A joint effort has been initiated by the Ministry of Education, the Ministry of Finance, the People‘s Bank of China and the China Banking Regulatory Committee to revive the nation‘s student loan programme.
By fixing credit terms the new move will re-energize the student loan programme, which was seriously strained in recent years by repayment defaults.
Almost five years after the programme was introduced to help poor youth realize their college dream, it was reported that a number of student borrowers failed to abide by their repayment agreement.
That fact made domestic banks shy away from such a programme, even though it was of far-reaching importance to the country‘s higher education cause.
While the banks are justified to reduce their confidence in student borrowers, the bank credit terms were indeed too rigid for students.
The majority of today‘s college students have to apply for loans to cover tuition fees and living expenses which they cannot otherwise afford.
Though half of the interest on student loans is paid out of the national budget, the previous four-year repayment term still constituted a heavy burden on most student borrowers.
The country‘s tight job market has darkened college graduates‘ employment prospects. It is estimated that some 2.8 million students, an increase of nearly one third, will graduate from colleges this year.
By extending the term of repayment to six years and requiring colleges to set up loan compensation funds, the new credit policy will allow college graduates to establish a credit rating within their financial capacity while enhancing educational institutions‘ role in overseeing repayments.
To transform themselves into ingenious commercial banks, domestic banks must caution against any repayment default.
But unlike problematic consumer loans for the purchase of housing or cars which domestic banks compete with each other to grant, student loans represent assets of social significance rather than commercial benefit.
The pressing task for domestic banks is not to wince at temporary losses. Instead, they should overcome existing problems to expand the programme as quickly as possible.
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