“Loan + Insurance”Model: A Market- based Approach to National Student Loans

The national student loan mechanism is the primary means to promote educational equality and to provide financing to poor students. Up to now,national student loans are provided mainly by policy- sponsored financing with commercial loans as an auxiliary method. The loans are provided through two channels,home- based loans and campus- based loans respectively,and have the China Development Bank( CDB) model and the commercial bank model. However,the mechanism has several defects,such as gaps in coverage,low efficiency,post- loan management difficulty and lack of market- based operation. By integrating the insurance mechanism into the commercial bank model innovatively and bringing the commercial banks,insurance companies and educational organizations into one unity,such a new model has being practiced for several years,and has been proved as a promising and practical approach to improve the efficiency and effectiveness of the national student loan system. The Institute of Finance and Banking of Chinese Academy of Social Sciences has conducted a comprehensive research on the Loan + InsuranceModel. Researchers visited banks,higher educational institutes and insurance companies,and applied international comparison methods to get a firm understanding of the status quo,operational model,operational results and related risks of this new model. They arrived at the conclusion that this new method was a helpful experiment for market- based operation mechanism for national student loan system and at the same time it required broader practices and deeper reforms to overcome various mechanism hurdles and practical difficulties.