BEIJING -- The People's Bank of China, the country's central bank, has urged all banks nationwide to expand education loans to college students from needy families, according to a notice on its website on Sunday.

All financial institutions should provide education loans in time and in full and create new kinds of credit products to meet the need of poor students, the central bank said in the notice.

"The current educational loan system still needs further improvement as the loans do not cover all students of higher educational institutions and the application procedures are rather complicated," said the bank.

However, the central bank warned all banking institutions to improve internal control and strengthen monitoring on loan management to lower risks.

China introduced a pilot state education loan system in eight major cities, including Beijing, Shanghai and Tianjin in 1999 to assist poor college students. The service was extended to the rest of the country in 2004. By the end of June, education loans balance had reached 19.3 billion yuan (US$2.55 billion), according to figures from the central bank.

"The risk of an education loan is much higher than that of a commercial one," said an official from the Bank of China.

According to policies, the state student loan system requires no guarantee and offers a lenient time limitation, six years at most, for students to pay back the loan after graduation, both of which may increase the risks for the banks.

As students can apply for loans without guarantee, banks can only rely on the students' personal credit. No tangible mortgage can assure the banks that the students will honour the contract.

Although banks have set up an information system to record the education loan receivers, it cannot track students' personal information after they graduate from college.

"We have found that many universities and colleges have several million yuan of defaulted tuition fees, some have nearly a billion," Cui Bangyan, a senior official with the Ministry of Education said at a press conference early this month.

Figures from the ministry show that 2.07 million students in China had received a total of 17.27 billion yuan of loans by the end of 2005, but almost one in five violated the loan contract, including the default on loan. The defaulted loans totaled more than 3 billion yuan.

Recently, the Beijing and Guangdong branches of the Industrial and Commercial Bank of China blacklisted more than 1,700 students defaulting on loan payment for more than one year. Detailed information of the students, including their names, ID numbers, and addresses, were all publicized on the Internet.

The blacklist is legitimate under the policies on the student loan, which is jointly issued by the People's Bank of China, the Ministry of Education and the Ministry of Finance, but Qiu Baochang, member of the Beijing Lawyer's Association, suggested that submitting the disputes to law would be a better choice than putting the blacklist on the Internet, because banks might face lawsuits if the blacklist contained wrong information.

As Qiu concerned, some students do have difficulties in repaying the loan in time and therefore should be offered more tolerance.

"My monthly salary and allowance for overtime working are only 1,200 yuan and I can only spare 500 yuan each month," the Southern Metropolitan News quoted one of the blacklisted students as saying.

"If possible, I would rather repay my debt with the graduation certificate that cost me four year's college study plus 50,000 yuan of tuition fees."

The government policy offers discount on the student loans, yet the financial discount fail to compensate the loss of banks.

"The government could learn from foreign peers," said Wei Xin, a professor with the Peking University. "Aside from providing discount, some foreign governments also pay the debt to banks to ease the students' burden so that the student loan services could go further."

"The government should be more accountable for the risk of the student loan services, after all the government shoulders the responsibility for educational investment, not the banks," Wei said. (One dollar equals to 7.56 yuan.)