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Following is a question by the Hon Tanya Chan and a written reply by the Secretary for Education, Mr Michael Suen, in the Legislative Council today (November 12):
Question:
Quite a number of tertiary students and graduates have told me that repaying loans under the Non-means Tested Loan Schemes poses a heavy financial burden for graduates. In this connection, will the Government inform this Council:
(a) of the respective loan amounts approved under each scheme in the past five academic years, the interest income thereof, and its related administrative expenses;
(b) of the respective number of cases in each scheme with two or more consecutive quarterly instalments in default during the last academic year, and its respective amounts of principal and interest overdue;
(c) whether it will make reference to the methods for determining interest rates and calculating interests in the means-tested Financial Assistance Scheme for Post-secondary Students and review the relevant arrangements for the Non-means Tested Loan Schemes; if it will, of the review timetable; if not, the reasons for that;
(d) of the existing measures to recover arrears from defaulting borrowers and the effectiveness of such measures; whether it has reviewed the ways to recover arrears; if it has, of the review results and follow-up actions; if not, the reasons for that; and
(e) whether new measures are in place to help borrowers with financial difficulties reduce their financial burden; if so, of the details; if not, the reasons for that?
Reply :
President,
The Government has currently in place three non-means-tested student loan schemes listed in Annex I which aim at providing loans to assist eligible applicants to pursue their studies.
My specific replies to the questions in seriatim are in the ensuing paragraphs.
(a) In the 2003/04 to 2007/08 academic years, the amounts of loans disbursed under the respective non-means-tested loan schemes are in Annex IIa.
In accordance with the existing terms and conditions of the non-means-tested loan schemes, loan borrowers are required to repay their loans in quarterly instalments within ten years upon completion or termination of their studies. In the 2003/04 to 2007/08 academic years, the amount of interest (Note 1) received from repayment accounts of loans approved over the years under the respective non-means-tested loan schemes is in Annex IIb.
Regarding the administrative expenses (Note 2) of the non-means-tested loan schemes, since the Student Financial Assistance Agency (SFAA) is administering these schemes in an integrated manner, we do not have a breakdown of administrative expenses for each scheme. In the 2003/04 to 2007/08 academic years, the total administrative expenses for the three non-means-tested loan schemes are in Annex III.
(b) Statistically, SFAA classifies loan borrowers who have failed to repay two or more consecutive quarterly instalments as defaulters. This does not include those who have been allowed to defer repayment. In the 2007/08 academic year, the accumulated number of default cases, and the amount of loan principal and interest (Note 3) involved under the respective non-means-tested loan schemes are in Annex IV.
As at 2007/08 academic year, the total amount of the loan principal and interest in default under the various non-means-tested loan schemes is about $135 million. The total amount of the undemanded loan principal under the defaulted accounts concerned is about $393 million. In the event that these undemanded loan principals are also in default, the total amount in default would amount to $528 million.
(c) To ensure that no post-secondary students will be deprived of education for lack of means, TSFS and FASP seek to provide eligible applicants with low-interest loans (interest rate set at 2.5%) to assist them to meet their basic living expenses. The concerned applicants are required to go through the income and asset tests to ascertain their eligibility for the relevant financial assistance.
The non-means-tested loan schemes aim to provide loans to post-secondary students, who are unable or unwilling to go through the income and asset tests under TSFS and FASP, and to those eligible applicants who are not covered by TSFS and FASP. Since the loans are not subject to means test and are unsecured, these schemes have to operate on a no-gain-no-loss and full-cost-recovery basis in order to ensure the proper use of public money. The prevailing interest rate for the non-means-tested loan schemes is 4.382% (including a 1.5% risk-adjusted factor to cover Government¡¦s risk in disbursing unsecured loans). This interest rate is far below the interest rates of other unsecured loans in the market.
We consider it inappropriate to make direct comparison between the above two types of loan schemes which have different policy objectives, or to align their terms and conditions.
(d) Under the existing terms and conditions of the non-means-tested loan schemes, loan borrowers are required to repay their loans in quarterly instalments within ten years upon completion or termination of study. In case loan borrowers fail to repay a quarterly instalment by the due date, and have not approached SFAA to provide explanations, SFAA will write to them to demand immediate repayment of the loans. If the concerned loan borrowers still fail to repay the loan without reasons despite repeated requests, SFAA will arrange to refer the default cases to the Department of Justice for debt recovery through legal means.
We are concerned about the default problem, and will endeavour to ensure the proper use of public money. SFAA has reviewed the debt collection process, streamlined the workflow, and deployed additional staffing resources to expedite debt recovery through legal means. In addition, SFAA has enhanced publicity on prudent financial management. It has been working closely with the post-secondary institutions to brief students on various loan schemes and loan repayment arrangements, to remind them of the need to seriously consider their financial requirements and repayment ability before applying for loans, and to emphasise the importance of prudent financial management and making repayment on time.
In view of the rising number of default cases, SFAA has been seeking the advice of the Joint Committee on Student Finance on measures to reduce the number of default cases. Some members suggested that SFAA should provide information of the defaulters to relevant credit reference agencies so as to deter loan borrowers from defaulting loan repayment without reason. SFAA is considering the feasibility of the suggestion and will consult JCSF further on the proposal.
To ensure more effective protection of public money, we will continue to monitor the default situation and review the debt recovery measures as and when necessary.
(e) SFAA appreciates that individual loan borrowers may encounter difficulties in repaying their loans. It has therefore put in place an effective mechanism for handling such problems. If loan borrowers are unable to repay their loans on grounds of financial hardship, further studies or serious illness, they may apply to SFAA for assistance with support of documentary proofs. SFAA will, on the basis of individual merits, approve deferment of loan repayment or temporary adjustment of the quarterly repayment amount.
In the 2007/08 academic year, SFAA has approved about 2 700 applications for deferment of loan repayment or adjustment of quarterly repayment amounts under the various non-means-tested loan schemes. We consider the existing mechanism effective in providing appropriate assistance to loan borrowers who are unable to repay their loans.
Note 1: The interest is charged on a no-gain-no-loss and full-cost-recovery basis. The principle is that Government shall not make profit or suffer from any losses (including losses in interest income from the loan amounts) through the various non-means-tested loan schemes.
Note 2: The administrative expenses refer to the costs incurred by the Student Financial Assistance Agency in processing the loan applications and administering the loan accounts.
Note 3: In accordance with the terms for the loans, if the loan borrowers of non-means-tested loan schemes fail to repay a quarterly instalment by the due date, they will be required to pay an overdue interest for the outstanding quarterly instalment in addition to the interest pertinent to their loans.
Ends/Wednesday, November 12, 2008
Issued at HKT 12:55
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