No. of student loan defaults increase sevenfold in 4 years

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The number of young borrowers in South Korea failing to pay back their student loans on time has reached 4,777 last year, marking a sevenfold increase from 2018, data showed Sunday.

A review conducted by the National Assembly’s Special Committee on Budget and Settlement showed a dramatic rise in insolvent student loan borrowers from 670 in 2018 to 4,778 in 2022, along with a fivefold increase in the amount deemed uncollectible by the Korea Student Aid Foundation, soaring from 4.73 billion won in 2018 to 27.48 billion won ($20 million) last year. The uncollectible student loan amount more than doubled within a year, from 11.8 billion won in 2021.

The primary factor contributing to the inability to repay student loans was identified as personal bankruptcy. In 2022, a total of 3,454 individuals sought financial rehabilitation, receiving relief for loans totaling 17.8 billion won. This constituted 64.8 percent of the overall uncollectible loans.

The uncollectible amount for repayment of student loans stood at 16.25 billion won, surpassing the total for loans repaid after employment.

An official from the scholarship foundation noted that “the challenge lies not in the size of the student loans but in the increased incidence of financial rehabilitation and bankruptcy cases, largely driven by high interest rates and the inability to meet other debt obligations.”

While student loan interest rates have been fixed at 1.7 percent since 2021, below the prime rate, the rising overall interest rates have placed a heavier burden on young debtors, hindering their ability to fulfill student loan obligations. The report suggested that the income barriers during the early stages of their careers, coupled with the nationwide craze for heavily leveraged investment in properties amidst expectations of escalating housing prices, may be contributing factors.

Concerns about student loans, encompassing eligibility, requirements, and repayment schedules, were raised by the National Assembly Special Committee on Budget and Settlement in its review report. The committee emphasized the potential for a surge in social problems if the growing number and amount of individuals unable to repay their loans are not effectively managed and called for preventive measures.