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Bank Sues Graduates over Loan Repayments

A bank is suing 68 university graduates who have not paid back their student loans.

The Agricultural Bank of China has brought the suit against graduates from nine universities, including the renowned institutions of Fudan and Tongji.

A court hearing, which involves the Wujiaochang branch of the bank in Yangpu District, the educational hub of Shanghai, will be held on September 26.

At least six students from Tongji and four students from Fudan are among those being sued, China Daily has learned.

According to staff at Yangpu District People's Court, which is dealing with the case, the majority of the defendants graduated last year and this year.

They are alleged to have failed to repay 762,805.5 yuan (US$95,350) and have broken 96 contracts signed with the bank when they were still at school.

"We have dealt with student loan suits before, but this is the largest one in Shanghai," a court worker told China Daily.

However, this lawsuit is believed to be only the tip of the iceberg.

There are a total of 3,000-4,000 student loan contracts that have been breached at this branch alone, according to the bank. Other banks face similar bad loan problems.

The case has once again put the long-term issue of student loans back into the spotlight, particularly as similar lawsuits have been issued in other cities, such as Beijing.

Forty-two students were sued earlier this year by a bank in Beijing for defaulting on repayments.

Student loans are often subsidized by the government to help poor students finish their education.

The government pays the interest for students during their school years, but students then have to start repaying the principal and interest soon after graduation.

Four State-owned banks, Bank of China, the Agricultural Bank of China, China Construction Bank, and the Industrial and Commercial Bank of China, are required by the government to offer student loans.

This year the four banks have agreed to continue to provide nearly 170 million yuan (US$21 million) worth of student loans a year for 67 universities in Shanghai.

"It has become easier and easier for students to get loans from banks," said a worker at Shanghai Education Commission.

At Tongji, for example, more than 3,500 students can get loans of 5,000 to 6,000 yuan (US$625-750) each year. This takes the annual loan bill at the university to at least 17.5 million yuan (US$2.2 million).

Tongji officials told China Daily: "Students now have no difficulty in getting loans, but the list of students who fail to repay their loans on time has become longer and longer."

"Overdue payments are quite common," said a banking source. "Banks usually keep the non-performing lending rate below 5 percent for commercial lending, but for student loans the rate greatly exceeds that baseline, reaching double digits.

"Since no home is required to secure a student loan, repayments are solely down to whether students care about their financial credibility."

(China Daily September 12, 2006)

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