Spend less, study more: China slashes student debt

Student credit on Alipay's Huabei limits have been greatly reduced in an effort to stop students spending money they don’t have.

Photo from CFP

Photo from CFP

By WU Rumiao, ZENG Yanglin


Alipay has become the latest fintech company to be hit in rapid-fire action by regulators to curb lending. The company was forced to slash borrowing limits for college students.

On March 17, students everywhere woke up to find their Alipay credit had shrunk up overnight. As unestablished young people, Huabei, Alipay’s virtual credit card service, is ruthlessly cutting their borrowing limits. Lending by fintech companies has fueled online spending and personal debt along with it.

Why me?

Many panicked and took to social media to air their grievances. Will companies stop lending to college students altogether? Unlikely as the new guidelines apply only to “microloan companies.” Alipay can still act as an intermediary between users and banks. But for millions of Alipay’s young users, accustomed to borrowing large for purchases both essential and impulsive, money may never be the same again.

“It’s only a tenth of what it used to be! They didn’t even bother to let me know!” WU Yi, a graduate student and an early adopter of Huabei, was shocked to find her monthly credit limit cut to 3000 yuan (US$460). Her finances depend entirely on the virtual credit card and have been thrown into disarray. She normally uses up to about 6,000 yuan every month out of a 31,000-yuan credit limit, which comfortably covers her expenses and is always paid off on time. She had just bought a few big-ticket items and is feeling particularly cash-strapped.

Wu said it is “nonsensical” to apply the same rule across the board without distinguishing between individual users’ financial situations and credit records. She complained and was only told that her limit was determined according to her repayment capacity but no specific criteria were given.

Jiemian News was informed that “the decisions are based on a comprehensive assessment by personal credit institutions.”

Save me from myself

Other users are very happy about the cut. CHEN Cheng, who only half-jokingly calls herself “a slave of Alipay,” said she was relieved when her credit limit was slashed. Still, in college, she belongs to the generation that adopted virtual credit cards directly without any experience with the physical ones. “It became available just when my expenses went up in college,” she said. In no time, her monthly balances ballooned from a couple of hundred to the high thousands, which wasn’t helped when minimum payments were lowered to only ten percent of outstanding balances.

“Now my credit limit has been cut to 3000. Am I upset? Yes, a little bit. But it’s probably a good thing,” Chen said. She knows that is not easy to maintain a good credit record, it was unfair that Alipay acted unilaterally and indiscriminately. On the other hand, she’s relieved to be deprived of the means to spend recklessly.

Chen told a story of a friend whose credit limit was instantly raised to 100,000 yuan when a previous 20,000 yuan loan was paid off on time. “It’s like being led into a trap. They lend you some to tempt you into borrowing a lot more. You can’t get out,” she said.

ZHANG Chao is one of many Alipay users hopelessly trapped in debt. He started borrowing voraciously for online shopping three years ago, at first by credit card, and soon “discovered” virtual credit cards when he blew his original credit card limit. “You can borrow tens of thousands through the app,” he said.

Now 300,000 yuan in the red and with interest snowballing, he is constantly bombarded with debt collection calls and text messages and often has to borrow from one lender to pay off another. “They should have cut my credit long ago,” he said.

The new guidelines encourage banks to develop products to meet the needs of young people. The banks, however, are holding back, partly out of fear of bad publicity. Lending to college students can be seen as irresponsible, if not predatory. Many are also deterred by cumbersome documentation, including financial guarantees from parents.

Bank of mom and dad

A fintech manager told Jiemian News that his company has given up on college students, at least for now, mainly due to the financial guarantee requirements. “You need to go through the parents as well. It’s hard to build into an app,” he said.

Banks are developing physical credit cards for college students. All of them require the student and their parents (or financial guarantor) to visit a brick-and-mortar branch in person to apply. Virtual credit cards have shown that demand is very high among college kids, but however you look at it, more personal debt cannot be a good thing.