debt trap.

Personal rehabilitation among young people is increasing every year. According to the Supreme Court, the number of personal rehabilitation applications from people in their 20s rose from 10,307 in 2019 to 11,108 in 2020 and 11,907 in 2021. The number of personal rehabilitation filings increases by about 800 cases annually on average. In the first half of this year, the proportion of personal rehabilitation applications from people in their 20s and 30s was 46.1%, about 5% higher than the same period last year.

[Image source=Yonhap News]