Photographer: Noriko Hayashi/Blooomberg

Japan's Students Forced to Live Under a Burden of Debt

  • Economic slump guts middle-class that once covered fees
  • Government promises more scholarships, but borrowing grows

Kengo Kyogoku borrows about 122,000 yen ($1,035) per month in addition to a scholarship and a part-time job, because his mother can’t afford to pay his college fees at the prestigious Waseda University in Tokyo.

“The amount is huge,” said Kyogoku, a sophomore of communications and computer engineering. “I get depressed when I think about it. I wonder if I would have to pay it all back forever. But I have no choice.”

Kyogoku is becoming the norm rather than the exception in Japan, where more than half of college students now need financial aid. Loans were rare in the past as most students came from affluent middle-class families who could afford the fees. Today’s parents inherited the legacy of Japan’s long economic ice-age, with fewer family-wage jobs and lower savings, fueling a sense of generational inequality.

While Japan is nowhere near the level of the U.S. -- students there owe some $1.3 trillion in total, compared with about $76 billion in Japan -- the rise of college loans is a triple blow for the country. It puts a bigger financial strain on the shrinking younger generation who already have to shoulder a bigger share of the tax and welfare burden. It dissuades poorer students, who worry that they won’t get the jobs needed to be able to repay the loan. And it increases the strain on a deeply indebted government to boost scholarships to make education affordable.

"In Japan, I feel more pain and more despair among young people,” said Matthew Goodman, a senior adviser for Asian economics at the Center for Strategic and International Studies in Washington. “You have fewer and fewer young people. You need to make the ones who are there more confident, optimistic and productive.”

Prime Minister Shinzo Abe set aside 7 billion yen in the budget Thursday to launch government scholarships in the year starting in April 2017 in an effort to make higher education affordable.

“Family economic conditions shouldn’t dictate children’s future,” Abe said in parliament in October. “If everyone supports a child with scholarships and the child works hard to become a tax payer in the future, that’s an investment for the future indeed.”

Demographic Divide

But, as with most administrations in Japan, the lion’s share of social spending still goes to the older generation who have the votes and influence to unseat politicians. People 75 and over outnumber children aged 14 and younger, and the trend is forecast to accelerate. By 2035, the older group will make up 20 percent of the population while only 10 percent will be under 15, according to the National Institute of Population and Social Security Research.

Japan’s education system was a pillar of its post-war economic ascent, providing the country’s industries with skilled workers who helped companies like Sony Corp. and Toyota Motor Corp. develop world-beating technology and production systems. Between 1960 and 1980 the proportion of 18-year-olds going on to college jumped to 37 percent from 10 percent, according to the education ministry.

Today, roughly 80 percent pursue some form of higher education and a college degree no longer guarantees full-time employment with one of the big job-for-life corporations that were the backbone of the economy.

On top of his loan and a 400,000 yen scholarship from the university, Kyogoku works at a karaoke shop to cover his expenses and try to save for graduate school.

“I’m pessimistic about the Japanese economy,” said Kyogoku, 20, who lives with his single-parent mother. “When you look at demographics, it’s pretty hopeless.”

Raising the knowledge level is vital to Japan as the government aims to use more robots and automation both in manufacturing and services to overcome the labor shortage and spur growth.

Innovations like artificial intelligence “can replace even complex labor on top of manual labor, which means people need higher skills to keep up,” said Masayuki Kobayashi, professor of higher education at the University of Tokyo who led a government panel of experts on student loans. “Education still has plenty room to improve and can contribute to economic growth.”

Student Loans

With family support dwindling, more students are turning to the Japan Student Services Organization, the government-backed lender that charges interest from zero to 3 percent depending on academic credentials and prevailing bank rates. The number of college students borrowing from Jasso rose by 51 percent to about 976,000 in the decade through March 2016. Include loans and scholarships from other entities and more than half of college students now rely on outside assistance, according to the organization.

Rising indebtedness is having its effect, said Yoshiharu Iwashige, a Tokyo-based lawyer. Some students drop out by working too much to cut their debt, and many others who can’t meet payments come to him to file for bankruptcy, Iwashige said.

“This has become a middle-class problem,” Iwashige said. “Many give up marriage and having children, which are now for the privileged. Student loans get in the way.”

Abe’s efforts are unlikely to be enough to stem the tide of borrowing as the government itself is deeply in debt.

“It’s impossible to turn everything into scholarships,” Jasso President Katsuhiro Endo, 71, said. Policymakers hesitate to cut spending for senior citizens given their political clout, he said.

Jasso’s total outstanding loans more than doubled to almost 9 trillion yen in the decade through March 2016. Some 165,000 people, or 4.2 percent of the borrowers whose payments are due, were behind for more than three months as of March 2016.

Japanese universities must help students or risk losing some of the best talent to colleges abroad, according to Taiji Saito, dean of student affairs at Waseda, the alma mater of seven former prime ministers. The university provided 2.1 billion yen in scholarships in the year ended in March 2016, while its students had borrowed 9.3 billion yen in Jasso loans as of the end of the year.

Hiroki Yamakawa

Photographer: Noriko Hayashi/Bloomberg

Hiroki Yamakawa, 18, from Aichi prefecture in central Japan, might not have made it to the university without a 400,000 yen annual scholarship. His mother runs a kimono shop after his father died.

He says the problem won’t go away until the government can get people to start spending more and investing in the younger generation. “People in their 70s and 80s hoard up money and don’t spend because they want to save for the future,” Yamakawa said.

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