Understanding School Debentures in Hong Kong

Definition of Debenture:
A loan agreement in which the borrower is an institution i.e. a school is known as a debenture. In such a case the parents who are considering admitting their child to the school have to make a lump sum payment on or before the admission. Various schools offer a wide variety of debentures but not every school has them. In Hong Kong debentures are also referred to as:

  • Capital Notes
  • Nomination Rights
  • Capital Contribution/ Levy

Use of Debentures by Schools:
Most of the schools in Hong Kong, including the pre-schools ask the parents to pay a debenture during the time of admission.

  • A debenture is a loan taken by the school thus the payment of fees by the parents of a child against his/ her admission in the school as a student is the way of contributing to the long term funding of the school.
  • The fee mainly covers the school’s running cost and not the capital costs.
  • To gain priority in the selection process of their child parents sometimes buy a debenture before the admission process begins.

Selecting the Right Debenture:
There are two different types of debentures that you can choose from.

  • Individual/ Corporate- This debenture is applicable to just one child in a family. It is non-transferrable.

A debenture that is held by a corporation and can be used for the child of its employee is known as a corporate debenture.

  • A corporate debenture is transferable and can be transferred from one employee to the other at any time if the former employee leaves the employer.
  • In such a case the school may ask the child to stay with them or withdraw the admission as he/ she is no longer associated with the corporation.
  • A child covered under corporate debenture receives priority during the admission process.
  • Refundable/ Non Refundable/ Depreciating- If the child leaves the school then some schools return the full amount of the debenture. They do not apply any interest or charge penalties. These are known as refundable debentures.

Depreciating debentures are defined as the ones whose value depreciates over a certain number of years. If a child withdraws then, then the left over amount of the debenture after depreciation is returned.

Sometimes the value after depreciation reaches to zero. In a few schools, the debenture depreciates to zero in just seven or eight years.

Alternatives in case the debenture is unaffordable:

  • If you cannot afford a debenture then there are schools that offer parents the option of paying an annual levy in its stead.
  • This is paid on a yearly basis and is non-refundable. It may amount to the same or more that the debenture over the course of the child’s schooling.
  • There are many schools that do not require a debenture. If you are not looking to pay a debenture then you can always look them up.

Photo credit: Brad Flickinger / Flickr

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