A notice posted on its official Website on Sunday by the People's Bank of China, the country's core bank, urged all banks nationwide to expand their educational loans to needy college students.

All financial institutions should provide adequate, timely educational loans. They should create new financial loan packages to meet the needs of poor students, the central bank's notice said.

"The current educational loan system still needs upgrading. Current loan packages do not cover all university students and the application procedures are Byzantine," said the bank.

The central bank warned all Chinese banking institutions to improve in-house management. Loan services to low-risk clients need increased monitoring.

In 1999 China introduced a pilot educational loan system in eight major cities, including Shanghai, Beijing and Tianjin in order to assist needy college students. In 2004 this service extended to the rest of the country.

Loan balance

By the end of June, Chinese educational loans reached arrears of 19.3 billion yuan (US$2.55 billion), according to figures from the central bank.

"Risks involving educational loan are much higher than commercial loans," said an official from the Bank of China.

According to government policies, the nationwide student loan system requires no guarantee and offers a moderate time limit -- six years at most -- for students to pay back their loan after graduation. Both factors greatly increase bank risks.

Because students can apply for guarantee-free loans, banks must rely on the students' personal credit. Students put up no tangible assets to assure the banks that the contract will be honored.

Although banks have set up an information system to record details of education loan recipients, they cannot track students' personal information after they graduate.

"We have found that many universities and colleges have several million yuan of defaulted tuition fees and some have nearly a billion," Cui Bangyan, a senior official with the Ministry of Education, said early this month.

Figures from the ministry show that 2.07 million students had received a total of 17.27 billion yuan in loans by the end of 2005. Almost one in five students have violated the loan contract by defaulting, totaling more than 3 billion yuan.

Recently, the Beijing and Guangdong branches of the Industrial and Commercial Bank of China blacklisted more than 1,700 students for defaulting on loan payments in excess of one year. The two banks published on-line these students’ personal data: their names, ID numbers and addresses

Blacklisting is legal policy regarding student loans that are jointly issued by the People's Bank of China, the Ministry of Education and the Ministry of Finance.

However, Qiu Baochang, a member of the Beijing Lawyer's Association, suggested utilizing lawsuits rather than Internet blacklists. He explained that banks could face a lawsuit themselves if a blacklist contained faulty information.

Because some students encounter difficulties repaying their loans on time Qiu also suggested that a more lenient plan be devised.

(Xinhua News Agency July 31, 2007)