Debentures, Levies Will Need EDB Approval

Is the cost of an international education in Hong Kong set to become cheaper? Well, international schools could soon be subject to stricter controls over what they can charge in debentures and capital levies. This follows a report by Hong Kong’s government watchdog, which has criticised the Education Bureau (EDB) for its “liberal” approach to regulations that has given schools the freedom to charge parents millions of dollars in additional fees.

The EDB is responsible for monitoring the operation of all private schools in Hong Kong – 81 Direct Subsidy Scheme (DSS) schools and 166 international schools. While all these schools need approval from the EDB to increase their tuition fees, there has been little or no regulation of other charges.

Schools often raise capital by collecting charges such as debentures, capital levies and nomination right fees – refundable or non-refundable – and these range from a few thousand to a few million dollars.

Due to rising public concerns over fee increases by DSS/international schools and the collection of other charges, Hong Kong’s Ombudsman launched an investigation into the EDB’s approvals process.

Read more: The cost an international education in Hong Kong, including a table of debentures, capital levies and other additional charges listed by school

Until now, the EDB had “considered the collection of other refundable charges by private schools, a private financial arrangement between the schools and parents” that did not require approval.

In a report released this week, the Ombudsman said that this this “long-established practice is incompatible with… Education Regulations”. It has asked the EDB to “establish a more comprehensive application and approval mechanism regarding other charges collected by private schools”. The Ombudsman also asked the EDB to create a database of all other charges collected by private schools to “keep track of the overall situation”, rather than simply monitoring annual tuition fee increases.

In the report, the Ombudsman offered a snapshot of charges collected by two, unnamed private schools in Hong Kong.

One school asked parents for contributions to campus construction and maintenance, offering them payment options including an annual capital levy of HKD 60,000, a one-off individual debenture of HKD 600,000, or a corporate capital certificate of HKD 5 million. Another school offered parents the choice of an annual capital levy of HKD 20,000, a one-off depreciating debenture of HKD 100,000, or a one-off gold debenture of HKD 3 million.

In response to the report, the EDB said that it will move quickly to establish “a more comprehensive mechanism for approving the collection of other charges by private schools”, as well as creating a database of all charges.

A spokesperson said: “Private schools (including international schools) operate on a self-financing and market-driven basis and have to bear all school expenditures on their own.

"In order to meet the financial needs in relation to teaching and learning, school development, improvement of school facilities and infrastructure, some private schools may take out loans or implement fundraising schemes, such as debentures, capital levies and nomination rights. The EDB has noted that the modes of such fundraising schemes are becoming more diversified.”

The EDB said it would remain sensitive to the needs of the private school sector, recognising its “unique role in the provision of education in Hong Kong".

“While we are mindful of the legal requirements when devising the regulatory mechanism, we would also take into account the situation and needs of the schools and be careful not to interfere excessively in the operation mode of private schools so that they could continue to play their necessary role."

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The Ombudsman also looked into the increase in school fees. From 2014-2019, up to 81% of international schools applied to the EDB to increase their tuition fees; all except five of the applications were approved by EDB. And in the 2018/19 academic year, only two private schools were given approval to increase school fees by more than 10%, one at about 11% and the other about 14%.

The Ombudsman’s report found no impropriety on the part of the EDB in making approvals according to its established mechanism. It said that the EDB takes into account the schools’ justifications for the proposed rate of fee revision, their financial position, whether there has been sufficient communication with parents, and whether the parents’ concerns have been addressed in assessing the applications.

Read more: Fees Increase at 64 International Schools for 2019-20