Savings banks, the Korean version of the U.S. thrift institutions, are supposed to serve as alternatives to loan sharks. Too many of them, however, have become predatory lenders, especially preying upon the most vulnerable people financially ― college students.
More than 70,000 students owe 251 billion won ($241 million) to the country's 27 savings banks at a hefty interest rate of 30 percent a year, according to financial authorities. Some of them demand even higher interest rates than the legally allowed 34.9 percent, making themselves ― part of the so-called institutional lenders ― indistinguishable from private usurers.
The savings banks, which inflicted huge damage on their clients years ago because of their mass insolvency amid the financing fiasco involving builders, are trying to recover their losses from the least likely sources.
Equally irresponsible are financial regulators, who have looked the other way even though the savings banks ― with quite a few of them being former private money lenders, including those set up by Japanese capital ― have drastically increased their household lending while applying exorbitant interest rates. Although the Bank of Korea lowered its benchmark interest rate recently, these savings banks raised their rates.
It is a shame the BOK and financial regulators are not paying much attention just because the savings banks' business scale is still not large enough to threaten the stability of the overall financial system. Officials at the Financial Supervisory Commission say they have sent executive orders to rectify the savings banks' business practices, noting that too harsh a crackdown on them will direct borrowers to even more usurious private lenders, but they must not stop there.
The students' average debt of about 3.5 million won may not look much. Considering the interest rate of 30 percent, however, the debt could grow to 10 million won at commercial banks' interest rate, which is by no means a negligible sum for students. Borrowers are busy doing part-time jobs rather than focusing on study. Even graduates settle for low-quality jobs in their haste to repay debts.
All this shows why the Park administration should come up with a fundamental solution to college debt problem, such as a government-led subsidy program. President Park needs to refer to the U.S. case, in which the federal student lending program that carries even far lower interest rate of 6 percent or so caused a social stir as being too high. Park needs to roll up her sleeves to tackle this matter not least because the "half-price tuition" was one of her campaign promises that has been completely broken.
Many Korean college students today have to earn their school fees amid the widening economic polarization. The government should at least not let predatory lenders prosper off the struggling students' backs. Youngsters starting their careers in debt are not just the cases of individual misfortune but pose a considerable social cost.
A society cannot have a bright future if its young people have to live amid extreme stress to enter college, and even more after graduating.
More than 70,000 students owe 251 billion won ($241 million) to the country's 27 savings banks at a hefty interest rate of 30 percent a year, according to financial authorities. Some of them demand even higher interest rates than the legally allowed 34.9 percent, making themselves ― part of the so-called institutional lenders ― indistinguishable from private usurers.
The savings banks, which inflicted huge damage on their clients years ago because of their mass insolvency amid the financing fiasco involving builders, are trying to recover their losses from the least likely sources.
Equally irresponsible are financial regulators, who have looked the other way even though the savings banks ― with quite a few of them being former private money lenders, including those set up by Japanese capital ― have drastically increased their household lending while applying exorbitant interest rates. Although the Bank of Korea lowered its benchmark interest rate recently, these savings banks raised their rates.
It is a shame the BOK and financial regulators are not paying much attention just because the savings banks' business scale is still not large enough to threaten the stability of the overall financial system. Officials at the Financial Supervisory Commission say they have sent executive orders to rectify the savings banks' business practices, noting that too harsh a crackdown on them will direct borrowers to even more usurious private lenders, but they must not stop there.
The students' average debt of about 3.5 million won may not look much. Considering the interest rate of 30 percent, however, the debt could grow to 10 million won at commercial banks' interest rate, which is by no means a negligible sum for students. Borrowers are busy doing part-time jobs rather than focusing on study. Even graduates settle for low-quality jobs in their haste to repay debts.
All this shows why the Park administration should come up with a fundamental solution to college debt problem, such as a government-led subsidy program. President Park needs to refer to the U.S. case, in which the federal student lending program that carries even far lower interest rate of 6 percent or so caused a social stir as being too high. Park needs to roll up her sleeves to tackle this matter not least because the "half-price tuition" was one of her campaign promises that has been completely broken.
Many Korean college students today have to earn their school fees amid the widening economic polarization. The government should at least not let predatory lenders prosper off the struggling students' backs. Youngsters starting their careers in debt are not just the cases of individual misfortune but pose a considerable social cost.
A society cannot have a bright future if its young people have to live amid extreme stress to enter college, and even more after graduating.
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