THE CHINA INSURANCE REGULATORY COMMISSION of Hubei province recently announced it would issue 8 billion yuan ($1.12 billion) to 10 billion yuan in loans to college students in the province. Such loans are conducive to curbing the activities of loan sharks that prey on college students and will help prevent financial risks. China Daily's Wang Yiqing comments:

Illegal loans have become a prominent problem on campuses. Some illegal loan companies take advantage of the loopholes in the regulations to issue loans to college students with exorbitant and spiraling interest rates. In this way, students may have to pay more than 10 times the money they borrow. If the students cannot pay back the money, the companies will harass their parents, relatives and friends to get the money.

Such illegal campus lenders take advantage of students who lack sufficient financial knowledge and self-protection awareness. Female students are at times asked to provide nude photos of themselves to acquire a loan and the loan sharks will then threaten to release them to the students' families and friends as a way to force them to pay up. The pressure applied by the loan sharks has resulted in some students committing suicide.

The Hubei provincial government aims to put an end to this predation on students by providing a legal loan channel for them. It says this will prevent and curb illegal campus loans and eliminate potential financial risks.

While its move is welcome, the local authority should be cautious when issuing loans to students. A majority of college students in China have no source of income and are dependent on their parents. In other words, the loan applicants may be college students, but the actual repayers will probably be their parents. The authority should ensure that parents are aware of and have the means to repay loans taken out by their children.

In addition, the loans for the college students should aim to satisfy their normal financial needs, not encourage them to recklessly spend money. College students should not be encouraged to blindly pursue a high consumption lifestyle, especially when they don't have the capability to repay the loans.