Why parents lend international schools up to $200K without interest

In 2018 the American International School Vietnam (AISVN) in HCMC first borrowed VND2-5 billion from students’ parents in exchange for free education until they graduate high school or move elsewhere.

The deal is that the loan will be paid in full within 90 days of the student graduating. There will be a grace period of 90 days during which interest at Vietcombank deposit rates will be paid.

Based on information published on AISVN’s website, the tuition fees for 12 years come to VND6.95 billion.

Thus a VND5-billion loan gets a return of 139% if based on simple interest, or 11.58% a year. If compounded, the return is slightly above 7 percent.

The rate surpasses the annual yields from foreign exchange, gold, real estate, and bonds in 2011-21, and trails only stocks, according to investment firm Dragon Capital.

But the risks are high since these are unsecured loans backed solely by a school’s credibility.

Many private schools, such as the Dewey Schools system, the US Vietnam Talent International School and the International Schools of North America, resort to such borrowing under the name of "education investment packages."

This has been around for over a decade and become increasingly popular in recent years, Bui Khanh Nguyen, an independent education expert specializing in international schools, said.

Starting a private school requires upwards of VND500 billion but most are established by medium-sized or small companies with little financial resources and few assets to use as collateral for bank loans, he said.

Bank loans also carry the risk of fluctuating interest rates, which could easily rise to above 10%, he said.

If a private school had borrowed VND500 billion from a bank in early 2018, when the average loan interest rate was around 10.5% for a 10-year term, it would have had to pay VND4.375 billion per month in the first year.

This is very challenging for private schools since they usually spend heavily upfront while earning little in the first five years, Nguyen said.

The American International School Vietnam (AISVN) in HCMC's Nha Be District. Photo by VnExpress/Le Nguyen

Some 20 international and bilingual schools in HCMC and Hanoi follow this pattern of advance payments in lieu of several years of tuitions, he said.

But not the top three international schools in HCMC, he added.

An employee of a large education company, who asked not to be identified, in the southern region told VnExpress that 10 years after their launch, private schools begin to make enough profits to easily repay parents.

But they need to thoroughly research the parents’ backgrounds, they said.

Parents come to the American International School Vietnam (AISVN) to demand their money on Sept. 21, 2023. Photo provided by parents

A school run by their company only took these loans after making sure most of parents had high incomes and saw their children's education as an investment.

The parents are guaranteed education for their children at an international school even if they go bankrupt or tuition fees rise over the years, they pointed out.

"As businesspeople, they are well aware of the risks."

Nguyen said there are risks since the private school model is relatively new in Vietnam, and many institutions are still amateurish in their operations and management.

"Because it is a loan without collateral, parents face a high risk."