For discussion
FCR(98-99)7
on 3 April 1998

ITEM FOR FINANCE COMMITTEE

HEAD 173 - STUDENT FINANCIAL ASSISTANCE AGENCY
Subhead 274 Student finance - grants
LOAN FUND
HEAD 254 - LOANS TO STUDENTS
Subhead 101 Students of the universities, Lingnan College, technical colleges, Prince Philip Dental Hospital, Hong Kong Institute of Education and Hong Kong Academy for Performing Arts

Members are invited to approve revisions to the Adjusted Family Income ready reckoner, the net asset ceiling, the sliding scale of net asset values and the maximum amount of deductible medical expenses for determining the level of financial assistance to students under the Local Student Finance Scheme in the 1998/99 application exercise to take account of inflation.

PROBLEM

The basis for approving under delegated authority revised rates of the various components of the Local Student Finance Scheme (LSFS) assessment formula and asset test to take account of inflation for implementation in the 1998/99 application exercise is not sufficiently clear.

PROPOSAL

2. The Controller, Student Financial Assistance Agency (C, SFAA) proposes to revise the rates of the components of the LSFS assessment formula (i.e. the Adjusted Family Income (AFI) ready reckoner, the asset ceiling and sliding scale of net asset values and the maximum amount of medical expenses deductible from family income) as approved by Members on 5 December 1997, according to the movements of the Consumer Price Index (A) (CPI(A)) in 1996 and 1997.

JUSTIFICATION

3. At the Finance Committee meeting on 5 December 1997, Members considered FCR(97-98)74 and approved changes to the assessment formula and the asset test for determining the level of financial assistance to applicants under the LSFS administered by the SFAA with effect from the 1998/99 academic year. These include the adoption of an AFI ready reckoner, a net asset ceiling of $500,000 per household member, a sliding scale of net asset values and the maximum amount of medical expenses deductible from family income at $13,900 per annum. Members were then informed that the rates of the above-mentioned components in the assessment formula and the asset test were at 1996-97 prices and would be adjusted for inflation according to the movement of the CPI(A) for adoption in the 1998/99 application exercise and annually thereafter. In line with the established practice, Members delegated to the Secretary for the Treasury the authority to approve such annual revisions in future.

4. While the relevant text in the above-mentioned Finance Committee submission referred to "1996-97 prices", we have not made it clear that in the context of the annual LSFS exercise, the financial data provided by applicants to support their applications in the 1996/97 application exercise actually reflected their family income, asset and expenditure levels in 1995-96. Thus, for the purpose of the 1998/99 application exercise, in order to maintain the real value of the components of the assessment formula and the asset test as approved by Members on 5 December 1997, we need to bring the levels from the 1995-96 prices to the 1997-98 prices, in accordance with the movement of the CPI(A) during this period. Based on increases in CPI(A) of 6% in 1996 and 5.7% in 1997, C, SFAA proposes to revise the ready reckoner, and the asset ceiling and the sliding scale of net asset values as shown in Enclosures 1 and 2 respectively. The maximum level of deductible medical expenses would also be revised from $13,900 to $15,570.

5. As the price basis of the various components of the assessment formula and asset test had not been clearly explained to Members at the time, the Secretary for the Treasury has advised that it would not be appropriate for him to approve the revised rates under delegated authority. We are therefore submitting the revised rates to Members for approval.

6. Subject to Members' approval of these revised rates for implementation in the 1998/99 LSFS application exercise, the Secretary for the Treasury will revise the rates annually in future under delegated authority according to the movement of the CPI(A) as previously approved by Members.

FINANCIAL IMPLICATIONS

7. As the proposed revision of rates seeks to maintain the real value of the various components of the assessment formula and asset test, it will not give rise to additional financial implications in real terms.

BACKGROUND INFORMATION

8. The LSFS provides means-tested assistance in the form of grants and/or loans to needy tertiary students. On 5 December 1997, Members approved improvements to the LSFS including the introduction of a new AFI formula to replace the previous Annual Disposable Income formula as the first tier of the means test, and the revision of the asset test as the second tier of the test. These improvements aimed to enhance the transparency, efficiency and fairness of the LSFS.

9. To determine an applicant's eligibility for assistance under the improved LSFS, the following parameters have been developed -

  1. a ready reckoner to relate the applicant's family income under the AFI formula to his eligibility for assistance;

  2. a net asset ceiling per household member, the level of which is set with reference to the investment proceeds obtainable from assets of such a worth;

  3. a sliding scale which sets out the discount factors for different levels of net assets below the asset ceiling; and

  4. a maximum limit of medical expenses for each household member of the applicant who is chronically ill or permanently incapacitated, such that the amount can be deducted from the family income in calculating the AFI.

10. Members approved these components of the LSFS means test, and delegated the authority to the Secretary for the Treasury to revise them annually in future according to the movement of the CPI(A).


Education and Manpower Bureau
March 1998

Enclosure 1 to FCR(98-99)7

Ready Reckoner under the New Adjusted Family Income (AFI) Formula
(1998/99 Application Exercise)

AFI groups between
($)

% of
Maximum grant

% of
Maximum loan

0

20,620

100%

100%

20,621

22,898

25,175

27,451

22,897

25,174

27,450

29,723

95%

91%

86%

82%

96%

92%

88%

83%

29,724

31,951

34,178

36,406

31,950

34,177

36,405

38,629

72%

63%

53%

44%

72%

61%

50%

39%

38,630

40,802

42,975

45,147

40,801

42,974

45,146

47,315

36%

28%

21%

13%

31%

24%

16%

9%

47,316

49,553

51,789

54,025

49,552

51,788

54,024

56,259

11%

8%

6%

4%

8%

6%

4%

2%

> 56,259

0%

0%

Enclosure 2 to FCR(98-99)7

Sliding Scale of Asset Value for Discounting Grant and Loan Assistance
(1998/99 Application Exercise)

Asset Level per

Household Member

Discount Factor of

Grant and Loan Assistance

Over $560,000

0%

Over $470,000 to $560,000

20%

Over $380,000 to $470,000

40%

Over $300,000 to $380,000

60%

Over $200,000 to $300,000

80%

$200,000 or below

100%