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Opinion
Should Campus Loans Retreat From Campus?
Credit companies are retreating from campus loan business to avert further crises
 NO. 45 November 10, 2016

(LI SHIGONG) 

This September, Qufenqi, a financial platform that provided loans to college students and allowed repayment through installments, announced its retreat from campus as it moved toward more financially independent credit card consumers. In October, Wolaidai, another platform that focused on campus loans, also announced its withdrawal from the student loan market. Several other credit companies have begun to turn to white-collar workers, too.

Why are they retreating? Some incidents may point to part of the answer. Recently, a college student in central China's Henan Province, who had accumulated more than 580,000 yuan ($85,700) of debt by taking out loans from several platforms, killed himself. Incapable of paying off the high debt and seeing no way out, he jumped from a high building to his death. Unfortunately, this is not the only college suicide case involving campus loans.

College students do not have stable incomes, yet many of them are unable to control consumption impulses. In the face of campus loans, which have very low application requirements, there is a risk of falling into a trap. Meanwhile, contemporary campus loan platforms still have many loopholes, such as the violent methods some lenders use when pressing for payments and accepting applicants who use false names.

Should these loans then be prohibited on campus, or can they work effectively for college students? People have offered the following opinions:

Imposing restrictions

Li Yiling (China Youth Daily): Taking out loans nowadays is commonplace, both for large and small purchases such as property and electrical appliances. College students, restrained by their economic conditions, also have the urge to consume through loan services. However, their poor risk awareness and inexperience in handling money makes them especially vulnerable.

Some of these platforms tried to take advantage of these young students. In order to expand their market share and maximize profits, they even deliberately stimulated students' impulse for consumption. Some lenders reportedly preyed on young women by offering them loans in exchange for nude photos of themselves holding their ID cards. In cases of default, the loaners would threaten to publish the photos or show them to their families.

Given the absence of an effective mechanism to rein in such platforms, many students fell into overdraft and credit crisis traps. There must be tough restrictions on these loan platforms.

Chen Jia (www.sxdaily.com.cn): Currently, there are three main types of campus loans: first, hire purchase platforms that target college students' daily consumption; second, peer-to-peer lending platforms offering loans for education and startup businesses; and third, lending services offered by traditional e-business platforms like Alibaba. To qualify for loan services through these platforms, one needs to go through simple procedures.

The low threshold can attract a huge number of students, but the hidden risks tend to be neglected. Many students even turn a blind eye to default conditions, and once they default on their repayments, the penalty sum is much more than they can bear.

For this reason, this April, the Ministry of Education and the China Banking Regulatory Commission jointly issued a document, demanding the establishment of a warning mechanism for problematic online lending on campus. This can inform students of the risks posed through phone calls, text messages and campus broadcasting. There must be a severe crackdown on financial fraud stemming from online lending platforms so as to protect college students' economic interests.

Mo Ji (focus.cnhubei.com): College students are all adults above the age of 18, and are thus able to take full legal accountability for their lending contracts. However, Chinese college students are faced with an embarrassing situation: Their parents treat them as children that always need sheltering, so many are quite inexperienced in real life. The business of online campus loans in China has many loopholes in its operation model, including very loose criteria on loan eligibility.

Lending money to people who don't have stable incomes is a risky thing to do. Campus credit cards used to be popular in colleges, but banks stopped issuing credit cards to students in 2009 due to the high rate of defaults. Online campus loans might face the same fate as campus credit cards.

Managing risks

Niu Yinhui (Beijing Times): College students have a huge demand for loans. This demand needs to be fulfilled through proper channels.

To help them achieve loans without pushing them into traps, there are many things relevant parties need to do. For instance, lending companies must set up a reliable credit network, sharing information between lenders, to avoid loaning to students who have already committed defaults. Also, college students need to be well informed on financial matters to help them avoid using bad social services and slipping into usury traps.

Sun Shuluan (Zhujiang Evening News): Although they are adults, many college students are not yet financially independent. They take out loans without telling their parents, and when they are unable to pay back their debts, they do not dare ask their parents for money. Lending companies, of course, will not let them go without paying back the debt, and they'll try every means possible to coerce the students into paying. College students may have to borrow from one lender in order to pay another, creating a constantly expanding pile of debt.

Overwhelmed by heavy debt pressures, some students have felt they had no choice but to end their life. Indeed, those college students who committed suicide bore some responsibility for the tragedy, but those who dragged them into the plight are unforgiveable. It's a pity that no effective defense exists on campus to protect students from dangerous loans. If schools and parents can offer some advice before students take out loans, many mistakes can be avoided.

In order to regulate campus loans and prevent students from casually acquiring them, this August, tough measures were issued in Chongqing Municipality. Lenders are forbidden to issue loans to students who cannot provide a written consent from their parents or custodians which expresses their willingness to pay off student debts if necessary. In this way, college students will be unable to take loans behind their parents' back, and tragedies can be prevented.

Online campus loans have their pros and cons. The loans can provide students with hope for the future, though bad loans can damage their hopes. Properly handled, campus loans can be like honey; however, if not, they'll become poison.

Lu Chen (focus.cnhubei.com): Campus loans themselves are not necessarily bad. College students often have a will to spend, and excessive consumption among them is common. This huge market provides fertile soil for the growth of campus loans. Online finance companies, of course, will not give this up.

Although there are reasons for the existence of campus loans, this does not entitle companies involved to do whatever they like. Only a tiny fraction of college students have been driven to the extremity of suicide, but these tragedies have drawn attention to the issues concerning campus loans.

To take advantage of campus loans, rather than be exploited by them, students need to adjust bad habits of overconsumption. However, this needs to be achieved through effective education from schools and parents. Besides, tough reins on the operations of campus loans are necessary.

Apart from the low threshold for loan applications, there are many other loopholes in the system. For instance, lenders' advertisements on campus must be regulated. They often use false and seductive words to fuel students' consumption desires, pushing them toward mountains of debt.

We do not mean to eradicate campus loans, but there must be clear, tough and effective measures to regulate their operation.

Copyedited by Dominic James Madar

Comments to yanwei@bjreview.com 

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