30% of students default on school loans

A recent debt collection warning notice issued to 28 college graduates to pay back their students loans from more than a decade ago has circulated through the media in Zhengzhou, Henan Province, a situation that has irritated banks and left some students stuck between a rock and a hard place.

The notice was issued by Industrial and Commercial Bank of China (ICBC) to graduates who had student loans ranging from 1,000 yuan ($163) to 5,000 yuan. One graduate owes 4,500 yuan in student loans and 3,600 yuan in interest.

"The loans were granted 12 or 13 years ago; many debtors have changed their numbers and moved to other cities after graduation, so the bank has no choice but to contact them through the media, " Wang Bing, deputy director of the credit office at ICBC's Zhengzhou branch, told the Global Times.

College students are permitted to apply for school loans of up to 6,000 yuan per year, which they can either pay back before graduation or within five years of graduation. The arrangement can be negotiated with the bank.

But banks are finding it hard to collect on the student loans owed to them while the default rate on student loans rests at nearly 30 percent, or 28.4 percent, according to People's Bank of China.

It is a situation that leaves banks no longer wanting to grant student loans as the lending institutions grow increasingly disgruntled over time-consuming debt collections, said Wang.

The problem also exists in other countries, with the biggest US commerical bank, JPMorgan, announcing Thursday that it will stop offering student loans from October due to the billions of dollars lost to student loan defaults, the Wall Street Journal reported.

Lack of consciousness

Henan University of Traditional Chinese Medicine said that a new survey shows that many students default on their loans because they have a "weak credit consciousness."

The findings were based on 66 students who defaulted on their loans; they were among some 20,000 students who took out loans to attend the school from 2005 to 2012.

Over 50 percent of the students said that they forgot when they were supposed to repay the money and did not know how to repay. Twenty percent of respondents said that they failed to find employment after graduation so they were unable to repay the funds while 30 percent capable of paying back the money had procrastinated on the task.

"The other problem is that most students who default see their loans as a subsidy or a kind of welfare, rather than a business contract, which is why they don't take them seriously," said Li Zhixuan, deputy director of the university's student loans assistant office.

In fact, many of the students don't realize the importance of maintaining a good credit record until they go to apply for housing loans or credit cards, he said.

No degree, no job

To avoid paying risk compensation to the banks, some colleges have taken drastic measures to make sure students pay up. Schools are even refusing to hand over a student's diploma until he or she is debt-free with the bank. This tough approach has put students who cannot afford to pay their loan back in a hard place.

Zhang Liqun, who was graduated from a university in western Liaoning Province and found a job at a vocational school in Beijing, defaulted on his loan and did not get his diploma.

The Beijing school told him that they could not formalize his employment without a copy of his diploma, despite his talent and suitability for the job.

"I have no idea what I'm going to do now,"he told Shenyang-based Commercial Times. "I can't pay back my loan yet because I don't have a job, but I will get a job."