Shortfalls highlight need for new student loans system

Despite the need to deal with a rising budget deficit, Vietnam this year decided to raise the amount available for student loans by almost 40%, after funds available from government fell short of demand for loans. The increase represents a considerable effort to maintain support for disadvantaged students.

The loan amount will increase from VND800,000 (US$38) per month per student, as stipulated in a 2007 government regulation, to VND1.1 million (US$52) per month, taking effect in the 2013-2014 academic year.

However, every year government funds for student loans fail to keep up with growing demand for higher education, opening up a debate on more radical measures to deal with loan shortfalls and student finance that would balance the need to widen university access with maintaining quality.

Last year the government had to earmark an additional VND2.5 trillion (US$119 million) for the Vietnam Bank for Social Policies to ensure enough funding for loans for poor university students, amid fears of a shortage of funds.

“I had to concede that in the previous school year, it was almost a nightmare for us to seek the funding to meet student demand,” Nguyen Van Ly, the bank’s deputy general director, said in an interview in September in the English language daily Vietnam News.

He revealed that the bank had to cover the loan book by borrowing from other sources, and admitted that it had requested a “sustainable flow” of funds from government.

Not enough

Many parents had asked for higher loan amounts, Nguyen said. “The current VND1.1 million per student per month is too little for a student. It should be increased by at least 50% to meet half their monthly expenses,” he said.

Hoang Thi Huyen, a third-year student at a public university in Hanoi, has just received VND5 million (US$238) for the first semester of the academic year, a 10% increase on previous semesters.

However, she told University World News that with inflation taken into account, the amount would only cover “about one third of my overall expenses, compared to 40% in the past”.

The price of a monthly bus ticket in Hanoi had almost doubled, from VND50,000 to VND90,000, since she started university two years ago. But, she added, friends at private institutions faced an even greater financial burden. “They have to pay a higher tuition fee, almost double mine.”

With an ongoing economic downturn coupled with tuition fee increases of 15% a year on average, students and parents in Vietnam are likely to face even more financial difficulties in the next few years, experts say.

To ensure higher education access, “the government will need to provide ample scholarships and means-tested loans to support higher participation by capable but needy students”, said Nguyen Thien Tong, former vice president of Mekong University in Vinh Long City.

“The current annual loan setting needs to increase proportionally to tuition fees in the coming years,” Tong told University World News.

Financing growth

The way government finances higher education expansion will be of great significance in ensuring the maintenance of recent economic growth in many countries in Asia such as Indonesia, Thailand and Vietnam, according to Bruce Chapman, a professor of economics and director of policy impact at the Crawford School of Public Policy, Australian National University.

A government-based student loans system with the right design characteristics is vital to the future capacity and equity of higher education, he said.

Vietnam currently operates a mortgage-type student loan system, with the loan paid back over a long period. Repayment amounts are based on the overall loan amount and a fixed interest rate.

But as loan amounts or interest rise, the danger of poorer students – or those who return to work in rural areas after graduation – defaulting on loan repayments also rises.

An income-contingent loan system based on earnings after graduation, used in countries like Australia, New Zealand, England, Hungary and Chile, is one alternative for developing countries in Asia, where ensuring access for poor students from rural areas is important.

Income-contingent loans are a way to “remove repayment hardships” for students after graduation and can minimise the danger of graduates defaulting, Chapman wrote in a commentary published last year by

This approach is shared by Martin Hayden, a professor of higher education at Australia’s Southern Cross University, and Pham Phu, a retired professor and member of the Scientific and Training Council at Vietnam National University, who led a research group whose World Bank-funded report "Master Plan for Vietnam’s Higher Education System" was submitted to the education and training ministry last year.

One of nine recommendations in the master plan was that Vietnam draw on international loan funds to establish an income-contingent loan scheme for students, to replace the current inflexible fixed-rate loan that must start to be repaid immediately after graduation.

Implementation problems

The plan also suggested that tuition fees at public universities should be allowed to rise, and that the proportion paid by students should increase in order to contribute to the funding of higher education – as long as scholarships and means-tested loans to support needy students were widely available.

But Chapman believes that in Vietnam, as in other developing countries, loans based on income will not be feasible without “an accurate record of student debt, a collection mechanism with a sound (almost certainly computerised) record-keeping system, and an efficient way of accurately determining the actual income of former students”.

And it depends on good employment prospects for students, even as the number of graduates rises.

However, the problem of ‘over-education’ in Vietnam appears to have deepened in recent years, with 165,000 unemployed graduates by October last year, or 17% of the overall jobless total, according to recent statistics.

For Nguyen Thi Kim Thuy, vice president of the Vietnam Women’s Union, the sustainability of a student loan scheme relies a great deal on the employment prospects of the borrower after graduation.

“Many cannot find a job even a couple of years after graduation,” Thuy told local media Dai Doan Ket – Great Union – in September, when the government announced that new student loans would be set at VND1.1 million per month.

She said appropriate policies, to act as “midwife” in combating graduate unemployment, should be implemented together with the current student loan scheme.