Beware of bureaucrats bearing student loans
As we explained in an earlier post, university-level scholarships, meaning grants, are pretty hard to come by in Japan. Though the term shogakukin is usually translated as “scholarship,” it’s really a student loan, administered by the publicly funded Nihon Gakusei Shien Kiko, or Japan Student Services Association (JASSO). We’ve already talked about how JASSO has increasingly cracked down on graduates who are slow in paying back these loans. According to the Asahi Shimbun, the number of lawsuits the association has brought against debtors increased ninefold over the past five years, owing mainly to the fact that graduates have not been able to find gainful employment.
The newspaper illustrates the problem with the story of a young man in Kitakyushu who last summer was instructed by JASSO to pay the entire remaining balance of his ¥2.2 million student loan. After graduating from a private university in 2006, he found a job selling kimono and started paying back the loan at a rate of ¥13,000 a month. Five months after starting the job the company went out of business. He took a job in a restaurant, but it only paid ¥140,000 a month and he was unable to keep up payments. He asked for and was granted an extension. In 2007 he got married and started making the payments again, but after a year and the arrival of a baby the burden became too much, so he asked for another extension. He quit the restaurant in June 2010 and supported his family with temporary jobs. He started making payments again but last spring JASSO asked him to settle the loan and pay back the entire balance, which amounted to ¥1.9 million. When he didn’t respond, JASSO threatened him with a lawsuit. Eventually, he refinanced the loan, which now included a penalty, agreeing to pay ¥15,000 a month until 2023.
JASSO offers two types of student loans. The first type (dai-isshu), which carries no interest, is approved for students whose grade-point average in high school is at least 3.5 (out of a possible 5.0) and whose household income is less than ¥10 million a year. The second type (dai-nishu) carries an interest rate of up to 3 percent and, according to the Wikipedia entry on shogakukin, is given to anyone who applies for it and, presumably, doesn’t qualify for the first type. A lawyer interviewed by the Asahi points out that the majority of people threatened with lawsuits by JASSO are type-two loan recipients, who typically go to non-elite schools and have trouble finding steady employment after they graduate. The gap between their expectations of what a university degree will provide and the reality of the job market can be inferred by the statistics. In 2006, JASSO sued 547 former students. Last year they sued 4,832.
Though it seems obvious that college graduates are having a harder time paying back loans due to the poor employment situation, JASSO has expanded the student loan program over the years “due to demand” and has been compelled to “enforce payment schedules” because the money comes from taxes and the government is deeply in debt. Young people believe that only a university degree can guarantee them a good job, but the competition to get into elite schools remains fierce and those with lower academic achievement records end up going to private schools whose acceptance criteria is relatively easy but which nevertheless charge a lot of money. These students apply for loans and are easily approved, as long as they provide two guarantors, usually a parent and then another close relative (or a guarantee company, meaning you pay more).
The number of students who applied for loans in 2011 was 70 percent higher than the number in 2001. However, the amount of penalties imposed (at 14 percent) has also increased. In 2010, JASSO levied ¥85.2 billion in penalties on delinquent payments, a 50 percent increase since 2006. In addition, the number of extensions granted has also increased, from 58,000 in 2006 to 91,400 in 2010. Among the latter about 80,000 say they need an extension because of employment issues, but 2,092 are also receiving public welfare payments, or more than twice as many late-payers who were on welfare in 2006. Last January, JASSO said that it would halve monthly payments in order to ease the burden.
Fifty-four percent of Japanese high school graduates go on to higher education, which is lower than America (82 percent) or South Korea (89 percent). Nevertheless, it seems obvious that too many young people are going to university for the wrong reason. The shogakukin program benefits the education industry more than it does students, much the same way subprime loans in the U.S. benefited the banking and real estate industries more than they did home buyers; until, of course, they didn’t benefit anyone and the whole thing just collapsed.