Student Loans in Japan: Current Problems and Possible Solutions

44 Pages Posted: 15 Nov 2018

See all articles by Shiro Patrick Armstrong

Shiro Patrick Armstrong

Australian National University (ANU) - Crawford School of Public Policy

Lorraine Dearden

Institute for Fiscal Studies (IFS)

Masayuki Kobayashi

University of Tokyo

Nobuko Nagase

Ochanomizu University

Date Written: October 24, 2018


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.

Keywords: Student loans, Student loan design, Japan

JEL Classification: H28, I22, I28, J24

Suggested Citation

Armstrong, Shiro Patrick and Dearden, Lorraine and Kobayashi, Masayuki and Nagase, Nobuko, Student Loans in Japan: Current Problems and Possible Solutions (October 24, 2018). Available at SSRN: or

Shiro Patrick Armstrong (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200


Lorraine Dearden

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Masayuki Kobayashi

University of Tokyo ( email )

Yayoi 1-1-1
Tokyo, Tokyo 113-8657

Nobuko Nagase

Ochanomizu University ( email )

2-1-1 Ohtsuka
Tokyo, Bunkyo-ku 112-8610

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics