LOOKING forward, the outlook on student loan repayment in Malaysia is likely to get bleaker given what has happened after the rise of Covid-19 followed by the movement control order (MCO). 

The economic uncertainty has caused unemployment and fewer jobs for youth, especially those in the lower-income category (B40 group), who represent a large portion of National Higher Education Fund Corporation (PTPTN) borrowers, at 55%.

The Middle 40 (M40) group makes up 38% while the Top 20 group (T20) makes up only about 7%.

Since its establishment, more than three million students have benefited from PTPTN loans, with total loan disbursement of RM56 billion. 

Nevertheless, despite the increasing loan disbursement that has helped the borrowers to get access to higher education, high cost has resulted in students not repaying their loans. 

A study by PTPTN last year found nearly all B40 borrowers have not been repaying their loans. Of the total respondents, 87.7% earn RM4,000 and below per month after graduation. Furthermore, 97% of loan defaulters come from the B40 group.

Many will wonder, why borrowers default on their loan repayments? According to the same study, the reasons are:

No regular income (29.1%);

Insufficient income (28.8%);

Other commitments are too high (28.3%);

Political protest (8%);

Other reasons (4.8%); and

Weak enforcement by PTPTN (1%).

These findings are similar to PTPTN’s 2015 study, in which five key factors that led to borrowers not repaying their loans are inadequate income, uncertain unemployment status, high living costs, high administrative costs as well as mismatch between employment and qualifications.

According to PTPTN’s public consultation paper last year, 51% are loan defaulters – 32 per cent have been paying inconsistently (616,000 borrowers) while 19 per cent (356,000 borrowers) have never paid. 

In addition to the current figures for loan repayments, the statistics of unemployment among graduates appear bleak. Despite the overall unemployment rate remaining stable at 3.9% last year, the unemployment among youth aged 24 and below stays in double digit at 17.2% (17.5 per cent in 2018). 

Anecdotally, given that degree students generally would graduate at the age of 22 to 24, the unemployment data raise a question to the well-being of future student loan repayments. 

Based on the Employment Insurance System (EIS) unemployment benefit claims, 62,247 jobs were lost as of the third week of July. Of the total, those aged 25-29 are the majority, accounting for 20% of the loss in employment (12,464 persons). 

Although the deferment of PTPTN loan repayment until end-September provides a short-term relief to the borrowers, the clock is ticking by the day and we are already approaching August. 

What’s left after September to help borrowers with their loan repayments? 

At the same time, the borrowers might happen to have other commitments considering that bank loan moratoriums will also end in September. Indeed, these financial burdens have been causing anxiety amongst the people, and it’s one of the recurring themes raised by participants in the focus group discussion of EMIR Research for its next quarterly poll. 

This will also likely contribute negatively to our National Worry Index which is already in the maximum worry level at 0.78 based on EMIR Research’s previous quarterly poll.

Therefore, the only way to help the borrowers in trying to fulfil their study loan obligations is by addressing the factors which have hindered them from repaying particularly with regards to individuals’ incomes.

Firstly, the stimulus measures announced by the government in the short-term recovery plan (Penjana) such as the hiring incentives for the unemployed and the extension of Wage Subsidy Programme (WSP) should be considered as some of the positive moves to support the people in terms of income.

Secondly, an employment-search initiative by PTPTN and Social Security Organisation (Socso) known as Virtual Mini Job Hunt which took place from June 30 until July 3 was also a good move to provide a platform for over 4,000 PTPTN borrowers who have graduated to search for jobs. This initiative should be continued and constant monitoring on the effectiveness should be done.

Since the gloomy economic environment has taken a toll on the employment opportunities, perhaps another round of deferment would provide a huge relief for the borrowers while searching for jobs. 

However, the extension should be targeted only towards those who face severe loss in incomes or specifically those who are in the B40 category (≤ RM4,849) while those who are above the income threshold should be reminded to continue or start repaying.

This is to ensure the sustainability of PTPTN funds for the benefit of future generations. As of the current stated figure, the institution is in debt of RM40 billion in principal with an additional RM13 billion in interest, said chairman Wan Saiful Wan Jan.

Although this issue is not hotly debated for now, it needs to be urgently addressed as what’s ahead is the most crucial time. Prolonging the deferment should not be a sustainable solution with the absence of job creation as it will worsen PTPTN’s financial condition thus affecting the future generations’ access to higher education. – July 29, 2020.

* Sofea Azahar is a research analyst at EMIR Research. She reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.