With the new semester beginning on September 1, the government
has "forced" banks to ensure loans to poor college students.
A loan program is in place to help poor students in higher
learning institutions pay tuitions starting in 1999.
Under the program, poor students can apply for and get loans
from banks. They are required to repay the loans in six years after
they graduate and find jobs. During the process, the government
grants students a certain subsidy to pay off their loan
interests.
Among the improvements, one is that banks can receive
compensation, which is provided by both the government and
universities. Before, banks had to bear almost all the costs and
risks themselves.
National and provincial centers for the management of student
loans will be set up to strengthen coordination between lending
banks and universities.
In addition, repayment terms have been extended from the
previous four years to six years after graduation. And loan
interests during students' studying period in schools will be paid
by the government.
The improvements to the program are expected to make higher
learning institutions accessible to more poverty-stricken students.
Both banks and students involved in the program will be under less
pressure.
Over the past four years, commercial banks have issued 5.2
billion yuan (US$626.5 million) of student loans, just half of the
goal set by the Chinese Government.
The slow increase in student loans and the commercial banks'
unreadiness to provide them, compared with the fast growth of car
and housing mortgages, are due to the existence of difficulties in
the lending and repayment of student loans.
The proportion of students who fail to repay the loans in time
is high. The increase of default payment has caused greater costs
and risks to banks.
And banks' unwillingness to lend to students is also partially
due to lack of government compensation for the costs and the risks
incurred.
Now according to the amendments, the government will increase
its compensation to banks. And responsibilities of colleges and
universities have been stressed to supervise students' timely
payment and strengthen students' credit awareness, since schools
will pay a certain compensation if their students fail to repay the
loans.
The prolonged term of repayment will allow the students to have
more time to pay the loans and protect their credit record.
(China Daily September 2, 2004)