Guaranteed loans hitch

July 21, 1995

Proposals for a national student aid scheme in South Africa - targeting at least 70,000 students and costing between R600 million and R700 million (Pounds 165-Pounds 192 million) in its first year - are to go before cabinet next month.

An interim bursary and loan scheme is expected to be in place for 1996, and a more comprehensive final scheme will be ready for 1997. But there are big problems.

Banks will only provide student loans if they are 100 per cent guaranteed by government, arguing that current student default rates of 50 per cent and higher are an unacceptable risk.

But there will be little incentive for banks to criminalise defaulting future clients - or for struggling graduates to repay their loans - if the government will cough up.

Pundy Pillay, an education adviser for the government fiscal and finance department, said there was an obvious risk of students defaulting en masse.

Institutions are worried that they will be given the onerous task for pursuing loan defaulters.

The non-repayment problem will be exacerbated by South Africa's high unemployment rate, and the fact that students who qualify for the scheme come from families that are desperately poor.

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