College education is a prized commodity, so much so that high school graduates are often desperate to be accepted into universities that will set them on a solid career path.

Not surprisingly, the better — and more respected — a private university is, the more it generally costs in terms of tuition fees. Even tuition fees at public universities can be daunting for students.

If a student is unable to gain entry into a college, there are myriad vocational schools now available across the country, offering courses that provide training on a variety of topics such as computer technology and fashion.

The wide range of education options now available compared to what was in existence just a decade ago has caused demand for financial aid to soar.

Fortunately, students in Japan who need a bit of financial assistance can apply for a variety of loans or scholarships to help them complete a standard four-year course. The system of loans students are eligible for, as one might guess, is quite straight-forward. Things get far more murky, however, with regards to scholarships.

The Japan Student Services Organization (JASSO) is primarily responsible for distributing college scholarships. Although the term “shogakukin” is typically translated as “scholarship” in English, it’s essentially a student loan that is administered by the organization.

Apart from a few special programs offered by individual colleges and corporations, scholarships are not readily available to students who may need a little financial assistance to enroll — not, at least, in the Western sense of the word.

JASSO offers two types of scholarships. The first type (dai-isshu), which carries no interest, is approved for students whose grade-point average in their second and third year of high school is at least 3.5 (out of a possible 5.0) and whose household income is less than ¥8.54 million a year.

The second type (dai-nishu) carries an interest rate of up to 3 percent and is approved for students who have average grades, demonstrate an ambitious attitude toward studying and whose household income is less than ¥11.7 million a year. Students who receive scholarships from JASSO are required to repay the amount in full after graduation or face the threat of a lawsuit to recoup the funds if students fall behind on their repayments.

Employment prospects, however, have soured for graduates in recent years as companies shift to hiring staff on temporary contracts. According to nationwide statistics compiled by the ministry of labor, employees on temporary contracts totalled 15 million in 2003, a figure that rose to 19.1 million a decade later.

With permanent jobs harder to come by, former students are increasingly struggling to repay the loans. JASSO approved 3.23 million loans in 2012 but listed more than 330,000 cases in which borrowers defaulted, a 1.7 percent increase against the number of delinquent payments recorded eight years earlier. In 2004, JASSO sued 58 former students. In 2012, the institution sued 6,193.

The consequences of falling behind on repayments to JASSO are devastating. “A scholarship should be used to provide an opportunity for a person who wishes to study,” says Yoshiharu Iwashige, a lawyer experienced in debt relief. “However, it typically turns into an albatross around a student’s neck that increases the hardship. It’s now basically a student loan that is a scholarship in name only.”

Iwashige says the weight of scholarships has become so great that students feel they are gradually being stripped of the opportunity to be independent after graduation. Leaving home, getting married and having children are, among other things, typically put on the backburner for as long as it takes the student to repay the loan. Some resort to far more desperate measures.

“I’ve never represented a client who worked in the sex industry (to repay a student loan), but I’ve heard of a school teacher who was dismissed from her job for being engaged in such behavior,” he says. “Personal bankruptcy is the most common result I deal with.”

Iwashige founded Shogakukin Mondai Taisaku Zenkoku Kaigi (National Conference of Scholarship Disputes) in 2013 to help students who are struggling to pay off their loans. The group now provides information on alternative repayment schemes to former students who are being squeezed for cash by JASSO, while also calling for more flexible plans that take individual circumstances into account.

The group received 453 calls on its hot line in the first year of operation (a service it has since discontinued), but Iwashige believes the phone operators at JASSO receive a great deal more.

“JASSO alone receives 3,000 to 4,000 phone calls (from former students who are struggling to repay the debt) each year. These victims don’t know who else to call,” Iwashige says. “We’re talking about people who are serious about repaying the debt; they’re calling JASSO out of guilt. The truth is, however, that JASSO is unwilling to provide any helpful solutions.”

Iwashige says that former students who miss repayments are treated in the same way as any creditor.

JASSO underwent restructuring in 2004, and transformed into a financial institution with similar loan-servicing powers to a bank.

As a result, the institution’s debt-collection ratio has climbed from 79.2 percent in 2007 to 82.1 percent in 2012. Iwashige says that such an increase can only be achieved if more pressure is applied to debtors.

“Filing for bankruptcy as an individual is a massive headache but it’s not the worst thing that can happen to you,” Iwashige says. “If a former student’s parents or relatives have signed on as a co-signatory, they are also affected.”

Iwashige recalls a couple of debt collection cases from his career that stand out.

Akita Prefecture-based A suffered from a psychological disorder after being sued by JASSO for defaulting on his loan repayments.

A’s annual income was about ¥300,000, less than 10 percent of the annual income of an average white-collar employee in their late 20s (¥3.39 million).

JASSO sued A in court after he defaulted on his student loan repayments, demanding ¥3 million that would be repaid at ¥50,000 per month until the debt had been settled.

“A was eligible to apply for a deferment on his repayments because his annual salary was less than ¥2 million, but he was never informed of such system,” Iwashige says.

“We requested a deferment but JASSO argued that A should repay the debt according to the policy that existed before the trial. We then tried to argue that the statute of limitations ruled out such behavior. JASSO, however, then introduced a new rule that prohibited former students from applying for a deferment if they tried to get out of repaying their debt by pointing to a statute of limitations,” he says.

“These cases are insane,” he says. “These former students have been abandoned. I defend such victims free of charge but when JASSO keeps changing the rules like that, my assistance can only go so far.”

Another victim, B, achieved good grades in her first year at college and expected to receive a student loan without interest from her second year.

