With the new semester beginning on September 1, the government has "forced" banks to ensure loans to poor college students.

A loan program is in place to help poor students in higher learning institutions pay tuitions starting in 1999.

Under the program, poor students can apply for and get loans from banks. They are required to repay the loans in six years after they graduate and find jobs. During the process, the government grants students a certain subsidy to pay off their loan interests.

Among the improvements, one is that banks can receive compensation, which is provided by both the government and universities. Before, banks had to bear almost all the costs and risks themselves.

National and provincial centers for the management of student loans will be set up to strengthen coordination between lending banks and universities.

In addition, repayment terms have been extended from the previous four years to six years after graduation. And loan interests during students' studying period in schools will be paid by the government.

The improvements to the program are expected to make higher learning institutions accessible to more poverty-stricken students. Both banks and students involved in the program will be under less pressure.

Over the past four years, commercial banks have issued 5.2 billion yuan (US$626.5 million) of student loans, just half of the goal set by the Chinese Government.

The slow increase in student loans and the commercial banks' unreadiness to provide them, compared with the fast growth of car and housing mortgages, are due to the existence of difficulties in the lending and repayment of student loans.

The proportion of students who fail to repay the loans in time is high. The increase of default payment has caused greater costs and risks to banks.

And banks' unwillingness to lend to students is also partially due to lack of government compensation for the costs and the risks incurred.

Now according to the amendments, the government will increase its compensation to banks. And responsibilities of colleges and universities have been stressed to supervise students' timely payment and strengthen students' credit awareness, since schools will pay a certain compensation if their students fail to repay the loans.

The prolonged term of repayment will allow the students to have more time to pay the loans and protect their credit record.

(China Daily September 2, 2004)