Increasing Interest Burden Due to High Interest Rates Leads to Personal Rehabilitation and Bankruptcy
"Could Become a Social Issue... Management Needed"
The number of young people unable to repay student loans has increased sevenfold in four years. The amount they failed to repay has nearly sextupled.
According to the review report by the National Assembly Budget and Accounts Committee and the Korea Student Aid Foundation on the 12th, the unrecovered student loan amount due to borrowers' failure to repay was recorded at 27.489 billion KRW last year.
The unrecoverable amount has been increasing every year from 4.73 billion KRW in 2018 to last year. Compared to one year ago (11.862 billion KRW), it has increased 2.3 times, and compared to four years ago, it has grown 5.8 times.
The number of people unable to repay student loans was 4,778 last year, more than double the 2,218 from one year earlier. Compared to 679 in 2018, it has increased sevenfold.
The main reasons for failure to repay student loans were individual rehabilitation and bankruptcy. As of last year, 3,454 people received repayment exemptions due to individual rehabilitation, amounting to 17.84 billion KRW. This accounted for 64.8% of the unrecoverable amount and 72.3% of the unrecoverable borrowers. The number of unrecoverable borrowers due to bankruptcy discharge was 954, with an amount of 7.192 billion KRW.
There were 370 cases where repayment was impossible due to the death of the borrower, amounting to 2.47 billion KRW.
By student loan product, general repayment student loans (16.254 billion KRW, 2,696 people as of last year) had a larger unrecoverable scale and number of borrowers than income-contingent student loans (11.235 billion KRW, 2,082 people).
An official from the Korea Student Aid Foundation explained, "Most of the people who failed to repay student loans also have other debts," adding, "It seems that it is not because the student loan itself is large, but because personal rehabilitation and bankruptcy have increased due to high interest rates making it difficult to repay other debts, leading to failure to repay student loans."
The student loan interest rate is low at 1.7%, so the burden is small, but as market interest rates rose from 1.0% at the end of 2021 to 3.25%, the interest burden on other loans increased, meaning that borrowers are unable to repay even their student loans.
Most borrowers repay student loans after graduating from university and getting a job, but as young adults with relatively low income face rising housing prices and an investment boom symbolized by "Yeongkkeul" (borrowing to the limit), the debt burden on youth appears to have increased.
The National Assembly Budget and Accounts Committee stated in the review report, "There seem to be problems in the execution management such as student loan eligibility, requirements, and repayment schedules," and warned, "The financial soundness of student loans may deteriorate. The increase in the number of borrowers and amounts unable to repay could also lead to social problems," urging the Ministry of Education and the Korea Student Aid Foundation to strengthen loan management.
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