Abstract
The Japanese higher education sector has seen increases in tuition with stagnant household incomes in a society where family support for university students has been the norm. Student loans from the government have grown rapidly to sustain the gradual increase in university enrollments. These time-based repayment loans (TBRLs) have created financial hardship for increasing numbers of loan recipients and their families. There is some evidence that prospective students from low-income households are forgoing a university education to avoid student loan debt. The Japanese government has introduced some measures including grants and a partial income-contingent loan (ICL) scheme to help alleviate these problems. While the ICL scheme is a positive development, this paper shows that it requires further refinement and broader coverage if it is to adequately address the challenges facing higher education financing in Japan. We show that an affordable and universal ICL system could be introduced in Japan that avoids problems with the current partial income-contingent loan scheme and would help alleviate access issues for those from disadvantaged backgrounds. Importantly, the unique features of the Japanese labor market have to be carefully considered, especially the large gender wage gap for married women. By introducing dynamics into modelling graduate earnings and using carefully selected parameters, we show that it is possible to have a universal ICL which achieves a balance between access and affordable repayment with minimal long-run costs to taxpayers.
Highlights
Japan's higher education sector is facing financing and access challenges
Because there are large confidence intervals at early ages some caution is needed with this conclusion. We repeat this exercise and estimate household earning dynamics for BA graduates, which allows us to simulate the earnings of the partners of BA spouses
To look at the repayment burdens associated with the current Japan Student Services Organization (JASSO) time-based repayment loans (TBRLs), we use the detailed distribution of JASSO loans from JASSO (2014) summarized in Table 1 and allocate loans consistent with this distribution to our graduate earnings simulations
Summary
We examine the current JASSO ICL for Type 1 loans and suggest ways of improving the design and extending the coverage of JASSO ICLs. We assume that our 9,000 female graduates (45% of all graduates) and 11,000 male graduates (55% of all graduates) will end up in 15,400 graduate household units by the age of 40 (based on marriage formation data for graduates from the LFS). For these households, we make the following assumptions. We simulate household earnings of graduates by marriage type and work out spouse's earnings (the difference between household earnings and the graduate's earnings) once they are married Once this is done, we calculate taxable income for males and females at each age. We estimate that this covers around 7% of Type 1 borrowers
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