Economics at your fingertips  

Income Contingent Repayments How Can We Get into a Debt Trap?

Edina Berlinger () and György Walter

Central European Business Review, 2016, vol. 2016, issue 2, 37-46

Abstract: Income contingent schemes have been widely used in student lending in the last few decades. Recently, in the aftermath of the crisis of 2007-2008, several authors argued that income contingent loans have much better risk profiles than traditional fixed loans, and they proposed to extend their scope to other areas of retail lending, too. Hence, understanding this scheme can be relevant from the point of view of both human resource management and financial engineering. In this paper we analyzed the unusual characteristics of income contingent repayments, and derived closed formulas for stability, success and shape. We concluded that humped debt paths can be frightening; however, if the growth rate of the debt is lower than the growth rate of the income, then it is not a debt trap, but a natural consequence of this patient and flexible scheme, which requires new methods of communication, risk management, financing and administration.

Keywords: income contingent repayment; student loan scheme; retail lending; debt trap (search for similar items in EconPapers)
JEL-codes: G01 G21 I22 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (text/html) (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
Faculty of Business Administration, University of Economics, Prague

DOI: 10.18267/j.cebr.150

Access Statistics for this article

Central European Business Review is currently edited by Jindřich Špička

More articles in Central European Business Review from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().

Page updated 2021-05-16
Handle: RePEc:prg:jnlcbr:v:2016:y:2016:i:2:id:150:p:37-46