Banks urged to dig deep to help students
By Wang Ying (China Daily)
Updated: 2004-09-22 08:38

Graduate Gao Xiaoping from China Agricultural University in Beijing began paying back his student loan after graduating this summer.

"Without the loan, I would not have been able to finish my higher education," he said. "The loan was my only hope in solving my financial problems when I was enrolled by the university four years ago."

The son of a farming family in Yibin in Southwest China's Sichuan Province, Gao was overwhelmed by the costs of tuition and living expenses when he received his enrolment letter.

The tuition fee alone - 5,050 yuan (US$608) a year - almost equalled what his entire family earned in four years.

Gao borrowed 26,000 yuan (US$3,130) from the bank for his overall education fees and living expenses.

He is one of 830,000 poor college students who have benefited from the student loan programme, that started in 1999.

Over the past four years, commercial banks have issued 5.2 billion yuan (US$626.5 million) in student loans, only half of the goal set by the central government.

But from the end of last year, applicants have been finding it tougher to actually get the money out of banks. The slow increase in student loans and the commercial banks' reluctance to provide them has coincided with a fast growth in car loans and mortgages.

But it's more the fact that students are failing to pay back the money that makes banks reluctant.

Statistics from the Ministry of Education suggest that up to 40 per cent of student borrowers have failed to pay back the money in time, and growing debts have led to greater costs and risks for banks.

The banks' unwillingness to lend is also partially due to lack of government compensation for these costs and risks.

Commercial banks withdrew their stalls from university campuses last year in a move that was harshly criticized by students, colleges and the media.

The failure to repay on time should not be an excuse for banks to stop issuing loans, says Deng Hui, an official with the Student Affairs Division of the Renmin University of China in Beijing.

"Very few students default their loan repayment deliberately. They have reasons," Deng says.

The previous four-year repayment term was simply too much of a burden on students who failed to find a job immediately after graduation, according to Deng.

New policy, new hope

To deal with the issue, four State departments - the Ministry of Education, Ministry of Finance, the People's Bank of China and the China Banking Regulatory Commission - have come up with a new policy on student loans to ensure students in financial difficulties finish their higher education.

Under the new policy, the time limit for loan repayment by college students is extended to six years after graduation, starting from this autumn. Both the capital and interest must be repaid within that time. The interest is calculated from their graduation day.

Meanwhile, the People's Bank of China and the China Banking Regulatory Commission have urged the nation's commercial banks to eliminate restrictions on loans and give out money more freely to those who need it.

China now has 2.4 million college students who experience financial difficulties and need these loans, accounting for about 20 per cent of the total on-campus students, says Zhang Baoqing, vice-minister of education.

"While higher education is experiencing rapid development in China, the number of college students from poverty-stricken families has also been increasing," Zhang says.

After the new policy goes into effect, eligible students, ranging from full-time undergraduates to postgraduates as well as those taking second degrees, will get loans of up to 6,000 yuan (US$723) per school year, and no interest will accrue during their campus years.

Colleges and universities have warmly welcomed the new policy.

"The new policy has really eased students' financial burdens and reduced bank risks and will stimulate further progress in higher education," says Yang Zhenbin, deputy Party secretary of Tsinghua University.

For students who fail to find a job or get a decent salary immediately after graduation, there will be a grace period of one or two years for the repayment.

In the meantime, a mechanism of risk prevention and compensation will be set up under which the Ministry of Finance sets up a special fund to compensate commercial banks that bid for student loan business.

Those failing to repay their loans within the time limit will be put on a bad credit list and exposed to the public through the media.

Under the new policy, students applying for the loans do not need a guarantor or any collateral as security.

It means that there is still a risk to banks because they have no credit history for the borrowers.

Calling for credit record system

The problem has prompted predictions that the new student loan programme may not last long because of insufficient compensation from the financial department and an uncertain response from the banks.

Yi Xianrong, a researcher from the financial office of the Chinese Academy of Social Sciences, suggests a valid credit relationship is set up between students applying for loans and the banks so that it complies with market rules.

Experts are also calling for laws and regulations on individual credit records and a penalty mechanism on bad credit to regulate the social credit system.

It is normal for the banks to choose risk avoidance and the government to provide guarantees, while higher education institutions cannot be expected to set up compensation funds as guarantors.

Under the current education system, State universities and colleges, as affiliations to the Ministry of Education, have to play certain roles in solving the student loan problem.

Colleges and universities have been urged to supervise students' payments and make students aware of credit and debt, especially since the universities are liable for some of the compensation if their students fail to pay back the cash.

Other way out for poor students

Another way of getting to university is to win a scholarship.

Various scholarships have been set up by the central and local governments, as well as universities,which gave out 3.3 billion yuan (US$390 million) of scholarships last year to 4.5 million college students.

Universities also organize students from poor families to do paid work on campus. Last year 1.5 million students benefited from that.

Another scheme, the so-called "green access" scheme, means that new students from poor families must be registered even if they cannot pay the tuition at once.

After registration, various solutions will be offered to the students to help them pay their way.

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