The student loan conundrum

THE proposal to abolish the student loan scheme under the National Higher Education Fund Corp (PTPTN) has various repercussions for government debt and the future of higher education.

The government says it will discuss the proposal with various parties, including the Higher Education Ministry.

It has been reported that the predecessor of Pakatan Harapan, Pakatan Rakyat, had pledged to abolish PTPTN and introduce free higher education as part of its election manifesto in 2013.

Pakatan has since promised to either write off or defer PTPTN loan repayments for B40 borrowers or those earning below a certain threshold during the 2018 and 2022 general elections.

At the moment, discussions on what to do with the PTPTN scheme are taking place without further details. But going by what has been said before regarding addressing the scheme, a dramatic change will have its consequences.

PTPTN has about RM32bil in unpaid debt. If that debt is absorbed, then there will be an impact on national debt and also the debt service ratio.

Reports have said that more than 1.2 million borrowers have yet to settle their loans, and more than 360,000 of them have not made any repayments.

Election promises carry the weight of being fulfilled. Manifestos contain pledges which, although not enforceable by law, carry expectations of being fulfilled.

However, political manifestos are designed to win votes, sometimes sacrificing what is better for electability.

A good example is the goods and services tax (GST). Prior to winning the 2018 election, GST was vilified by the Opposition and, upon winning the election, the GST was repealed and ­substituted with the sales and service tax (SST).

The end result was that the electorate still had to pay taxes through what many described as an inferior tax. GST, or a broad-based consumption tax, is practised by 176 countries.

They all cannot be wrong.

Election promises that add more burden to government finances have to be looked at from a societal benefit perspective.

There have been many cases where politicians, not in Malaysia, have made wild promises, including removing income tax, to win an election. Those promises are morally wrong as the burden will be passed on through other means.

Going back to the promise of abolishing PTPTN, the question is: What then?

Will higher education be free then for Malaysians pursuing a higher education degree?

Most of the cost of higher education is already covered by the government, and reports indicate that making it completely free will incur an additional cost of several billion ringgit a year.

But the issue is that if higher education is made free, will enrolment be capped?

There is no point in churning out more graduates of little economic value at the expense of incurring more debt and increasing the cost of supporting public universities.

And for the students receiving free education, will there be sufficient high-paying jobs to absorb the graduate population?

A better alternative would be to make education free for students from poor families and also provide free education should a student excel in a programme that is deemed worthy through the lens of what the government is trying to achieve.

That means if you score First Class Honours in engineering or a STEM degree, then it will be converted into a full scholarship. No free ride for gender studies graduates, however.

But by giving a blanket waiver on student debt, the message that is being sent is wrong. Debt defaulters will get a free ride, which sends the wrong message to society.

If you have incurred a debt willingly, then you will have to pay it off. Why should taxpayers take on that burden, and what about those who have been consistently paying off their student loans? There surely will be a mixed bag of reactions to such a move to write off student debt.

There might be a short-term bounce in favourability from those who had their student loans abolished, but it will surely be inconclusive among the rest who see no benefit in doing so.

Increasing spending on healthcare or defence will surely win more public appreciation. After all, better healthcare and a safer country should be universal goals rather than giving a free ride to students whose bigger challenge has been securing proper employment. Underemployment in Malaysia is a chronic problem.

With youth unemployment around 10%, this means students today will have a tough time securing a job even though the national unemployment rate is 3%.

Maybe the best thing is a compromise.

Make certain courses that have good economic value to the nation free to increase the supply of talent for the future. Also, students from poor families should not start their lives post-graduation with a debt burden, to give them a better chance in the job market.