Student loans increase; interest rates fall

Wed, 26th Sep 2007

HA NOI - Following a meeting between Deputy Prime Minister Nguyen Thien Nhan and representatives from state offices and relevant ministries on Thursday, Viet Nam Bank for Social Policies (VBSP) will increase the amount students can borrow and reduce their interest rates.

The new student loans amount is expected to cover living expenses and tuition fees.

The loan will be determined depending on each year’s tuition fees and expenses, and will be divided into three different levels for students from mountainous, flat and urban areas.

The current interest rate, which is 70 per cent of the rate for business loans, will drop to about 50 per cent.

A plan for implementing the Prime Minister's instructions was mapped out at the meeting and will be presented to the PM on September 26. The final plan will be announced September 28 and take effect the first semester of the 2007-2008 school year.

Current revisions

Since September 6, two days after the issuance of the PM's instruction, the VBSP has been actively revising its current student loan programmed. Yet the biggest challenge for the VBSP is a shortage of capital.

The monthly student loan is expected to increase from the current 300,000 to 1.2 million dong. The VBSP estimates that new students with financial need will account for 20 per cent of all freshmen this year or 287,000 students.

That means the bank will need 4,254 billion dong to offer loans to freshmen and an additional 99,500 current student borrowers, said Ha Dan Huan, Chief CEO of the VBSP.

The programme’s initial capital source of 160 billion dong since 1999 has dried up, while the demand is still high.

Moreover, students who avoid paying back their loans threaten the programme’s sustainability. VBSP representatives have had to come to the students’ families to collect on them, but the effect is limited.

Therefore, the VBSP initiated a new procedure under which students have to have sponsorship from their families and local governments when they apply for a loan.

Student opinions

For some families, funding their children’s education in the big city is no easy task. Students from poor families often end up choosing universities that do not require tuition fees.

Vinh, a former student of the University of Natural Sciences at HCM City, wished this student loan had existed when he was still an undergraduate, so that he did not have to spend so much time on part-time jobs and could just focus on his studies.

Kien, who attends the University of Social Sciences and Humanities in HCM City, receives a monthly allowance of 700,000 dong from his poor family in Quang Tri. An additional 1.2 million dong per month would make a huge difference, he said.

Although they welcomed the new loan legislation, some students found the loan application process too complicated.

"It is no easy task to persuade the local authority to be my guarantor since no one wants to show that there are still poor households in their area," said Trang, a student at the University of Culture in HCM City.

A future of debt is another factor that makes students reluctant. Hien, a student at the Institute of Media, said the high interest rate and a huge debt are too much for her to pay with a future fresh-graduate’s humble salary. — VNS