By Ammar Syabil Mohammad Azam
Recently, Higher Education Minister Zambry Abd Kadir called on 430,000 study loan defaulters to come forward and repay their PTPTN loans totalling RM6bn.
The minister’s statement has sparked criticism for focusing on the students’ “moral responsibility“.
It diverts attention from the factors that prevent borrowers from repaying.
Several reasons explain the low repayment rates: low salaries, unemployment, underemployment and family expenses.
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Khazanah Research Institute statistics show that 65.6% of fresh graduates in 2021 earned less than RM2,000. These graduates are overqualified, resulting in underemployment and low skill matches. Some opt to study overseas, creating a brain drain issue that has put our talent pipeline in a precarious position.
However, from a broader perspective, our graduates appear to be facing wage stagnation. This creates more barriers for them to escape from indebtedness. Their wages determine their financial health in the long run.
While a progressive wage policy is pending implementation to increase their wages, it remains PTPTN’s social responsibility to ease their burden, as part of the grand scheme of socially mobilising our graduates.
PTPTN should view this debt problem alongside other pressing matters, such as low retirement savings and high housing prices.
Khazanah Research Institute data also shows that 90% of young people below 30 have not even reached the Employees Provident Fund’s minimum retirement savings. The debts that put PTPTN borrowers in a bind now thus affect these graduates’ financial planning for their retirement years.
Graduates are affected by seriously unaffordable housing prices, as property prices have soared over the years.
These are matters that leave the youth, including graduates, alarmed about their financial position. Consider this: each stage of their lives is financialised by their obligation to mortgages, debts, car loans, credit card loans, retirement savings and inadequate salaries. This makes it difficult for them to sustain a comfortable life in their later years.
Tyranny of merit
PTPTN still fails to recognise the inequitable meritocratic waiver system, where debt waivers are given to economically privileged first-class honours holders.
Penang Institute’s research shows that first-class honours holders are mostly from the high and middle-income brackets. This research was published in 2016, years before Covid.
PTPTN should have taken heed of this long before implementing ineffective policies. Remember, PTPTN was established as a channel for social mobility for the poor.
Unfortunately, PTPTN’s honourable vision has not yet been realised. Low and middle-income graduates are still burdened by their loans. Compounding this problem, graduates from these income brackets are more likely to occupy low-paying jobs.
This widens the social inequity that we need to reduce and falls far short of the “Madani” (civil and compassionate) vision of a humane economy.
Reducing educational inequity
Given this, we can see the roots of loan delinquency beyond the perspective of pinning a moral obligation on our debt-burdened graduates. It ties back to the socioeconomic issues that are injurious to their financial health.
So, PTPTN should revise its existing schemes and policies and implement a more robust approach to reduce educational inequities for our students and uphold economic justice for our graduates.
First, PTPTN should revise and implement the income–contingent loan repayment scheme. This scheme is undeniably an effective policy, but it has received public backlash due to the wrongly set income threshold previously.
This scheme should replace the ‘rebate incentive discount repayment’ scheme (50% discounts for graduates who settle their debts fully), given that PTPTN is saddled with over RM70bn in debt.
Rebates would only erode PTPTN’s sustainability as a welfare agency.
Implementation must be rationally tailored to align with Economy Minister Rafizi Ramli’s progressive wage policy. Once this wage policy is implemented, the PTPTN could come up with a guideline that graduates can defer their repayments until such time they earn a higher monthly income.
This threshold for deferred repayments could be set at, say, RM3,500, which is the starting pay for many higher-paying jobs, and it could be varied based on each state’s living wage. The rate of repayment should also be structured progressively based on which income class the graduates come under.
Second, a no full-waiver policy for economically privileged first-class honours holders should be implemented. This would allow funds to be reallocated from the first-class honours waivers to partial waivers for poorly performing underprivileged graduates in the labour market who have not yet settled their PTPTN loans.
Waivers for first-class honours holders should be applicable only for graduates from the bottom 80% of households, ie the low and middle-income groups. First–class honours graduates from high-income families should only be eligible for discounts or partial cancellation, not full waivers.
Prime Minister Anwar Ibrahim said that educational subsidies will be cut for ultra-rich students. So it would be wise to allocate a fairer percentage of the subsidies to underprivileged graduates. This is, in principle, justified as PTPTN borrowers could have borrowed less had the subsidies not been unfairly leveraged by the rich.
Third, the gross monthly household income threshold of RM50,000 for study loan eligibility is too high. It is not financially sustainable for PTPTN and will not reduce its RM70bn debt. The threshold should be reduced so that ideally, only students from the bottom 85% of households should be eligible for study loans.
Allowing more spending by the government on rich students would reduce the availability of study loans for the underprivileged.
So the threshold ought to be critically and mathematically revised to set an optimal gross monthly income eligibility threshold for the underprivileged or at least, the less privileged.
Zambry’s suggestion of using legal action on the basis of moral obligation is not an entirely wrong idea. We can unanimously agree that such action should be taken against PTPTN loan delinquents who are actually able to repay their loans.
However, this particular action must only be taken carefully after other interventions and assistance have been attempted to encourage repayment by the delinquents.
Speaking as a psychology student, I believe PTPTN should establish a behavioural science unit within PTPTN to gain behavioural science insights to nudge borrowers into repaying their loans.
Numerous findings show that behavioural economics can play a key role in helping PTPTN design effective programmes for poorly performing underprivileged graduates.
The failure to repay loans often stems from behavioural biases that induce irrationality in graduates’ spending habits. A recent news article highlighted how the “fear-of-missing-out” mentality often makes youths spend irrationally.
Experts and think tanks should assist in designing programmes that leverage on behavioural insights to nudge graduates with poor credit ratings to spend wisely.
The US has employed effective debt-reduction programmes, such as the Borrow Less Tomorrow (BoLT) under the Abdul Latif Jameel Poverty Action Lab. PTPTN and the Ministry of Higher Education could learn valuable lessons from this on how to improve debt repayments from graduates.
Hopefully, the ministry and PTPTN will consider my suggestions seriously. After all, PTPTN needs a pool of ideas to assist it in developing strategies.
The student loan issue is a complex conundrum that has evaded a holistic and effective solution for several years now. The youths of this nation deserve more than being trapped in a cyclical burden of financialisation, which hinders them from achieving financial freedom.
As such, state governments, the relevant ministries, government agencies and civil society should keep looking for ways to assist PTPTN borrowers – especially underprivileged youths – in the labour market to settle their debts.
Ammar Syabil Mohammad Azam, a psychology graduate, is active in the campus student movement as a Demokrat UKM activist and deputy speaker of the university’s student union.
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