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Travel ban not among PTPTN’s 10 ideas to improve repayment rate

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Zaidi Azmi
Written by Zaidi Azmi

KUALA LUMPUR — May 17, 2019: The much ado over the yet-to-be decided overseas travel ban on loan defaulters of the National Higher Education Fund Corporation (PTPTN) indicated how much of a powder keg issue the matter is among Malaysians.

While PTPTN chairman Wan Saiful Wan Jan did not rule out the reintroduction of the travel ban that was lifted after last year’s general election, it was not even one of the outfit’s ideas to solve its loan repayment problem.

The problem haunting PTPTN is basically the fact that more than half of its borrowers are defaulters to the point that it has amassed RM40 billion in debt.

PTPTN has proposed 10 ideas -all of which are open for a three-week public scrutiny.

Listed below are a condensed version of PTPTN’s proposed 10 loan repayment scheme ideas to improve the repayment rate and safeguard the interest of future borrowers,

Idea 1: Repayment deferment for those earning less than RM2,000 per month

Twenty six per cent borrowers will be exempted from repayment if the threshold starts at RM2,000. According to PTPTN, the resulting lower collection will be challenging but still manageable.

Idea 2: Repayment deferment for those earning less than RM4,000 per month

Annual collection will be significantly reduced to RM950 million compared to RM3 million annually in the past three years. This is due to the fact that 68 per cent of borrowers earn less than RM4,000 a month.

Based on an optimistic five per cent annual salary increment, borrowers will only start paying from between the age of 29 and 38. The monthly installments will also likely be much higher than if repayment started earlier.

PTPTN said that the huge shortfall by imposing this idea will likely have serious negative implications and drastically limit the future generation’s access to higher education loans.

Idea 3: Income based repayment for new borrowers

Borrowers will only pay what they can afford. Those without income will have their repayments automatically deferred. Those impacted by pay cuts will have their repayment amounts automatically adjusted.

Will also take into account borrowers’ commitment levels, and new and more reasonable rates will be proposed. The public are invited to suggest ideas of a fair deduction rate for each salary range.

Idea 4: Mandatory salary deduction

Loan repayments will be deducted by the employer before paying salary to borrowers, similar to scheduled tax deduction or EPF contribution.

Under the PTPTN Act, Section 29(i), PTPTN is empowered to get employers to deduct employee’s salary and pay the amount to PTPTN without any amendment to existing laws.

Idea 5: Exercise full enforcement

Under the law, PTPTN can legally take the following actions on loan defaulters: declare borrowers bankrupt, seize and sell defaulter’s property, direct garnishment from borrowers’ bank account and issue judgment debtor summons.

To date, there were only two recorded cases of bankruptcy due to non-repayment of PTPTN loans.

Idea 6: Stricter enforcement to hardcore defaulters

Measures that are being considered are: renewal and/or restrictions to passport, driver’s license, business license and registrations, road tax and PTPTN loan approvals for defaulters’ immediate family members.

Also being considered is to publicise the name of defaulters.

Idea 7: Implement a guarantor system

According to PTPTN, the current loan approval policy is too lenient because all applications from students who secured placements in approved institutions will automatically be approved.

A guarantor system, it said, may not only ensure better repayment performance but also encourage borrowers to be more responsible with their finances so as to not give debt burden to their guarantors.

Idea 8: Do-away with First-class graduates loan waivers or replace it with partial waivers.

While well-intended, statistics showed that PTPTN’s loan waiver is less beneficial to those in the B40 (low income) group as only 35 per cent of First-class waiver recipients are from this group.

The Government has spent RM1.7 billion to waive the student loans of first-class graduates, an amount that can fund over 242,000 students at a loan amount of RM7,000.

First-class graduates have a better chance to secure jobs and at a higher pay which enables them to repay their PTPTN loans.

Idea 9: Reduce loans or stop financing borrowers from low-rated and non-rated private institutions and courses

Currently, PTPTN provides loans for all accredited courses which may be non-rated.

For continued access to PTPTN student loans, it is proposed that institutions need to meet the minimum SETARA or MyQUEST ratings and performance targets as agreed with the Education Ministry.

PTPTN claimed that this will ensure students to steer towards better higher education institutions and courses with high employability rate.

This measure will not be implemented immediately, and sufficient time will be given to improve ratings – likely a grace period of three years.

Idea 10: Increase the current one per cent Ujrah fee for new borrowers’ loans

Commercial banks charge up to seven per cent interest for personal and education loans with a much stricter approval process.

With the one per cent Ujrah service fee and loan amount of RM30,000, PTPTN borrowers save as much as RM14,000 compared with borrowing from other outlets.

The Government has already subsidised RM13.7 billion of PTPTN’s interest on borrowings to date. And is expected to spend an additional RM24 billion over the next 10 years based on PTPTN’s current borrowings.

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About the author

Zaidi Azmi

Zaidi Azmi

If Zaidi Azmi isn’t busy finding his way in the city, this 26-year-old northern kampung boy can be found struggling to make sense of the Malaysian political scene. Zaidi can be reached at [email protected]