Student Loan Scheme in china

The Chinese authority introduced a national governmental subsidized student loan scheme for university students in 2000 after several years’ complaints about the ever-increasing university tuition from those who find it unaffordable. After five years of implementation, it became the core policy and regarded as the most effective method for tackling student poverty in higher education institutes. This paper, by analyzing results from a survey conducted among seven regular higher education institutes (RHEIs) in Guangdong Province, finds that a significant portion of students of disadvantaged background, 11.9% in our sample, are still excluded by the scheme for various reasons. By exploring why and how student loan become unborrowable to the disadvantaged and with special reference to the English student loan model, this paper provides some suggestions, an income-contingent loan arrangement in particular, for further discussion and future reform.
The reform of the enrolment system of higher education in China has changed it from a dual-track one to a one-track one in the past two decades. From early 1980s till the implementation of the dual track system in 1992, only a negligible number of students recommended by their ‘work unit’ enrolled in universities were required to pay tuition fee. Higher education was then free to the majority of students. From 1992 to 1997 was a time of transition from dual-track to one-track system during which period tuition fees were introduced and the level of tuition paid by regular students and recommended students were converging towards a similar level. All regular higher education institutions (RHEI) throughout the country charged students tuition and boarding fees since 1997. A cost-recovery policy was then implemented in all regular higher education institutions in China (Johnstone 2002, 2003b, Chung & Zhan 2003). It is estimated that since 1997 about 25 percent of total recurrent higher education expenditure went on students (Shen & Li, 2003).

From a macro perspective, university top-up fees was a result of higher education expansion without sufficient public resources. In the past 10 years, the enrolment of students in higher education in China has dramatically increased from around one million in 1997 to 4.75 million in 2005, resulting in total population of students in higher education reaches 14 million. However, the extra costs occurred under such an expansion has not been fully funded by the government. As a result, the annual tuition fee has been increased from about 2,000 rmb in 1997 to approximately 5,000 rmb in 2003. This level of tuition was criticized fiercely by the public and was forced to remain at the same level from 2003 on (He 2004, Li 2004).

Three national student loan schemes have been implemented during the same period as a supplementary policy to tackle student poverty created by the introduction of tuition fees.

1.2 The 1986 Student Loan Scheme and the 2000 Commercial Student Loan

Students were not required to pay any tuition fee, but received stipends and maintenance grants monthly from the government until 1992. However the amount was insufficient to cover all living expense. Therefore the first student loan scheme introduced in 1986 was mainly aimed at covering insufficiently funded living expenses. However, this scheme turned out to be unattractive due to its insufficient coverage of living expense and low take-up rates (Shen & Li, 2003). Nevertheless, the fatal weakness of this scheme was the unreasonable repayment arrangement that required students to repay loans before graduation (See table 1.1).

The primary purpose of any student loan is to defer fees (including both tuition and maintenance) in order to make higher education free at the time of use (Barr 1998, 2002, 2003, Johnstone 2003a). The 1986 SLS failed to achieve this aim. As the tuition fee introduced in 1992 and increased significantly from mid-1990s, the 1986 SLS became even more incapable in tackling student poverty, two new student loan schemes were therefore proposed to replace it in 1999.

The first one was Government-Commercial Student Loan Scheme (GCSLS) implemented since 2000. The scheme was applicable to all post-secondary-education students and their parents or guardians. The target group was all students over 18 years old in higher education institutions (See table 1.1).

By nature, this regulated commercial student loan is a mortgage, which has to be guaranteed. It aimed more at students from an advantaged background (whose loan is guaranteed by someone) rather than a disadvantaged background. Students from lower-income families without any assets to mortgage for the loans, no matter how important it is to them, would not obtain any support from this scheme.

Since the GCSLS cannot reach the most needy students and cannot significantly improve disadvantaged students’ access to higher education, the government, eventually, opts for the Government-Subsidized Student Loan Scheme (GSSLS) as its key method to tackle student poverty (Shen & Li 2003).

1.3 Government-Subsidized Student Loan Scheme (GSSLS)

In May 1999, the government-subsidized student loan was piloted in eight cities. The students who apply for the loan need guarantors, they have to accept a commercial interest rate with 50 per cent of the interest subsidized by government finances, and the repayment period is four years after graduation.

The requirement of guarantors for the loan was heavily criticized for the same reason as that of GCSLS. When this pilot scheme was reassessed for a nationwide implementation in December 1999, the guarantor requirement was replaced by a student’s individual credit as a loan guarantee. Furthermore, the nationwide scheme would dismantle higher education institutes’ responsibility in repaying defaulted loan and interest that they were required to do previously in the pilot scheme. All students who wish to borrow from the scheme can therefore do so with their own credits.

This scheme was introduced to the whole country in August 2000 and the target group was extended to both undergraduates and postgraduates. In order to cover more students, some modifications of the scheme were made in June 2001 and March 2002, including exempting the banks from business tax on GSSLS. This was to increase competition between commercial banks by allowing higher education institutes to cooperate in this scheme with more than one bank.