SOMETIMES, good intentions can have unintended consequences. For example, when seat belts were first made mandatory in the United States, the injuries sustained during a car accident were less critical, because seat belts were effective in protecting the drivers.
However, the number of accidents increased. Why? Because people felt safer with their seat belts fastened and therefore took more risks while driving.
This is called the problem of risk compensation: when people feel safer, they will take more risks, until the decreased risk and the riskier behaviour cancel each other out and there is no net-benefit left.
In other cases, the unanticipated consequences are positive. For example, aspirin is not only effective as a pain killer, but actually also works as an anticoagulant, meaning it can stop blood clots from forming and thereby prevent heart attacks. Some people with very serious diseases are therefore prescribed aspirin!
Unintended consequences could also happen to the National Higher Education Fund (PTPTN). When it was revealed that a large portion of graduates failed to make repayments on their PTPTN loans, two types of actions were taken by PTPTN.
The first was the imposition of penalties and the second was incentives.
One course of action was the “stick” approach, or penalties. For example, 1.3 million people were at risk of being blacklisted on their Central Credit Reference Information System (CCRIS) records, impacting their credit history and making it (much) harder for them to obtain a credit card, personal loan or home loan.
A second penalty in place since 2008 is that people could be barred from leaving the country until they have paid back their PTPTN loans.
The other course of action is the “carrot” approach: incentives. Graduates would receive a 15% discount if they pay back their PTPTN loan at once in full (before Dec 31, 2017).
They could also obtain a 10% discount if they pay back 50% of their loan at once or agree to automatic salary deductions. In the short term, the incentives seem like a sensible trade-off.
But after closer inspection, it seems unfair toward those students who have paid off their PTPTN debt or are working diligently towards it.
Why isn’t their good behaviour rewarded as they pay the full loan amount back, while the reluctance to repay is rewarded with discounts? Another factor is whether the PTPTN borrowers have found a job in this current economic situation.
Some graduates – as well as current students - might consider to stop paying off their PTPTN loans, in order to obtain the same discount in the future. And some graduates will still not pay off their PTPTN debt.
If PTPTN is already offering 10% and 15% discounts now, who knows how much discount PTPTN may give at a later point in time for the really tardy graduates?
In fact, even the people who did not pay their loan back but enjoy the 10% discount, will feel they are treated unfairly. They will not compare themselves with the ones who paid the full amount, but the ones who received 15% discount and still feel left behind.
That means that in the future, the government might actually see less money come in from good creditors.
Also, the percentage of graduates that are not repaying their PTPTN loans might increase. This could lead to the need for higher discounts in order to motivate people to pay off their PTPTN debts. Of course harder “sticks”, or penalties could also be used, which is much cheaper.
Recall that The Star reported in December 2016 that some 1,574,700 borrowers who failed to repay their PTPTN loans, totalling RM32.07bil, have been listed in the CCRIS.
The report quoted Deputy Higher Education Minister Datuk Dr Mary Yap Kain Ching as saying the CCRIS was not a mechanism for PTPTN to blacklist hardcore defaulters as claimed by certain quarters.
“The record in CCRIS serves as the best practice for all financial institutions to ensure that the borrowers repay (their) loans accordingly,” she said.
Yap also said PTPTN had issued loans to 2.6 million borrowers until the end of their studies, involving an allocation of RM59.67bil as of last month.
“PTPTN has collected RM10.07bil from 1.2 million borrowers compared to RM18.84bil which was supposed to be collected from 1.9 million borrowers during the corresponding period,” she added.
Mark Reijman is co-founder and managing director of https://www.comparehero.my/ dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, personal loans and broadband plans in Malaysia.