SHANGHAI, July 31 -- THE People's Bank of China, the country's central bank, has urged all banks nationwide to expand education loans to college students from needy families, according to a notice on its Website on Sunday.

All financial institutions should provide education loans in time and in full and create new kinds of credit products to meet the need of poor students, the central bank said in the notice.

"The current educational loan system still needs further improvement as the loans do not cover all students of higher educational institutions, and the application procedures are rather complicated," said the bank.

However, the central bank warned all banking institutions to improve internal control and strengthen monitoring of loan service to lower risks.

China introduced a pilot education loan system in eight major cities, including Shanghai, Beijing and Tianjin, in 1999 to help poor college students. The service was extended to the rest of the country in 2004.

Loan balance

By the end of June, education loans balance had reached 19.3 billion yuan (US$2.55 billion), according to figures from the central bank.

"The risks involved in an education loan is much higher than those for a commercial one," said an official from the Bank of China.

According to policies, the nationwide student loan system requires no guarantee and offers a lenient time limit - six years at most - for students to pay back the loan after graduation, both of which may increase the risks for banks.

As students can apply for loans without guarantee, banks can only rely on the students' personal credit. There is no tangible mortgage that can assure the banks the students will honor the contract.

Although banks have set up an information system to record details of education loan recipients, they cannot track students' personal information once they graduate from college.

"We have found that many universities and colleges have several million yuan of defaulted tuition fees and some have nearly a billion," Cui Bangyan, a senior official with the Ministry of Education, said early this month.

Figures from the ministry show that 2.07 million students had received a total of 17.27 billion yuan of loans by the end of 2005, but almost one in five violated the loan contract, including defaulting. The defaulted loans totaled more than 3 billion yuan.

Recently, the Beijing and Guangdong branches of the Industrial and Commercial Bank of China blacklisted more than 1,700 students for defaulting on loan payment for more than one year. The two banks published detailed information of the students, including their names, ID numbers and addresses on the Internet.

The blacklist is legitimate under the policies on student loans, which are jointly issued by the People's Bank of China, the Ministry of Education and the Ministry of Finance.

However, Qiu Baochang, a member of the Beijing Lawyer's Association, suggested that submitting the disputes to law would be a better choice than putting the blacklist on the Internet, because banks might face lawsuits if the blacklist contained wrong information.

Qiu also suggested that some students do have difficulties in repaying the loan in time and therefore should be offered more time and tolerance.