PTPTN – The case for salary deduction

  • Business
  • Saturday, 22 Dec 2018

Bank Negara deputy governor Adnan Zaylani Mohamad Zahid said CCRIS contains information on overdue payments and is not a system aimed at blacklisting loan applicants.

A steady stream of repayment allows the institution to monetise its loan portfolio and reduce government subsidy for the scheme

THE irony of the poor repayment rate of student loans taken by graduates from the National Higher Education Fund Corp (PTPTN) is that a vast majority acknowledge that they are indeed obliged to repay the debt.

However, citing various reasons – from inadequate income to the inconvenience of the repayment system and not landing a job befitting their qualifications – many do not service their loans regularly.

The reality is that none of the reasons offered for not paying up are either concrete or justified.

A study in 2015 showed that the top-two reasons for the non-repayment were the graduates’ nonchalant attitude towards the PTPTN student loan, and the perception that the government would always step in to ensure that the scheme is kept alive irrespective of the repayment rate.

The view that PTPTN cannot be shut down is true because it is a political hot potato.

On average, about one in five PTPTN borrowers do not pay or adequately service their loans. This number will only grow if nothing is done.

Previously, PTPTN used to be generous with its loans, funding 100% of student fees, with some even having extra for other expenses. When repayments were poor, the loan amount reduced.

PTPTN used various methods – even blacklisting those who did not pay and preventing them from travelling abroad - to improve collection.

However, the repayment rate still leaves much to be desired because the payments are not consistent.

The current Pakatan Harapan government lifted the travel ban and had pledged that repayment was only for those earning more than RM4,000 per month.

Now, it has backtracked on the promise and is paying a heavy price for it, losing brownie points among supporters.

Recently, PTPTN proposed a salary deduction of 2% for those earning RM2,000 per month, with the scale going up to 15% for those earning RM4,000 and above.

It met with resistance from borrowers on the grounds that it goes against Pakatan’s pre-election promise and that many would not be able to afford a monthly deduction.

Notwithstanding the election pledge, the basic principle of funding is that all loans have to be repaid on all counts – regardless of whether one earns RM1,000 or RM10,000.

Student loans are considered “novel” loans. Hence, there is a considerable amount of leniency such as low interest rates and long repayment periods.

However, the lax methods used in ensuring repayment and the easy availability of the loans on the back of lobbying by private universities have been taken advantage of.

The price is being paid by tax-payers in the form of subsidising the PTPTN loan scheme.

What is worse is that the outcome is questionable. A high number of graduates find themselves saddled with jobs that would have only required a diploma or a certificate.

What this means is that the student loan amount taken to acquire the skill set that had secured them the job would have been lower had the universities been honest about the job scope.

This brings us to the question of whether private universities are offering courses that are of value to students, or if these institutions, in pursuit of profits and the readily available PTPTN loans, are offering courses that they know would not make the students any better off even after graduation.

Such practices were rampant some 10 years ago when private universities flourished and went public on the back of enlisting high student numbers for various kinds of courses that added little value to the students. When PTPTN started to clamp down on loan disbursements since 2012/2013, many of these universities have closed down.

On the proposed monthly salary deduction, is RM40 per month a lot for someone who is earning RM2,000?

Frankly, the hand-phone bill of most graduates is more than RM40 per month.

For those who are earning RM4,000 and above, there really is no excuse not to repay the student loan, although some may not be able to fork out up to 15% of their salaries. On this score, PTPTN has already said it is prepared to negotiate.

The voice of protest has been so loud that the government has shelved the plan for now.

However, it is not resolving the financial woes of PTPTN, which is said to require some RM5bil per annum to keep the scheme going.

Stopping the PTPTN is not an option because it is more than political. The student loan has allowed many from poor families to complete a degree and get a career going.

Salary deduction is nothing new. It is practised in advanced countries because it maximises the value of the loan.

A salary deduction scheme offers certainty of repayment.

When there is certainty of repayment, the loans can be monetised.

A bundle of the loans that are being serviced can be packaged and sold to other lenders at a discount, freeing some capital in the process.

In countries where student loans are packaged and sold, the discount is the subsidy the government has to bear.

The discounts are normally big in the first few years because of uncertainty. However, once the scheme matures and the certainty of repayment becomes more definite, the discount gets smaller. It is a form of financial re-engineering.

The other subsidy on the shoulders of the government is the non-repayment of student loans.

As of Sept 30, 2017, PTPTN was owed RM6.84bil. If everyone who borrowed had repaid, it would have collected RM18.97bil. However, it only collected RM12.13bil, leaving an outstanding sum of RM6.84bil.

Of the RM6.84bil that is owed by 410,500 borrowers, a sum of RM2.84bil is from students who have never repaid a single sen since the programme started in 1997, according to written answers in Parliament.

The remaining RM4.05bil is arrears from those who are paying but less than the amount due.

PTPTN has given out loans to 1.9 million people since 1997 and the delinquent borrowers number 410,500 – which is 21.6%. This means on average, one in five borrowers do not pay.

In order for PTPTN to continue to be sustainable and for it to maximise the portfolio of loans it holds, more people have to pay up and that too consistently.

Further, this should not be on an ad-hoc basis where borrowers skip some months of repayment.

To achieve this, a salary deduction scheme would help in many ways.

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