Hansapank, like other Estonian banks, signed an agreement with the government last year that requires it to provide student clients with 400 billion kroons ($28 million) worth of student loans at an interest rate of 10.5 per cent, 5.5 percent of which is paid by the government. The government acts as guarantor, and this year it has to guarantee more than 500 million kroons. Each student client is entitled to a maximum loan of 13,000 kroons.
But because of financial difficulties and the precarious state of the Estonian banking sector, Hansapank said it can only lend 10,000 kroons per student and will only be able to meet the 13,000 kroon level if the government immediately injects 50 percent of the total outlay as deposits - 200 billion kroons.
Hansapank has also announced it wants to receive 13.5 percent interest and an increase in the share paid by the government from 5.5 percent to 8.5 percent. The student pays the remaining 5 percent.
Initially, Hansapank had said it could only fund 5,000 kroon loans per student without government help, but subsequently upped the figure to 10,000 kroons.
Funding the student loans at the full rate without government help would force Hansapank to severely cut back loans to the business sector, bank representatives contend. The Estonian Ministry of Finance is reviewing the agreement.
Meanwhile, students who are expecting the loan come September are starting to worry. Lauri Koop, CEO of the Federation of the Estonian Student Unions (FESU), said Hansapank is blackmailing the government.
There are still about 25,000 students who have not taken advantage of the favorable loan available by this government agreement, Koop said. This year, 7,000 students are entering university. Various Estonian banks have said they are ready to serve them but have clamored for the government to up the interest rate to 14.5 percent.
There were initially six banks that won a competitive bidding tender and signed the loan contract with the government. After the bankruptcies and mergers that have characterized the Estonian banking sector of late, students can now choose between three - Hansapank, Uhispank and ERA Pank.
The FESU has recommended students who have yet to take out a loan void Hansapank in favor of Uhispank and ERA Pank, both of whom say they can fully finance the loans of their student clients.
Uhispank has 1,450 student loan clients, ERA Pank just 50. Both banks, however, said they will not assume the burden of the Hansapank and Hoiupank clients
Hoiupank used to be the biggest loan supporter and now, after its merger with Hansapank, serves about 92 percent of the students.
The loan sum in the agreement has increased from year to year - last year it was 10,000 kroons, in 1996, 5,000 kroons and in 1995, 2,500 kroons.
Tuition fees have increased too, and according to the FESU, it ranges between 13,500-45,000 kroons per year. There are tuition-free universities, but competition there is especially fierce, and even those students need some money. According to Koop, the minimum living standard in Estonia in 1997 was 1,141 kroons a month. A student loan of 5,000 kroons a year is nothing more than a joke, she said.