Study On The Guarantee Mechanism For The Government-subsidized Student Loans In China

At present, the Government-subsidized Student Loan (GSSL) has become the primary means to aid the needy students in higher education institutions out of financial difficulties in China. Annually several hundred thousand college students from low-income families continue their education with the aid of GSSL. However, in the course of implementation there springs up a series of problems. Among them, the major one is loan risk such as high default rate and the bank's Credit Stinting, and consequently many qualified applicants can not receive the loan aid. In view of this situation, whether or not and how guarantee, as one of the basic means of controlling loan risk, ought to be introduced turn out to be the research focus of this dissertation. On the basis of questionnaire survey, interview and comparative studies of domestic and international practices, this dissertation, in terms of the credit financing guarantee theory and the principal-agent theory under asymmetrical information, discusses the necessity of introducing guarantee to GSSL and examines the following questions: why guarantee can solve the problems of high default rate and credit stinting, which kind of guarantee is suitable for GSSL, which body is fit for providing guarantee for GSSL and how to motivate the guarantor to accomplish the guarantee task of GSSL.The loan product, GSSL, benefits millions of students from needy families. However, what are the reasons for its high default rate? Is it due to the students' incapacity or lack of willing to repay the loan, or is there defect in the technical link of repay? The dissertation, using the Beijing University 2003 and 2007 national survey statistics about undergraduate employment, calculated the student borrower's repayment burden rate under the new and old mechanism and student-origin non-guarantee loan. The result shows that, with the progressive improvement of the GSSL policy and the gradual prolonging of return deadline, the restraint on the borrower's repay capacity loosens gradually. In addition, the interviews with defaulting students find out that because the student borrowers are deficient in common knowledge of credit loan and do not have thorough understanding of the loan contract and repayment obligation, they lack repayment willing. Therefore guarantee is needed to establish information communication mechanism and to reduce default rate. The dissertation set up the plane coordinate with credit rating as abscissa and granted money as ordinate, analyzed the bank's credit rationing procedure under the circumstance of government's control of interest rate and the domestic monopoly of credit market. The conclusion is that guarantee is the necessary condition for eliminating bank's credit stinting. Then the dissertation proves the necessity of introducing guarantee to GSSL in terms of reducing default rate and eliminating credit stinting.Next, why is guarantee a kind of information communication mechanism? How can it reduce default rate and credit stinting? After reviewing the classic western guarantee theory, the dissertation comes to the conclusion that before credit the amount of guarantee provided by the applicant discloses to the bank indirectly information of his risk type, so the bank refuses to grant loan to the high-risk applicants; after credit, guarantee compels the borrower to disclose his own information voluntarily, so the bank can use the information to monitor the loan risk and to get the default back at any time. The main function of GSSL is its two-way information service. By providing them with timely information, the service helps the student borrowers understand the articles of loan contract, settles the specific problems that they confront in the course of repayment and increases repayment rate; conversely, by providing bank with information about student borrower, the service alters the approach to and cost of collecting, increases the bank's availability of collecting defaulted loan and thus reduces default and credit stinting.Given the introduction of guarantee into GSSL, which kind of guarantee forms is suitable for its characteristics? This is another question worth studying in the introduction of guarantee into GSSL . The dissertation, after tracing back to the history of guarantee development and analyzing the similarities, differences, and the respective features of the loan guarantee forms, discusses the manifold factors concerning GSSL like the small amount, long return term, student borrowers' high mobility and inability to provide mortgage and pledge acknowledged by the bank; besides, the dissertation also makes comparative studies about the guarantee forms used in foreign countries and regions, and discovers that where student loans operate smoothly, credit guarantee has been adopted (to the exclusion of the U.K. and Australia where the mode of repayment in proportion to student's income is in practice). Based on all this, the dissertation concludes that guarantee agrees with the characteristics of GSSL and is an available form for China.Once credit guarantee is chosen by GSSL, the selection of guarantors (both natural person and legal person) is vital for a successful guarantee. On the basis of theoretical deduction, questionnaire and interview survey, the dissertation, after comparing and analyzing the potential guarantor's information superiority, compensation capacity, willing to provide guarantee and sifting steadily both student borrower's and lender bank's guarantee selections, eventually proposes that student's parents are the appropriate guarantor for Student-Origin-Based Loans while higher education institutions are the appropriate body of guarantor for Campus-Based Student Loans on condition that the personal credit consulting system needs improving at present in our country.Based on the preceding research, the dissertation discusses the operating mechanism of "higher education institutions-government guarantee" of Campus-based Student Loans. As it is in charge of the GSSL, the government must take responsibility for the GSSL's performance. If the government appoints higher education institutions to provide guarantee for GSSL by way of policy, then the government is the principal and the higher education institutions are agent. The principal-agent contract between government and higher education institutions manifests as the related articles concerning the institutions' benefits and obligations in GSSL. If higher education institutions provide guarantee, both government and the institutions will undertake the compensation obligation, which in essence forms the "institutions-government guarantee" mode. In light of Principal-Agent Theory, the dissertation explores the "institution guarantee-government reguarantee " mode under Federal Family Education Loan Program(FFELP) and the Indonesian mode of "institution administration-mixed guarantee", analyzes the essential factors affecting the success of case programs and proposes the core contents of GSSL "higher education institutions-government guarantee" mechanism, which are: By referring to the GSSL coverage, loan amount and default rate in various higher education institutions, the government decides the proportion of taking default loan and shares with the institutions the collected default so as to motivate them to manage the GSSL in accordance with its goal of financial aid. The dissertation proposes the formula for calculating government's share in defaulted loan in the mode of "higher, education institutions-government guarantee" through theoretical deduction and simulation.