The student loans agency has proposed measures to tackle what the government says is the increasingly worrying problem of bad debts. They include lowering interest rates and lengthening the period of repayment to as long as 17 years.
The Student Financial Assistance Agency has also suggested the credit data of those who cannot repay be shared with the city's credit reference agency. But that prompted concerns from the privacy commissioner, who said the move could intrude on privacy and should be done only after exploring all other alternatives.
An education policy watchdog also said that extending the repayment period was only a move to hide the increasingly serious defaults.
The government said that the defaults, which had occurred despite the robust economy in recent years, were worrying.
Official statistics show that up to the last academic year, about 13,000 people had failed to repay loans totalling HK$213 million, taken out under the agency's three non-means-tested schemes, to cover tuition fees.
That figure was a nearly 20 per cent increase from the HK$176 million outstanding in the 2008/2009 academic year. The most serious defaults could involve individuals owing HK$400,000.
Under the changes the agency proposes, the repayment period would be lengthened from 10 to 15 years and the interest rate lowered from 3.174 per cent a year to 1.674 per cent. This would cost taxpayers HK$20 million a year.
Other measures, such as allowing students to apply for a two-year interest-free buffer during which they would not have to make any repayment, would cost another HK$55 million a year. The two-year buffer would extend the total repayment period to 17 years. The government said the measures were aimed at lifting pressure from student debtors and could increase incentives for them to make repayments.
But Mervin Cheung Man-ping, chairman of the Hong Kong Education Policy Concern Organisation, a watchdog formed by educators, said that lowering the interest rate might encourage more students to borrow and could even worsen the defaults.
'Lowering the interest rate could encourage lending and easy credit could make students go beyond their ability to repay,' he said, referring to some cases where students borrowed nearly HK$1 million to study costly courses such as the executive management programmes.
A spokeswoman for the privacy commissioner's office said sharing credit data was very sensitive and must be treated very carefully.
The proposed policy changes will be put up for public consultation for three months from Monday.
Meanwhile, the Executive Council has decided to maintain university tuition fees at HK$42,100, while a review is being carried out to determine how much they should rise to meet increasing costs.
The default rate for US students in 2009, up from 7 per cent in 2008