There is a phenomenon quietly sweeping through China, aptly named ‘xiàoyuán dài’ or ‘campus loans’, through which university students are falling rapidly into debt with little way out. Young people on university campuses are being targeted by online finance companies who give out loans or brand new iPhones, with no down payment required.
Most of China’s vast student population are supported by their proud parents, and don’t need to worry about tuition fees or spending money. With accommodation fees as low as 600 yuan (£70 or $87) per year, and meals for as little as 5 yuan (58p or 72¢) students can hardly plead the exorbitant costs of life on campus.
That pocket money sent from home, however, is unlikely to cover much beyond the basics. Leaving campus was once an unusual undertaking, a journey of necessity rather than desire or curiosity but these days students are less satisfied with staying put. Wander around the student districts, like Wudaokou in Beijing, and you’ll see streets lined with foreign shops, boutiques, coffee shops, bars, clubs, imported food stores and KTV venues. This is where students manage to drop that cash. For some, spending money is one method of maintaining relationships or saving face.
One report was about a college student in Zhengzhou, Central China’s Henan province, who borrowed 8,000 yuan ($1,214) at first but had to repay about 80,000 yuan in accumulated debt and interest after just six months through a series of repayment borrowings. He finally committed suicide as he couldn’t pay.
Students are suckered into these schemes by the ease of gaining a ready cash flow. Loans are approved within hours, using basic personal information. The consequences probably seem minor in the shadow of all the possibility that cash could grant. However, there is danger in store for these fickle borrowers.
Part of the deal is weekly repayments and monstrous interest rates of as high as 30%. If students miss repayments they can be in for serious public humiliation. Some companies force borrowers to promote the loan sharks to their friends, tying them into a pyramid scheme. Many companies hold precious collateral: students are required to submit a nude image with his or her national ID card in frame, before the loan can be approved. This image becomes the threat: it will be publicly released online in the event of failure to meet repayment deadlines. Some companies offer larger sums (from two to five times more) to those who send nude images, a deal offered almost exclusively to female students.
One relieved student in this situation said, anonymously:
Fortunately, my family paid the money. The interest is very high. If you wanted to borrow 1,000 yuan, the weekly interest is 300 yuan, which means you have to owe 1,300 yuan within a week.
This issue has been widely reported but no law has yet been successfully enforced. This could be due to the low threshold for establishing lending platforms in China, as some companies masquerade under the e-commerce umbrella. Since there are no strict laws or regulations on campus loans, there’s little hope of management, and colleges are being advised to offer financial awareness training to university students instead.
China’s Murky World Where E-Commerce Meets Student Lending [Bloomberg]