The authorities loosened the credit terms and established a bad debt compensation fund for the country's student loan program in 2004. Two years later, the outcome is far from satisfactory.

Policy-makers made the changes two years ago simply to make loans more affordable to college students and encourage commercial banks to grant more credit to help poor students complete their higher education.

Although the number of loan recipients is on the rise, there are still far too many poor students waiting for financing, and some provinces have yet to see even one bank contract into the program.

Commercial banks are profit-driven. They have every right to shun financing plans that go against their commercial interest.

The current student loan program increases bank's per-unit credit granting costs, as the sum involved is often much smaller than ordinary commercial deals.

But what is more serious is that, due to the lack of a social credit system, it is hard for banks to keep track of college graduates in order to ensure the debts are repaid.

It seems much of the blame has been placed on students. Undeniably, some students may have purposefully defaulted on the repayment of their debts. But rocketing college tuition fees and the cut-throat employment market simply mean that many of the graduates lack the financial ability to pay back the money on time.

The low value-to-cost ratio of higher education (if we regard the sector as a business) means such a predicament will continue as long as there is no effective outside intervention.

There can be no solution to this problem unless soaring college tuition fees are brought under control and more jobs are available to graduates. However, there is little sign of an improvement in these situations in the near future.

This situation requires strong State intervention, which could include the allocation of more financial subsidies.

State investment will pay off. Failure to gain access to higher education is not just a problem for the students concerned, it also affects the long-term development potential of our nation.

An effective solution is that the state sets aside more funds to compensate for losses incurred by banks if students fail to repay loans.

The credit repayment term has now been extended from six to eight years, including the college years. It needs to be further extended as the social credit system is improved. This would ensure that those students receiving loans can have more opportunities to find decent and high-paying employment.

Many students are currently so desperate to repay their loans that they are forced to take low-paying jobs.

(China Daily May 30, 2006)