However, she suffered a cardiac arrest over the new year break that left her paralyzed for two years. As co-signatories, her parents began paying off the debt after her subsequent withdrawal from college but they started to fall behind after her father retired. B’s mother approached JASSO and explained that her daughter had a disability certificate, but the institution insisted that the debt be repaid in full.

After examining the law in more detail, B’s family discovered that her repayments were in fact exempt. JASSO, however, argued that such requests were only recognized after a series of deferments.

“Exemptions are only granted when there is absolutely no chance of recovering the debt,” Iwashige says.

JASSO eventually recognized the exemption after Iwashige intervened in the case but the lawyer says the ugly matter could have been resolved if the institution was more flexible.

“In such circumstances,” he says, “the institution should have been aware of the situation and suggested an alternative.”

Sign on the dotted line

Tadashi Kume, an expert on the scholarship system, says students should only apply for a student loan if they fully understand the terms and conditions that are included.

“Even students at specialized training colleges who dream of becoming a comedian, musician or voice actor are applying for JASSO scholarships,” Kume says. “They borrow ¥120,000 for a period of two years and obviously have problems repaying the debt after graduation. Who can’t see that coming?”

Kume started out as a scholarship adviser in Okinawa in 2005, where he visited schools and introduced students to the various scholarship options that were available. He now delivers more than 100 presentations on loan options in high schools, universities and career forums across Japan every year.

“In the United States, nonprofit and nongovernment organizations help educate students about the different loan programs that are available,” Kume says. “There is both a demand and a need for similar organizations to provide similar assistance about scholarships in Japan as well.”

Kume says students are applying for loans much earlier than they used to, with roughly 70 percent now submitting paperwork for a scholarship in their final year of high school.

As a result, they tend to apply for loans without understanding the consequences further down the track. Their teachers generally don’t help matters, as they have a vested interest in trying to get as many students into college as possible to improve their own entrance rates.

A 2013 survey conducted by JASSO shows that 56.1 percent of former students who defaulted on loans knew about the conditions associated with repayments before applying for the scholarship. By comparison, 92.5 percent of former students who paid back their loans in full understood the terms of repayment before signing up for the handout.

The education ministry has instructed JASSO to take responsibility for informing students of the fine print in their loan contracts. However, JASSO is badly understaffed and has been forced to cut corners by issuing instruction videos to high schools across the country, shifting the burden of responsibility onto teachers’ shoulders.

“Much of it depends on the degree of enthusiasm each teacher shows,” Kume says. “In an ideal world, administrative staff would advise students on their loan options, but the reality is that young teachers are forced to deal with the problem.”

When asked to explain how it intended to improve education methods for students before they signed onto loans, JASSO appears to believe its 500 or so employees are sufficient to handle the demand. “JASSO doesn’t plan on recruiting advisers at this time,” the institution’s public relations division said by email, “but we do believe it’s necessary to improve our cooperation with the schools.”

In addition to the educational videos and booklets it distributes to high schools, JASSO says it also holds regular workshops for teachers to attend.

“It’s true that we’re a financial institution, but we also believe it’s important to educate students so that they repay their loans in full and allow us to continue to provide lending services under the same terms and conditions for future creditors.”

JASSO also says it has already eased its repayment terms after a meeting with education ministry officials in April 2013. As a result, the maximum term of deferment has been extended from five to 10 years, while the penalty rate has been reduced from 10 percent to 5 percent.

However, students who default on their repayments for three months or more will be flagged by the Japan Credit Bureau, which makes it impossible for them to be accepted for a credit card or similar financial services.

“Paying back scholarships should be common sense for students in Japan,” Kume says. “Even though interest rates on these scholarships are low and deferment options are available, JASSO puts too much pressure on students by telling them that their repayments will be used to fund the next generation of students.”

Tokyo college offers students financial aid, life experiences

The Japan Student Services Organization (JASSO) loan program is not the only financial aid option that provides assistance to high school graduates in the country. Corporations and schools also offer a few alternatives.

Toyo University launched its own in-house scholarship program in 2014, offering students financial aid as well as life experiences through the use of the school’s evening courses.

“Students tell me they would have given up attending college if we didn’t have this program,” says Kenji Kato, director at Toyo University’s admissions office. “The majority of applicants last year came from the Kanto region but this year has been more successful, with applications being submitted from all over the country.”

The program covers half the overall cost of tuition fees, or roughly ¥1 million in total, and offers a discounted admission fee of ¥185,000. The college rents dormitories to students for ¥60,000 per month, which includes two meals per day.

As students under the program attend evening courses, they are able to work full-time during the day, earning an annual income of approximately ¥1.8 million to help cover tuition fees. What’s more, the university encourages students to work on campus, helping out with administrative work and other office jobs.

“Working in the campus office is part of their education,” says Kato, noting that they have just graduated from high school. “By making them work in this kind of environment, they are able to develop better communication skills.”

However, the capacity of the program is relatively limited, with the nine departments on campus accepting just one student each. The number of applicants increased from 17 in its first year to 27 in 2015, Kato says.

Students are required to have a grade-point average of 4.3 (out of 5.0), which suggests they’re in the top 5 percent of all high school graduates in the country. This is exactly the kind of students the college wishes to attract, Kato says.

“The departments on campus have suggested we accept all applicants with excellent test scores,” Kato says.

In order to achieve this, the college decided to let graduates with high grades skip the regular entrance exam. Although the university only accepted eight students in the program this year, 25 applicants ultimately decided to attend Toyo University. These students are still eligible to apply for other loan programs offered by the college and are encouraged to participate in administrative work.

“I’ve been watching over these students for a year now, and they’ve matured a lot compared to how they were when they first started,” Kato says. “I’m looking forward to seeing how they will develop after four years.”