Xiong Xiaoting (file photo)

Many students in China have reportedly run into trouble with loans over the years, but the recent suicide of student debtor Xiong Xiaoting, a college student in Xiamen, South China's Fujian Province has driven this shady business into the spotlight again.

Burdened with repaying five loans totaling about 570,000 yuan ($82,772) and facing constant harassment from loan sharks, Xiong ended her life in a hotel far away from Xiamen on April 11. Xiong had turned to online lending platforms after her social media business lost money.

Xiong's university issued a circular in March, warning students of the risks of loans and discouraging them from borrowing money online.

Loan sharks threatened to send funeral wreaths to Xiong's parents and teachers, a friend of hers named Wei Na was quoted as saying by the China Youth Daily. "It was a blow for Xiong."

Xiong's father told the newspaper that he had given her money for the loan in February and April. On April 5, her mother received nude photos of Xiong from the loan sharks.

She refused to tell her parents why she had borrowed money and the amount she owed, trying to pay it back by working a part-time job in another city in addition to her studies.

The case is still under investigation.

The unscrupulous nature of these lending platforms made headlines last year, after it was revealed that many female students had been asked to submit nude pictures of themselves holding their ID cards as collateral for loans.

Many campuses in China are covered with ads for loans, and students are able to get loans simply by providing the information on their student card, ID card and bank card, which can be done without their parents' knowledge, according to a report by the Xinhua News Agency.

Platforms that target campuses and mobile apps offering high-interest loans typically lure students with phrases such as "no collateral," "no guarantee" and "loan granted on the day of application."

Market chaos

It is illegal to promote unauthorized loans on campuses, according to a circular issued in April 2016 by the Ministry of Education. Financial experts say students' lack of financial means and regular banks avoiding the student market have allowed illegal online businesses to pop up.

The chaos in online lending has allowed firms to exploit students who lack money but are willing to gamble on their reputation, such as with "nude photos," Yi Xianrong, the head of the wealth management institute at Qingdao University, told the Global Times on Tuesday.

Online lenders swarmed into the campus market after banks withdrew their businesses in this sector in around 2010, Yin Zhichao, the head of the School of Finance at the Capital University of Economics and Business, told the Global Times.

Banks were put off by the high default rate among students, Yin said, adding that these online lending platforms, however, is simply another form of individual lending, which means they set relatively low barriers to borrowers and offer high interest rates under mutual agreement.

The annual interest rates offered by some platforms reach as high as 30-40 percent; however, borrowers are only legally bound to pay interest on a loan if the annual rate is no higher than 24 percent, according to the Supreme People's Court in 2015.

Borrowers can individually agree with lenders to pay higher rates of interest, but if the rate is above 36 percent the borrower can refuse to pay the extra interest.

Business transformation

The campus loan business witnessed rapid development in 2014 and 2015, and the number of businesses offering loans targeted at students reached 108 in 2015, the Economic Daily reported in March.

But negative media attention and the new financial regulations have led to nearly 50 platforms quitting the market as of February, 28 of which shut down their websites and 19 of which turned their attention to workers, according to the report.

Shanghai Nonobank Financial Information Service Company, a campus loan firm, said they will shut down their campus loan services in July, since the negative publicity has badly tarnished the industry.

"The company launched loan services for white-collar workers in September 2016 and now these operations are mature… we will transform this into student loans in the future," reads the circular posted on its website wrote on Monday.

The China Banking Regulatory Commission published a suggestion on April 10, the day before Xiong killed herself, in which it called on colleges to clean up campus loan chaos: businesses should not offer services to people who will be unable to repay or anyone under 18 years old. They are also banned from providing loans through misleading advertisements.

"It is a fact that some students want money to help fund their studies, especially those from poverty-stricken areas," said Hu Jiye, a professor from China University of Political Science and Law.

The government and banks have mature policies when it comes to student loans but students should not consume excessively or launch businesses, Hu noted.