Yale model could offer loan solution

PUBLISHED : Saturday, 03 September, 2005, 12:00am
UPDATED : Saturday, 03 September, 2005, 12:00am

Hong Kong has a policy of ensuring no students will be denied access to education because of lack of means. The government's Student Financial Assistance Agency offer grants and loans to all eligible students pursuing a post-secondary education at local institutions. The aggregate amount of outstanding loans now stands at billions.

The catch is that most graduates start their career saddled with a sizeable debt that will take years to repay. For those whose degrees may not land lucrative jobs, the debt is a huge burden.

Officials are understood to be reviewing the rules to enable students to repay their loans later and to start with smaller repayments that will increase progressively as they climb the career ladder.

These are worthy proposals. But they may also want to learn a lesson from the Yale law school.

According to one of its most distinguished alumni, former US president Bill Clinton, the school 'required me and my classmates to pay our loans down with a small fixed percentage of our annual incomes until the aggregate debt of our class was retired'.

'Obviously, those who made more paid more, but we all knew that when we borrowed the money,' Mr Clinton reveals in his autobiography.

Mr Clinton is not recommending that such an egalitarian approach be applied to all student loan schemes. But when he became president, he did draw on the Yale scheme to change the US federal government's student-loan programme to give students the option of repaying their loans over a longer period of time as a fixed percentage of their income.

'That way, they would be less likely to drop out of school for fear of not being able to repay their loans, and less reluctant to take jobs with high social utility but low pay. When we gave students the option of income-contingent loans, a lot of them took it,' he said.

Whether such an option should be introduced here is worth exploring, because our current policy amounts to imposing a repayment schedule on students without regard to their actual income.

Another issue is whether students should be charged differential fees. Hong Kong is a rare exception to the common practice overseas of charging more for degrees that lead to more lucrative careers, such as law and medicine.

One argument against doing so is that it may discourage poor students from training to become lawyers and doctors. Moreover, a big debt on their shoulders may bar those who found they had made the wrong career choice to do something else.

But what if loan schemes for students of these programmes were to model after Yale's? That would seem to solve the problems.

Moreover, that would also enable graduates who want to do public interest work for little money to fulfil their ambitions.