HONG KONG: The student loan agency has run up HK$608.9 million of bad debts, with the default rate standing at 12.2 percent in terms of amount, according to the annual audit report released yesterday.

Public organizations including Hong Kong Productivity Council and Office of the Privacy Commissioner for Personal Data were also criticized in the report of the Director of Audit (DoA), as the Audit Commission completed its check-up of government accounts for the year ended March 31, 2009.

The Student Financial Assistance Agency (SFAA) was faulted on high vetting error rates, inefficiency in authentication, leniency in punishing dishonest applicants and inadequate effort in recovering defaulted loans.

The agency, running five programs to provide financial support to post-secondary and tertiary students in need, processes loan applications through a variety of procedures including initial vetting, counter-checks on selected applications and authentication through home visits.

But the Audit Commission found that the SFAA's counter-checks for the past three academic years showed the vetting error rates were as high as 10.2 percent.

The authentication process has been seriously inefficient: As many as 89 percent of applications under the Financial Assistance Scheme for Post-secondary Students for the 2008-09 academic year have not been conducted, on top of a 6 percent incomplete authentication rate in 2007-08.

The commission pointed out as early as October 2006 that the SFAA should collect data on and enable risk-profiling of its applications so it can target the suspected cases. But the agency has failed to adopt the measures that would make authentication more timely.

When a student is found to have lied on the application, the punitive measures are simply a warning letter and the recovery of the overpaid amount.

"Of the 394 applications for 2007-08 with discrepancies found in the authentication stage, only 18 (5 percent) were referred to the police for investigation," said the Audit Commission.

The SFAA was also criticized for the way it handle applications to defer repayment and the defaulters.

Students can file deferment applications on the grounds of further full-time studies, financial hardship or serious illness. But no guideline was issued on the processing.

Audits of 30 approved deferment applications revealed two cases in which the applicants had not provide basic documents, such as the cash they held in bank accounts, according to the DoA report.

The Audit Commission noted that both the number of defaulters and the amount of defaulted loans have increased for four student loan schemes.

The default rate in terms of repayment accounts (totalling 137,407) is 9.7 percent and the default rate in terms of amount (totalling HK$608.9 million in the outstanding principal, interest and surcharges), 12.2 percent.

But the SFAA has not been prompt in its effort to recover the loans.

According to an analysis of the SFAA, the agency would not be able to take legal action against a borrower after six years and indemnifiers after 12 years. As of March 31, 2009, there are 127 defaulted loans which have exceeded the six-year "time-bar", including nine older than 12 years, the Audit Commission said.

The recovery effort has also been found to be absurdly lax sometimes.

The Audit Commission urged the SFAA to expedite the process of referring default cases to the DoJ and improve its case management system.

In response, the SFAA has agreed to most of the findings by the Audit Commission and has pledged to follow up on its recommendations.

Chinese newspaper Ming Pao, however, quoted an anonymous government source as saying that the education authorities were caught between a rock and a hard place when dealing with defaulted student loans.

Many measures have been considered, including setting up a record on a defaulter's bad credit and implementing stiffer punishment. But the suggestions have met strong resistance from student groups and political parties, who have accused the government of increasing the burden of students when the job market for young people is problematic, the source said.

China Daily

(HK Edition 11/26/2009 page1)