LCQ14: Non-means tested loan schemes
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    Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for Education, Mr Michael Suen, in the Legislative Council today (April 23):

Question:

      Regarding the three non-means tested loan schemes, which are applicable respectively to full-time tertiary students who are covered by Tertiary Student Finance Scheme - Publicly-funded Programmes ("TSFS"), full-time students who are covered by Financial Assistance Scheme for Post-secondary Students ("FASP") and eligible students who are not covered by TSFS and FASP, will the Government inform this Council:

(a) of the following in respect of each loan scheme each year since 1998:

(i) the interest income, and how much of it is related to the 1.5% risk-adjusted factor;

(ii) the respective total amounts of interest paid by borrowers during their study periods and on completion/cessation of their studies;

(b) of the reasons for some cases turning into bad debts, together with a breakdown, by such reasons, of the bad debt cases of each loan scheme since 1998; the respective numbers, since 1998, of defaulting loan cases of each loan scheme with over 15, 20 and 25 instalments overdue;

(c) of the additional charges payable by borrowers for defaulting loans, together with the name, amount and method of calculation of each item; the total amount of such additional charges payable in the defaulting loan cases in each loan scheme since 1998; and

(d) given that the majority of borrowers have repaid their loans on time, whether the Government will cancel the charging of interest based on the risk-adjusted factor in various loan schemes; if it will, of the implementation date; if not, the reasons for that?

Reply:

President,

(a) The Non-means Tested Loan Scheme (Scheme 1) applicable to full-time students eligible for the Tertiary Student Finance Scheme - Publicly-funded Programmes (TSFS), the Non-means Tested Loan Scheme (Scheme 2) applicable to full-time students eligible for the Financial Assistance Scheme for Post-secondary Students (FASP), and the Non-means Tested Loan Scheme (Scheme 3) applicable to students not covered by TSFS and FASP are operated on a non-means tested and unsecured basis. Loans provided under these schemes are subject to an interest charged on a no-gain-no-loss and full-cost recovery basis. The prevailing interest rate is 4.382% per annum, inclusive of the risk-adjusted factor concerned. The loan borrower is required to repay the loan and interest in 40 quarterly instalments within 10 years upon completion of study. From the 2002/03 to 2007/08 academic years(Note 1), the total amount of outstanding principal under repayment and amount of interest received under these schemes are in Table 1.

    From the 1998/99 to 2007/08 academic years, the amount of interest received from the risk-adjusted factor under the three non-means tested loan schemes is provided in Annex 1.

    Under the three non-means tested loans schemes, the loan borrower is not required to settle any interest payment during the study period. The interest accrued during the study period will be repaid together with the instalment interest upon completion of study. From the 2002/03 to 2007/08 academic years (Note 1), the amount of interest received each year under the non-means tested loan schemes is in Table 2.

(b) The Student Financial Assistance Agency (SFAA) may consider writing off student loans under the following circumstances:
(i) on compassionate grounds if the loan borrower has passed away;
(ii) where all efforts to contact the loan borrower and his indemnifier(s) have failed, and the loan proves irrecoverable; or
(iii) where write-off action is recommended by Department of Justice (DoJ).

    From the 1998/99 to 2007/08 academic years, the number of write-off cases under the three non-means tested loan schemes due to the above reasons is provided in Annex 2.

    From the 2002/03 to 2007/08 academic years (Note 1), the number of default cases under the three non-means tested loan schemes with 15-19, 20-24 and 25 or more overdue quarterly instalments respectively is in Table 3.

(c) Statistically, SFAA classifies cases with two or more consecutive overdue quarterly instalments as default cases. This does not include cases where deferment of repayment (e.g. due to financial hardship, further studies or serious illness) has been approved. If loan borrowers of non-means tested loan schemes fail to settle their quarterly instalment by the due date, they will be required to settle the overdue instalment together with an overdue interest equal to the average of the best lending rates of the note-issuing banks. SFAA is reviewing whether and how recovery costs and administrative costs arising from the recovery action should be charged pursuant to the undertaking signed by the loan borrowers.

    From the 2002/03 to 2007/08 academic years (Note 1), the total amount of overdue interest received each year under the three non-means tested loan schemes is in Table 4.

(d) Non-means tested loan schemes operate on a no-gain-no-loss and full-cost recovery basis. The interest rate charged is inclusive of a risk-adjusted factor to cover loss of the Government due to defaulted loans and interests in the provision of unsecured loans. We are closely monitoring the situation to see if the amount of interest received from the risk-adjusted factor would be sufficient to cover the amount in default. We will consider whether the risk-adjusted factor should be revised having regard to the default situation.

Note 1: Student Financial Assistance Agency started to compile relevant statistics from the 2002/03 academic year. Statistics before that year are not available.

Ends/Wednesday, April 23, 2008
Issued at HKT 22:26

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