This article first appeared in The Edge Malaysia Weekly on November 25, 2019 - December 1, 2019

STUDENTS seeking higher education have long looked to the government for help with financing, creating a culture of student debt, with many borrowers unable to repay their loans. The National Higher Education Fund Corporation believes it is high time to change that mindset. It wants Malaysians to take ownership of their aspirations for their children’s tertiary education by saving for their future.

National Higher Education Fund Corporation (PTPTN) chairman Wan Saiful Wan Jan wishes that borrowers from the fund would think first of saving for their children’s education rather than turning to the agency for an easy fix.

“It’s almost as if they forget that the ‘T’ in the fund’s acronym PTPTN stands for ‘tabung’ (fund), which is a place for them to invest their money,” he says wryly. They seem to think that the ‘P’ in PTPTN stands for “pinjaman” (borrowing).

Herein lies the mindset change that he is seeking to bring about among PTPTN’s beneficiaries in order to turn around the fortunes of the beleaguered fund.

The savings aspect of its operations is one of three functions it undertakes in supporting the national higher education agenda. The other two are providing loans and managing repayment.

Wan Saiful says PTPTN currently manages RM5 billion in depositors’ funds.

“This money is invested and we are able to give out competitive dividends. When we go on roadshows around the country, we inculcate this point about saving. We want parents to take it upon themselves to save for their children’s education from day one so that they don’t need to depend on the government so much,” he says.

While it works to bring about this shift in mindset, the fund’s debt burden is a major problem that needs urgent attention.

PTPTN is sitting on RM40 billion of government-guaranteed debt, which is expected to almost double to RM76 billion in 20 years. For perspective, this is more than the amount involved in the 1MDB scandal.

“When I took over, I soon realised that I had inherited a legacy of mounting debt and this needed to be fixed as soon as possible to ensure the survival of the fund. The savings portfolio is a profitable business …  the problematic part is when the previous borrowers don’t pay,” Wan Saiful says.

The emphasis on the repayment problem has detracted attention from the more serious issue of the sustainability of the fund, he adds.

This is why it is now time for an overhaul of the fund’s operating model, which the Education Ministry is in the midst of addressing.

Last month, Education Minister Maszlee Malik told parliament that a new committee would be formed to find a new sustainable model for PTPTN.

The scale of the repayment problem is huge, with more than half of borrowers defaulting. The current loan repayment percentage ratio is 49:51, with 49% actively paying back their debt while 51% are not. Of the non-payers, 19% have not made a single payment.

From RM56 billion that PTPTN has disbursed to date, only 32.5% has been repaid in full. The gap between the cumulative amount of loans disbursed and that have been repaid continues to widen every year, Wan Saiful says.

Against that backdrop, the number of students requiring loans from PTPTN is also on an upward trend and is expected to grow from 180,000 today to 250,000 by 2040, in line with the enrolment growth projected in the Higher Education Blueprint.

After the government ceased providing grants to PTPTN in 2002, the organisation subsequently sourced its funds by borrowing from banks and the financial markets. However, as a loan provider with a poor repayment performance, it will be impossible for PTPTN to continue borrowing successfully from the money market unless the debts are government guaranteed, Wan Saiful says.

He acknowledges that the current model is not sustainable, especially as it borrows at 5% and lends at only 1%, with the difference being subsidised by the government.

“So we need to figure out some other mechanism to ensure we can continue to give out loans at an affordable rate to the borrowers, but without creating more debt for the government,” he says.

These statistics were presented during a public consultation between PTPTN and various stakeholders between May and June.

“I’m happy the minister made an announcement in parliament accepting PTPTN’s view that the current model is not sustainable and that we need a new one. That opens up a door for us to propose a new model and tackle all the problems.

“The new model must be one where we don’t add debt to the government, but at the same time, those who come from lower-income families are assisted by the government so they are not overly burdened,” Wan Saiful explains.

The government has come under pressure for not fulfilling its election pledge on PTPTN loans in its entirety. In its manifesto, Pakatan Harapan had promised that within the first 100 days of taking office, it would postpone PTPTN repayments for graduates who earn a salary of less than RM4,000 monthly.

Many have criticised proposed enforcement measures such as salary deductions for loan repayments, saying that low incomes and the high cost of living do not allow them to pay back their dues.

PH’s pledge on student loans has since been put on hold. However, the government did abolish the blacklisting of non-repayers.

The important role that PTPTN plays in enabling the people to fund their children’s higher education has made it a convenient tool for politicians. Observers have commented that political statements have impacted the public’s perception of PTPTN, with many believing their loan repayments would go away.

Wan Saiful says future students must be given proper advice on the right courses to take so that graduates will be able to find suitable jobs that allow them to be responsible and pay back their loans. He cites data that show the relationship between the types of universities and repayment rates (see charts).

PTPTN has been working on a proposal that aims to rework the model to be more sustainable and cost-effective, he adds.

Private-sector companies have also come forward with proposals, such as making better use of technology to make PTPTN processes more efficient. “Some are also coming with ideas on how to insure the loans so that the risk can be better managed. Some have advised us on how we can borrow at lower rates,” he says.

He adds that the proposal will be shared with the government, which is aiming to announce a new model for the agency next year.

How students elsewhere repay their loans

In planning a new sustainable model, Wan Saiful says reference can be made to other countries that have managed to achieve higher repayment rates.

Most look to countries such as Australia and New Zealand, where enforcement is strict and the repayment rate is high, at about 80%.

“The system they have is based on income as well — it’s a progressive system and it works. So we have been talking to diplomats there on how we can improve ours,” he says.

In New Zealand, once borrowers earn over NZ$19,760 a year , they are required to start paying off their loans even if they are still studying.

The borrower’s tax code can be changed so that repayments are automatically deducted from their pay, with the deductions amounting to 12% of everything over NZ$19,760.

Similarly, in Australia, those earning over A$45,881 a year have to repay their student loans — a new repayment threshold which is 11% lower than the previous one. It marked the largest percentage drop in the threshold in more than 20 years, the government said.

In the US, 2020 democratic presidential candidate Elizabeth Warren has pledged to cancel almost all of America’s student loan debt. She believes this will help reduce the wealth gap in America and provide an economic stimulus to the middle class to increase home purchases and start small businesses.

Wan Saiful notes the reasoning behind this concept, saying an important factor to consider is to clear the credit history of borrowers so that they can be free to do other things.

“They may want to buy a house or buy a car. But because of a bad credit history, they can’t take out those loans whereas they do need those loans to move forward.”

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