After the promulgation of the ‘Outline of China's Educational Reform and Development’ in 1993, China gradually began to implement a tuition fee charging system in higher education. By 1997, China’s higher education institutions had fully implemented the charging system. From 1999, China also started trialing a student loan policy to help students from low-income families to pay tuition and accommodation fees. The student loan policy has now been in existence for nearly 30 years. In order to analyze the success of the policy, Sunshine Research Center for Financial Innovation, THUIFR conducted an exclusive research. The research summarized the problems from the development of student loans, investigated relevant measures for addressing these problems and looked at the development of inclusive finance in reforming the student loan mechanism.
By the end of 2018, the amount of student loans granted in China had increased from 50 million RMB in 1999 to 3.25 trillion RMB, while the total student value of loans issued stood at 22.91 trillion RMB to more than 32.62 million students in China.
Firstly, this paper identified that challenges faced by the financial sector, educational institutions, and students in the development of the national student loan scheme. These problems included system design, students reluctance to borrow money lending institutions' reluctance to lend money, complicated repayment procedures, and high loan default rates.
Secondly, this paper investigated the changes to the national student loans policy to help solve these problems. The changes included: making parents co-lenders to address the problem of student reluctance to repay; establishing a risk compensation mechanism to increase the responsibility and enthusiasm of lending and educational funding institutions; removing full interest charges during the schooling period, and instead charging half interest, while extending the loan repayment period from four years after graduation to ten years. Further making full use of financial technology could the lending and recovery costs for financial institutions and improve the operational efficiency of lending.
Finally, this paper summarizes national student loan practices. Through a series of reforms to the mechanism design, the national student loan scheme has changed from a "hot potato" to a a sustainable and inclusive financial model. Alleviating college students of poverty can improve social mobility, lift whole families out of poverty, and prevent the transmission of poverty across generations. Students have received advanced financial education and credit education. Universities have largely solved the problem of student tuition arrears. Financial institutions are also fulfilling their social responsibility of helping students and China's student loan mechanism has gradually formed a win-win model for all parties.
