Mounting student debt may cost society dearly

by and

The education ministry conducted a survey in 2014 of institutes of higher learning and found that the average yearly tuition for private universities was ¥864,384. In addition, the average “entry fee” (nyūgakukin) was ¥261,089. Adding other expenses, the ministry estimated it cost a student ¥1.43 million to attend a private university during his or her freshman year, and that doesn’t include living costs. For junior colleges, the amount wasn’t much less, about ¥1.26 million. Graduate students paid about ¥1.09 million during their first year of study.

Tuition continues to rise while the number of students falls. Forty years ago, average tuition for a year of private university was ¥180,000. It broke the ¥500,000 ceiling in 1987, and went over ¥800,000 in 2002. However, entry fees have been dropping since 1999, reflecting greater competition for fewer bodies.

These tendencies have produced a problem that is not unusual in the developed world but which is pronounced in Japan due to the way education is paid for: student loan debt. According to the Japan Student Services Organization (JASSO), the “independent administrative institution” affiliated with the education ministry that administers “scholarship loan programs,” ¥1.1 trillion was available in fiscal 2015 for loans to post-high school students, of whom 1.34 million availed themselves of the funds. That means 1 out of 2.6 people attending universities, colleges and vocational schools borrowed money from the government.

According to the Jan. 18 issue of Aera, 330,000 people who still had outstanding student loans in 2012 were delinquent with payments, and in that year the government filed 6,193 cases against scofflaws, a tenfold increase over the number prosecuted in 2004. This situation is bound to get worse as tuition fees increase and incomes refuse to budge upwards.

The Organization for Economic Cooperation and Development says that education costs worldwide account for 16 percent of the money spent by individuals. In Japan, it accounts for 30 percent on average of household expenditures, and that doesn’t include cram schools (juku), to which many families send their children. More to the point, 66 percent of the cost of higher education in Japan is borne by individual users rather than government and other public or private organs. Of course, college and university is expensive in many developed countries, but Japan is the only one where there is no systematic grant system for higher education.

Though JASSO refers to the money it disburses with the English word “scholarships,” the money is not free, which is what the term signifies in the U.S. (The U.K., it should be noted, just abolished its university grant system.) All the funds given out must be paid back. Recipients of Class 1 scholarships do not pay interest, while those who receive Class 2 scholarships pay up to 3 percent. In 2015 JASSO approved 467,000 Class 1 scholarships and 877,000 Class 2 scholarships.

The source of funds for Class 1 is the money being paid back by previous borrowers. Class 2 is made possible through banks and other financial institutions, so they have a direct stake in the loans and treat them as they would any asset. For instance, if a borrower is late in payments, the lender may sell the loan to a collection agency.

For both Class 1 and Class 2, borrowers must produce guarantors who are responsible for the loans if the borrower cannot pay or dies. If a student qualifies, then Japan Educational Exchanges and Services will guarantee the loan, with the borrower paying JEES a monthly fee on top of the loan repayment. Even if the borrower later declares bankruptcy, the borrower or the guarantor is still required to repay the loan.

As an illustration of what less financially secure students have to go through, Chunichi Shimbun recently profiled a 23-year-old man majoring in management at a private university in the Chubu region. His father died when he was 3 and his mother worked part-time to raise him and his brother. She received ¥90,000 a month in child allowances from the government, but only until the two boys turned 18. When the young man was in high school he decided to go to a vocational school, but his mother insisted he attend university because she thought “he needed higher education in order to get a decent paying job.”

He got into a good university but couldn’t afford the tuition, so he applied and was given a Class 2 loan at 3 percent interest. Every month for the four years he attends university he receives ¥100,000. He also works at a fast food restaurant for ¥830 an hour and gives half the money to his mother.

When the man graduates this year, he will owe ¥10.44 million. According to the terms of the loan, starting seven months after graduation he will be required to start repayments of ¥40,000 a month. At that rate it will take 20 years to pay off the loan, so theoretically he could still be paying when his child is about to enter university.

Late payments are penalized at an annualized rate of 5 percent. (It used to be 14 percent.) Individuals who have a hard time repaying loans can apply for an extension of up to 10 years or reduction of monthly payment amounts to half. Looking at the future, the young man told Chunichi, “How will job interviewers see me (if they know about this debt), and who would ever marry me?”

It isn’t just private university students who worry. Public universities, which are harder to get into and more prestigious, used to be inexpensive. Forty years ago, tuition was ¥40,000 a year, but now it’s 15 times as much, and by 2031 the education ministry calculates it will be close to ¥1 million a year, the main reason being that the Finance Ministry is reducing its already paltry subsidies for public education — the OECD lists Japan as spending the lowest portion of GDP on education in the world — so schools have to increase tuition. This affects young couples who are thinking about having children. Future education costs will likely discourage them from having more than one, if they have any at all.

Chukyo University professor Hirokazu Ouchi told Aera magazine that since the end of the lifetime employment system, incomes have dropped while the percentage of university students taking out loans has increased from 20 to 50 percent. “In the past, when their children attended college, parents tapped their savings,” Ouchi says. “But now only rich people have savings to tap.”

Consequently, children are giving up on going to university at ever-younger ages and so don’t see the point in applying themselves to their studies. This leads to “lower academic achievement and cultural standards,” says Ouchi.

The government has always counted on a certain level of self-interest to keep educational standards high: I will make sure my child is better off than I was. But such aims are becoming economically impossible for most parents, and society as a whole may suffer for it. Last week, the education ministry discussed creating a student grant system, but it has talked about it before and done nothing. As Ouchi points out, the government should address this matter as a social problem and invest in a solution.

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see blog.japantimes.co.jp/yen-for-living.

  • Hans Gruber

    Willkommen! Japanese students can do their university education in Germany for free instead. Classes are taught in English or German. The German government does this because half of international students choose to stay in Germany when they complete their degree which is good for Germany, and those who don’t stay go back home maintain links to Germany which is good for Germany’s trade. Win win. Type “Germany says willkommen to foreign students” or “Germany International Students” into Google.

    The Japanese Government should offer something like this.