FCR(98-99)20

For discussion
on 17 July 1998

ITEM FOR FINANCE COMMITTEE

LOAN FUND
HEAD 254 - LOANS TO STUDENTS
Subhead 102 Non-means-tested loan scheme for students of government-funded tertiary institutions

    Members are invited to approve an expansion of the ambit of the Non-means Tested Loan Scheme to cover students of the Open University of Hong Kong, part-time students pursuing publicly-funded programmes offered by the University Grants Committee-funded institutions, Vocational Training Council-funded Technical Colleges, the Hong Kong Academy for Performing Arts and the Prince Philip Dental Hospital and full-time students of the Hong Kong Shue Yan College, with effect from the 1998/99 academic year.

PROBLEM

At present, adults who wish to up-grade themselves through continuing and professional education at local tertiary institutions may be deterred from doing so or forced to give up their studies because of a lack of means. In addition, unlike their counterparts in other tertiary institutions, full-time students of the Hong Kong Shue Yan College (HKSYC) are not eligible for non-means tested loans.

PROPOSAL

2. With the support of the Secretary for Education and Manpower, the Controller, Student Financial Assistance Agency (C,SFAA) proposes to expand the ambit of the Non-means Tested Loan Scheme (NLS) to cover the following three groups of students with effect from the 1998/99 academic year -

  1. students of the Open University of Hong Kong (OUHK);

  2. part-time students pursuing publicly-funded programmes offered by the University Grants Committee-funded institutions, Vocational Training Council-funded Technical Colleges, the Hong Kong Academy for Performing Arts and the Prince Philip Dental Hospital; and

  3. full-time students of the HKSYC.

JUSTIFICATION

Extension of the NLS to cover students of OUHK and part-time students of publicly-funded tertiary programmes

3. In view of the rapidly changing employment pattern and technological advancement, working adults may need to pursue continuing and professional education so as to upgrade themselves and increase their competitiveness in the job market. Such training will also enhance the productivity of our human resources and benefit our economy as a whole. To encourage self-advancement through continued education, we provide a maximum salaries tax deduction for training expenses at $30,000 a year. As a further form of encouragement and assistance, we propose to expand the ambit of the NLS to cover students of OUHK and publicly-funded part-time programmes at the tertiary level. This measure will offer a new channel of finance to enable these students to continue or embark on their studies.

4. OUHK is a self-financing university dedicated to providing tertiary education to those who did not have the opportunity to receive tertiary education after they left school. It offers sub-degree, degree and postgraduate courses through a system of open access and distance learning. The proposal will benefit some 23 000 OUHK students who are pursuing these courses. It will also benefit some 35 600 part-time students undergoing publicly-funded programmes in other tertiary institutions. Most of the students are working adults ranging from clerical to managerial levels whilst others are new arrivals, housewives and the unemployed.

Hong Kong Shue Yan College

5. HKSYC is a privately-funded institution founded in 1971, and is now the only approved post-secondary college under the Post Secondary Colleges Ordinance. It offers four-year diploma courses to students who have completed Secondary 6 or 7. Although full-time students of HKSYC are eligible for means-tested grants and/or loans under a government administered Student Financial Assistance Scheme (SFAS), they are not eligible for the NLS. Like their counterparts in other tertiary institutions, full-time students of HKSYC may also wish to pursue their studies without relying on family support, or obtain additional financial assistance on top of their means-tested grants and/or loans under the SFAS. Some of them may not want to be means-tested for various reasons.

6. We propose to expand the NLS to full-time students of HKSYC. The number of students who would be able to benefit from the proposed extension is about 2 700.

Mode of operation

7. We propose that the extended NLS should operate on a full cost-recovery basis, as in the case of the current NLS. On this basis, borrowers have to pay interest on the outstanding balance of the loan at the Government's no-gain-no-loss rate, and a 1.5% risk-adjusted factor which seeks to cover the Government's risk in disbursing unsecured loans. The prevailing no-gain-no-loss interest rate is 6.262% per annum. Interest would accrue upon drawdown of the loan. As with the current NLS, the loan ceiling will be capped at the level of the tuition fee payable to the respective institutions. The loan would be repaid in 40 quarterly instalments within ten years after the recipient's graduation or cessation of studies, or in the case of OUHK, six years after the first disbursement of loan if the recipient has not yet completed or ceased studies by then. In all cases, loan recipients may also choose to make early repayment of the loans.

8. Under the current NLS, our original intention was to disburse the loans to the institutions direct for settlement of tuition fee payment so as to prevent abuses of the loan for non-educational purposes. However, in view of the various payment methods adopted by the institutions, we consider it necessary to adjust the payment arrangement by allowing for loans to be directly disbursed to students who have already paid their tuition fees provided that they can produce proof of payment. This arrangement would apply to existing and new recipients under the expanded NLS.

FINANCIAL IMPLICATIONS

9. The proposal to extend the NLS will benefit about 61 000 additional students. The exact amount of additional loans required would depend on the take-up rates and the actual amounts borrowed. On the basis of updated assumptions, we now estimate that the total loan requirement under the extended NLS in 1998-99 would be about $600 million. Sufficient funds have been included in the 1998-99 Estimates of the Loan Fund for this purpose. C,SFAA will redeploy existing staffing resources within the Agency to implement the extended scheme.

Non-recurrent expenditure

10. C,SFAA is planning to enhance the efficiency of loan administration through office automation. We will ascertain the funding requirements and seek funds in the normal manner if necessary.

Impact on fees and charges

11. An administrative fee will be charged upon application and annually thereafter until the loans have been fully repaid. Under the current NLS, the administrative fee is $165, determined on the basis of the full cost-recovery principle. We propose that the same level of administrative fee should be charged under the extended NLS. The fee will be subject to annual adjustments. We estimate that the additional amount of fees to be received in 1998-99 would be about $2 million.

BACKGROUND INFORMATION

12. On 5 December 1997, Finance Committee of the Provisional Legislative Council approved the introduction of the NLS to cover all eligible full-time students who are eligible for assistance under the Local Student Finance Scheme (LSFS) 1 with effect from the 1998/99 academic year. The NLS seeks to -

  1. offer a new channel of finance to those students who prefer to pursue their university studies on their own without relying on family support;

  2. assist those students who cannot obtain financial support from their families due to domestic problems or special family circumstances but do not wish to reveal them to the SFAA as required under the means-tested LSFS;

  3. enable students to meet education-related expenses not currently covered by the LSFS, e.g. purchase of personal computers; and

  4. relieve students from having to work part-time for excessive hours and/or resort to high-interest commercial credit facilities to finance their living costs and other academic expenses.

13. As part of the Government's efforts to ease unemployment and upgrade our human resources during a period of economic adjustment, the Task Force on Employment, chaired by the Financial Secretary, has recommended, among other things, that the ambit of the NLS should be expanded to cover students of OUHK, part-time students of publicly-funded tertiary programmes and full-time students of HKSYC.


Education and Manpower Bureau
July 1998

1. The LSFS provides means-tested assistance in the form of grants and/or loans to need students in the eight University Grants Committee-funded institutions, the Technical Colleges of the Vocational Training Council, the Prince Philip Dental Hospital and the Hong Kong Academy of Performing Arts.