Student loans from high-interest lenders almost halved over the past year on the back of government efforts to encourage students to borrow from less expensive lenders, the state regulator said on Friday
The Financial Supervisory Service said, as of June, total student loans fell to 34.2 billion won ($30.3 million), down 47.5 percent, from a year ago.
The FSS data showed that a college student on average borrows about 2.1 million won a year. But the delinquency rate slightly increased to 16.9 percent, up 1.6 percentage points, over the same period.
The number of student loan contracts also halved to 9,000.
College students, due to their low credit ratings coupled with high financial needs including tuition fees, tend to be attracted to second-tier lenders which eventually suffocate them with snowballing interest, the FSS said.
The regulator attributed the drop to two factors: anti-loan shark education and state support to have students transfer to low-interest loan plans.
The state plans to keep up the “financial products for those with low-income and related policies so that the low-credit borrowers can find alternative loans to high-interest loan plans,” the FSS stated.
The regulator was upbeat about the drop in the number of students going to loan sharks, saying, “Students’ borrowing from high-interest lenders will continue to drop, as large expensive second-tier lenders are banned from signing new deals with students.”
The remaining total student loans will continue to decrease, the FSS said, as existing students continuously redeem their debt while the demand for new demand is curbed. In general, loan plans from high-interest lenders tend to terminate in 2-3 years.
Meanwhile, the number of lenders has been falling, as the state forced down their maximum interest rate in June 2011, ultimately slashing their profit.
Earlier FSS data on the country’s lenders showed that from June 2012 to December 2012 the number of lenders fell by about 9 percent, to about 11,000 businesses.
But the regulator also pointed out that the state needs to ensure a sufficient supply of lending plans, such as state-supported Miso Loans and Sunshine Loans.
By Chung Joo-won (
joowonc@heraldcorp.com)
