Students borrow more from private lenders

Korean students are borrowing dramatically more to pay for college and living expenses, rekindling concerns over heavy debt among young people and business practices of lenders.

The Financial Supervisory Service said Thursday as of June, nearly 48,000 university students had taken out loans totaling around 80 billion won ($75 million) from private money lenders, up 40 percent from a year earlier.

The overdue rate for students’ payments also jumped to 15 percent from 12 percent, more than double compared with the institutions’ overall overdue rate, which stands at 7.2 percent.

The combined number of student customers shot up more than 57 percent on a year-on-year basis.

But concerns lie with the lenders, which are third-tier financial institutions targeting high-risk customers and charging high borrowing costs. That means students face higher rates given their low-credit status. “We estimate the students have to pay about 40 percent interest rates for their loans because they have no regular income,” a FSS official said.

The private lenders and non-bank financial institutions have racked regulators’ brains amid a sharp growth in household debt.

Last month, the government put a 39-percent cap on the maximum rate on loans. The figure was down from the previous 44 percent, which went down from 49 percent in July last year.

According to the FSS data, more than 42 percent of the loans were used to pay tuition and nearly 25 percent to cover living expenses.

The country’s expensive tuition fees have long squeezed local students and their parents. Korea’s tuition fees are the second-highest among OECD member countries, trailing the United States.

By Shin Hyon-hee (heeshin@heraldcorp.com)