Developing a Risk Group Predictive Model for Korean Students Falling into Bad Debt

• Author: Jun‐Tae Han,Myeon‐Jung Kim,Jae‐Seok Choi,Jina Jeong
• Date: 01 March 2018
• DOI: http://doi.org/10.1111/asej.12139
• Published date: 01 March 2018

Developing a Risk Group Predictive Model for

Korean Students Falling into Bad Debt*

Jun-Tae Han, Jae-Seok Choi, Myeon-Jung Kim

and Jina Jeong

Received 3 December 2015; Accepted 27 December 2017

Using direct loan data for 2012 to 2014 from the Korea Student Aid Foundation,

we develop a risk group predictive model for borrowers defaulting on their loans.

We used a logistic regression model and the Cox proportional hazards model to

develop the risk predictive model. We verified the validity of the models using a

receiver operating characteristic curve and a validation dataset. The present study

shows that area under the receiver operating characteristic curves is similar for the

models and that the major influencing factors for defaulting on their loans are

household income, whether a national grant was received, age, whether more than

two accounts are overdue, field of study and the monthly repayment amount. The

risk group predictive model in this study will be the basis for more efficient man-

agement of direct student loans.

Keywords: Cox proportional hazards model, direct student loan, logistic

regression model.

JEL classification codes: I20, I22, I23.

doi: 10.1111/asej.12139

I. Introduction

The Korea Student Aid Foundation (KOSAF) student loan program is designed

to support Korean students studying in Korean institutions. KOSAF’s student

loan program is divided into three main categories: income contingent loans

(ICL), direct loans and loans for rural students.

Income contingent loans are for students from low-income families that may

be used for tuition and qualifying education-related costs. ICL are not subject to

credit approval. The income contingent repayment system gives students the

flexibility of choosing repayment options that best suit their personal circum-

stances. Direct loans are for students from families of any income level that may

be applied towards tuition and qualifying education-related costs. Borrowers

*Han: Department of Student Aid Policy Research, Korea Student Aid Foundation, 125 Sinam-ro,

Dong-gu, Daegu 41200, Korea. Choi (corresponding author): Department of Student Loan Repay-

ment, Korea Student Aid Foundation, 125 Sinam-ro, Dong-gu, Daegu 41200, Korea.

Email: jasonchoi75@gmail.com. Kim: Department of Student Loan Management, Korea Student Aid

Foundation, 125 Sinam-ro, Dong-gu, Daegu 41200, Korea. Jeong: Department of Student Aid Policy

Research, Korea Student Aid Foundation, 125 Sinam-ro, Dong-gu, Daegu 41200, Korea.

© 2018 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2018, Vol.32 No.1, 3–14 3