Four-Year Student Loan Guarantee Fund Worth 36 Million Won to Aid College Students

Sometime early this year, a student loan guarantee fund will be established to help college students who have trouble affording their studies.

As a result, if the students are guaranteed by the fund, they can easily receive the student loan from the bank.

According to the Finance and Economy Ministry (MOFE) and the Education and Human Resources Development Ministry (MOE) on Wednesday, January 5, the government has decided to comprehensively improve measures to support student loans to provide an “equal opportunity for education” so that there will be no students who cannot afford to go to college. This measure will be applied to student loans starting the second semester of this year.

The government is pushing to establish the student loan guarantee fund within the first half of this year in order to induce financial institutions to give loans to more students.

A MOFE official said, “The detailed scale for the student loan guarantee fund has not been decided yet, but the government is planning to contribute some 100 to 150 billion won and is considering gradually increasing this scale. The guarantee scale is 12 times higher than the contribution amount, leading to some 1.8 trillion won.”

Accordingly, after being guaranteed by the student loan guarantee fund, students will be receiving nine million won each year for a total of 36 million won for four years to support their tuition fees and living expenses.

Currently, financial companies are loaning students with recommendations from their school a limit of 20 million won at an 8.5 percent annual interest rate for four years; the students pay four percent of the interest and the MOE pays off the other 4.5 percent.

The term for loans will also increase. The current student loan, at the longest, can be given for seven years, and after the term is over, the loan and the interest must be paid off within seven years. However, starting this second semester, this figure will be raised to 10.

It is forecasted that since the term for loans has increased, the interest rate will also rise.

An MOFE official explained, saying, “When the student loan guarantee fund launches, the interest rate that students will have to pay has high possibilities of increasing to the 6.5 to 7.0 percent level from the current annual 4.0 percent. Considering that the repayment in seven years with a seven-year grace period will be extended to a ten-year repayment with a ten-year grace period, this increase is not very high.”

On the matter of selecting the students applicable for the loan, it has not been decided yet whether to leave it up to the school or to go through an examination by the fund.

Chi-Young Shin higgledy@donga.com