TNAG-1415-FCO40-1896-Public-finance-in-Hong-Kong-1985 — Page 159

115.

Two other events occurred in the 1970's which made the scheme even more expensive. In both cases when seeking the necessary financial approval for a change in the funding arrangements there was a failure to review the validity of the underlying assumption regarding the students' ability to repay loans and to ensure that the objective of the scheme was being achieved in the most economical manner.

116.

The first event happened in 1974 and the other in 1979. Before 1974, in determining a student's need for assistance, his disposable income would first be assessed and then be used to offset a predetermined level of tuition fees and other academic expenses. Any deficit would be covered by the award of a grant with a loan being given to cover living expenses, also up to a predetermined level. If there was a surplus, no grant would be awarded and the surplus would be used to meet living expenses, any shortfall being met by a loan. In other words, the disposable income was used first to offset the grant element of the scheme and thus economize on the use of

public funds. With general prosperity in the early seventies, and a rise in family incomes which was not matched by an equivalent rise in the cost of tuition fees and other academic expenses, assistance by way of grant to the students became smaller relative to their loans producing economies in the overall financing of the scheme. The Joint Universities Committee however, perhaps being more concerned to preserve the benefits to the students rather than the overall cost of the scheme, requested an increase in the amount of grants and a reduction in the loan element. This was supported by the Secretary, University Grants Committee and a proposal was made to the Finance Committee of the Legislative Council that disposable income be split on a 70:30 ratio between academic and living expenses. This would mean that, although the total assistance to each student would remain the same, the grant element would be increased. The Finance Committee paper of July 1974 seeking approval for the change admitted that justification for the proposal was tenuous. Nevertheless, two points were put forth to support the proposal: first, assisted students came from very poor families, with income below $900 per month for a two-child family; second, some graduates had great difficulties in repaying their loans. I have found that both points were not based on valid or up-to-date information. The figure of $900 was apparently a miscalculation as based on the results of the 1973-74 allocation exercise, the cut-off point for a two-child family was more than $1,300 per month. With regard to the second point, the alleged repayment difficulties were apparently not substantiated by any research or survey. As a result of the change, grant requirements for 1974-75 were increased by some 44%, ironically as a result of an increase in the students' disposable income.

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