June 17 (UPI) — Thousands of Chileans who financed their university studies through state-backed student loans are facing the seizure of funds from their bank accounts over unpaid debts, a measure that has sparked controversy over the methods being used by the government of President José Antonio Kast to recover public resources.

The State-Guaranteed Student Loan program, known by its Spanish acronym CAE, was created in 2005 to allow students to obtain loans from private banks backed by a government guarantee. Delinquency rates have risen steadily over the years, generating debt that now exceeds $4 billion.

As part of a public debt recovery plan, Chile’s Finance Ministry instructed the Treasury to begin collection efforts against more than 550,000 borrowers in default. Those who fail to regularize their situation through payment agreements face mandatory withdrawals from their bank accounts to repay their debt.

A study by Acción Educar found that as of December 2025, 61.4% of student loan borrowers were delinquent, while fewer than 30% were current on their payments.

Commercial engineer María Ruiz told UPI she stopped making payments a year ago after losing her job and has since relied on occasional work. Last week, she went to pay for groceries only to discover that her checking account had been emptied.

“It was terrible because they left me without money for the rest of the month. I had received a notice that I had to pay the loan, but I prioritized more urgent expenses,” she said.

Ruiz owes nearly $15,000. To establish a payment plan, she must make an initial payment of roughly $1,000, which she says is impossible because she remains unemployed.

Programmer Ignacio Vigouroux described a similar experience. When he tried to pay at a coffee shop, his card was declined because of insufficient funds. He later learned that the Treasury had withdrawn money not only from his checking account but also from savings accounts he held at two banks.

“I have no money and I can’t enter into a payment agreement. Now I have to move because I can no longer afford rent. This has all been horrible,” he told UPI.

Vigouroux said he stopped making student loan payments in 2019 after losing his job and was never able to resume them. While he agrees that debts should be repaid, he argues that emptying borrowers’ bank accounts is not the right approach.

Kast has said that regardless of the debate over collection methods, the money must be recovered so it can be used to finance the education of other students.

“Today we could significantly improve higher education outcomes if we were able to invest more in early childhood education. This is a call for responsibility. We are not seeking to persecute anyone, but we do want everyone to take responsibility for their actions,” he said.

Mario Alarcón, director of the master’s program in higher education management at Diego Portales University, told UPI that delinquency among CAE borrowers is concerning not only because of the amount involved but also because it continues to grow each year.

“According to the Treasury, CAE liabilities exceeded $4 billion in 2025, a figure eight times higher than in 2018,” he said.

Alarcón added that the problem stems not only from borrower behavior but also from the design of the financing system itself. When a borrower defaults, the government repurchases the debt from banks at a premium, placing additional pressure on public finances.

“The 2026 budget projection illustrates this. It includes $408.3 million for guarantee payments related to CAE defaults, $493 million to repurchase loan portfolios and $138 million for benefits and account adjustments. Every peso spent correcting design flaws is a peso not allocated where social returns would be greater,” he said.

In his view, nonpayment cannot be left without consequences. While the government has both the authority and responsibility to recover these resources, he said collection methods should encourage repayment rather than push borrowers into financial collapse.

“A deduction proportional to a person’s ability to pay is more sensible and more effective than one that leaves the individual without any financial margin, because the latter tends to push borrowers toward insolvency or litigation instead of repayment,” he said.