Abysmally low loan repayment rates have plagued the National Higher Education Fund Corporation (PTPTN) ever since its inception in 1997. According to a parliamentary reply I received last year, only 45.8 per cent of loans have been repaid as of 30 September 2015, amounting to RM6.71 billion out of RM14.65 billion.
Recently it was announced that 1.25 million borrowers who failed to repay their PTPTN loans have been listed in the Central Credit Reference Information System (CCRIS), which means that they will now face difficulties in obtaining loans from financial institutions, including personal loans, credit cards, housing and vehicular loans.
While such a step may be seen as necessary to instil discipline and responsibility on borrowers in order to address the alarmingly low loan repayment rate, there are genuine concerns that should be given attention. While there are undoubtedly many borrowers who treat government loans with a sense of entitlement instead of a privilege, there are many more graduates who are simply unable to afford the repayments.
Graduates can’t afford to repay their loans
Malaysia currently faces worrying levels of youth unemployment and underemployment. Minister in the Prime Minister’s Department Dato’ Seri Abdul Wahid Omar, for example, revealed last May that more than a quarter of all unemployed people in the country at the time were graduates. At the same time, one in five graduates are underemployed, working in jobs that do not match their paper qualifications.
Therefore, it is really no surprise that many graduates are simply unable to make their PTPTN loan repayments, especially after considering the other costs a young working professional has to deal with, such as house rental and vehicular loans, which have become a necessity due to the lack of public transport.
In this context, punitive measures such as blacklisting defaulters on CCRIS and other legal action may actually worsen the situation for many borrowers who are already struggling to make ends meet. By doing this, the government will only condemn thousands of young Malaysian graduates to life in a vicious debt cycle.
A more flexible repayment scheme
One way to address this dilemma is to introduce a minimum income threshold for repayment. In Australia, for example, borrowers of government study loans are only required to repay their loans once their income surpasses AUD54,126 a year. This is to avoid unnecessarily burdening a low-income graduate.
In Malaysia, the minimum income threshold could be set at, say, RM3,500 or RM42,000 a year, thus ensuring sufficient breathing room for graduates before they have to start repaying their loans. This quantum is only a suggestion and would require careful study before implementation.
Secondly, an income-contingent repayment scheme should be considered. Currently, PTPTN uses mortgage-type loan structures, in which the interest rate, loan repayment period and monthly repayment rate are fixed. Such a structure actually burdens borrowers, especially fresh graduates, due to low wage levels in the country. It is not uncommon for graduates to earn little more than RM2,000 a month in their first job, which leaves them with very little disposable income after making all other obligatory payments. When faced with a choice of starving or putting their government study loans on hold, many would choose the latter.
Instead, a better idea is to use an income-contingent repayment scheme, in which the rate of repayment would scale with the income of borrowers. In other words, the higher the salary of a graduate, the higher the quantum of repayment, and vice versa. Not only would such a scheme reduce the loan repayment burden of a graduate, it would also reduce the repayment period as borrowers would pay more as their careers progress.
The above measures can be easily implemented, and would not only lead to a reduction in default rates, but also help to support graduates who are already burdened by low wages and rising costs of living.