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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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