Students will pay the price

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Students will pay the price

Nonbanking lenders announced they will soon stop issuing loans to students. The lenders that charge exorbitant interest rates have long been blamed for producing a generation of student financial delinquents, even though student loans take up only 1 percent of their lending.

According to the Financial Supervisory Service, the nonbanking sector’s college student loans have surged. The number of students who have borrowed money in the nonbanking sector for tuition, despite sky-high interest rates, totalled 47,945, up 57 percent in a year.

College student loans from nonbanking lenders have increased to 79.5 billion won ($73.6 million) and overdue payments jumped nearly 80 percent. Financial delinquents among college students numbered about 26,000 last year, compared with only 3,785 in 2007, partly thanks to the relative ease with which youth can get a loan from such institutions.

The nonbanking industry’s latest decision to suspend student loans comes after the Financial Supervisory Service advised it to refrain from offering loans to students. The government essentially wants to avoid a situation where students are stigmatized as financial delinquents even before they enter the society as adults.

But the government has been short-sighted. The JoongAng Ilbo recently carried a poignant story of a student struggling with financial hardship to finish university.

He borrowed 13 million won from a nonbanking lender and had to pay 900,000 won a month as interest, which took up most of his monthly income of 950,000 won. However, he had no other choice but to seek the loan from the nonbanking sector that demands interest rates of nearly 40 percent.

Abnormally high interest rates are the real killer. The private lending sector turned out to be the only lender for him to help pay his tuition fees. His request for scholarships and loans from ordinary banks were all turned down. He probably is not alone.

Students will now turn to illegal loan sharks if they cannot borrow from the nonbanking sector. It will eventually push cash-strapped students into a deeper pit. If the government was really concerned about the plight of students, it should have come up with more scholarships and student aid programs instead of placing the blame on the nonbanking industry.

The government should provide effective measures so that university students do not have to turn to the nonbanking industry in the first place.

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