Parents put themselves in risks by giving loans to international schools

When registering for his two children to study at a bilingual international school in Ho Chi Minh City in 2013, Minh Tung, a resident in District 7, agreed to sign two contracts with the school.

Called "education agreements," each contract saw Tung invests VND1.55 billion (US$63,800) into the school and in return, his two children were allowed to study there for free. The loan is free of interest and the money must be transferred in one transaction.

As stated in the contracts, after studying for at least four years, if his child wants to move to another school or graduates, he will receive money back.

In 2019, when his eldest son graduated, Tung got the original investment within five months.

Thanh Phung, who now lives in Canada, also signed the same type of contract in 2010 to let her three children study for free at an international school in Binh Thanh District. She lent the school $150,000 in total.

Phung said the process was convenient and the school paid her back in full when her children changed schools. 

Therefore, in 2013-2015, she continued to sign another zero-interest loan contract with the American International School Vietnam (AISVN) in Nha Be District.

But this time the outcome was different.

She had lent the school more than VND10 billion ($420,000) over four contracts to have her four children study there for free.

By June last year, all her four children had moved to other schools but AISVN has returned her only 10% of the total sum so far.

Around 20 other parents interviewed by VnExpress reported the same situation, saying the AISVN had failed to pay them back as promised after their kids have graduated or moved on.

On the afternoon of September 21, many of the parents protested at the AISVN, demanding it pay the debts. They also sent petition to the HCMC’s Department of Education and Training.

Tung and Phung said they were not aware of the school's financial situation, and contracts they had signed did not say what the school borrowed the money for. 

Both parents said they lent the money because they found it beneficial and believed in the reputation of the schools or their owners.

Tung said if he deposited VND3 billion into the bank then the interest he gets every year is not enough to pay the tuition fees at international schools.

Furthermore, when signing the loan contracts with the schools, parents would no longer have worry if there would be any tuition hike, and the family can get their money back to send their children to college or study abroad later on, he said.

In Hanoi, there are at least two international schools that currently raise funds in a similar format, with a limited number of parents approached for loans of VND1-8 billion.

Parents protest at the in HCMC's Nha Be District, demanding the school to pay its debts, September 21, 2023. Photo acquired by VnExpress

The principal of an international bilingual school in Ho Chi Minh City said that although the names of the contracts may be different, such as "loan contracts," "capital contributions," "educational agreements," or "financial packages," they are just one method that international schools have used to borrow money without interest from parents. 

"Parents may see the immediate benefits, so they lend money to the school, but the benefits outweigh the harm as they don't think about the risk of the school going bankrupt or if the school owners run away, how they will get the money back," said a principal who wanted to remain anonymous.

He said he does not support this fund-raising method because education is different from doing business, and schools that have to raise capital and borrow money from parents will be distracted from their education mission.

Lawyer Dang Ba Ky from the TNJ Law Firm of the Ho Chi Minh City Bar Association, said that current law has no regulations prohibiting or restricting schools from borrowing money from parents.

He said that with this form of giving and taking loans, both the school and parents could have benefits. Parents will not have to pay school fees for their children while schools have an easier way to raise capital compared to borrowing from credit institutions.  

In essence, there has been an offset of obligations according to the civil law: the obligation to pay interest is offset against the obligation to pay tuition, he said.

However, Ky said borrowing money without collateral and without being bound by loan conditions means schools can abuse this method to borrow money for other purposes, leading to the risk of default. 

In such a situation, parents will be at risk of being unable to recover the debts.

Quoc, a parent with two children studying at a bilingual school in HCMC's Binh Chanh District, said there are at least eight schools in the city that he knows using this method of capital mobilization. 

He himself was suggested to sign such a contract in 2009 but he refused.

"Doing so is putting ourselves on a knife-edge situation as we have no idea what kind of investment the schools would do using the money and if they go bankrupt, how you would get the money back," Quoc said, adding that there are no guarantees for such transactions.

He said the school could issue bonds or stocks and when doing so, it must abide by the rules of the Ministry of Finance.

Ho Tan Minh, Chief of Office of the HCMC's Department of Education and Training, said that loan contracts and financial packages with the nature of capital mobilization were civil transactions between parents and school owners, and the education sector currently had no regulations on borrowing money or assets between schools and parents. 

Therefore, the department cannot check and manage those transactions.

"Parents need to carefully consider legal issues and risks if choosing to let schools borrow their money," he said.

The department said in a Monday statement that private schools, including international schools, must separate their education and training activities from their businesses, including capital mobilization and financial investment.

The order was made following the case of parents showing up at the AISVN last week, demanding the school pay its debts.