Govt needs to do much more regarding PTPTN

I REFER to reports about the drop in PTPTN loan repayments to the tune of RM100 million.
I was fortunate enough to come across a research paper by Penang Institute, titled "The sustainability of the PTPTN loan scheme" published in December 2016.
The facts highlighted include the following.
Between 1997 and 2015, 2,464,937 loans with a value of about RM55.83 billion were approved for students pursuing their higher education in Malaysia.
Currently, 60% of loans were given to students in private educational institutions and about 40% in public universities.
With this projected higher increase in local students attending private higher education institutions which charge higher fees compared to public higher education institutions, the yearly loan burden of PTPTN, currently at RM4 billion a year, will increase significantly.
Of the RM15.33 billion worth of PTPTN loans that were due for repayment at the end of 2015, less than half (46.6%) or RM7.14 billion has been repaid. This has placed a tremendous strain on PTPTN's finances, as it is forced to seek new funding channels from the market through bank loans and sukuk bonds to make new loans. The interest servicing costs for PTPTN reached a high of RM1.519 billion in 2015.
If PTPTN's underlying finances were healthy and in good shape, the growth of loans would not be a concern. But this has not been the case. According to the PTPTN annual reports from 2011 to 2015, the agency had been making profits from 2011 to 2015 (RM18 million, RM12 million, RM21 million, RM109 million and RM401 million in 2011, 2012, 2013, 2014 and 2015 respectively).
Though seemingly encouraging, the profits mask underlying financial challenges. In reality, PTPTN was only able make these profits due to substantial annual government grants, totalling RM6.456 billion from 2011 to 2015. Without the injection of financial support from the government, PTPTN would have suffered losses totalling RM5.894 billion from 2011 to 2015.
From 2015, the government bore the cost of PTPTN discounts and waiver of first class honours PTPTN loans. The accumulated cost of first class honours waivers reached RM841.57 million at the end of 2015. In 2015 alone, the cost of first class honours waivers was RM131.5 million while the cost of PTPTN discounts worth 20% and 10% was RM123.5 million. As the number of students eligible for the first class honours waivers increases, (especially those in IPTS), the cost of the waivers will increase commensurately.
Likewise, the larger the number of PTPTN loan holder students, the greater the incidence of those who take advantage of the PTPTN discounts, with a corresponding cost to the government.
Rising unemployment and underemployment rates among graduates shed some light on why PTPTN's loan repayment rates are so low – many of the borrowers simply are not earning enough to service their loans. Some reports indicate that the starting salary for a fresh graduate averages RM2,000 to RM2,200 a month, which is not a big increase from RM1,800, which was the average monthly salary a decade ago. With rising living costs, especially in the urban areas, a fresh graduate may not have much leftover income to service his or her PTPTN loans after accounting for daily expenses and paying off other debt obligations such as car and credit card bills.
IPTS graduates who have higher PTPTN debts and hence, higher servicing costs, may find it especially difficult to repay loans. The higher cost of an IPTS degree coupled with a relatively low starting salary creates additional challenges. According to research by Dr Geoffrey Williams, a fellow at the Penang Institute, in some cases, the return on investment gained from earning a degree from an IPTS is actually lower than the returns from Employees Provident Fund (EPF) investments.
Underemployment especially plagues diploma holders; from 2012, over 50% of new diploma graduates accepted mid-low skill jobs which typically did not require a university level education (for example, clerical support roles).
By contrast, the proportion of underemployed fresh degree holders hovered below 50% as of 2014. Nevertheless, the number of "overqualified" employed graduates is rapidly increasing. Based on the data available, more are entering sales and services occupations that generally only require high-school training.
The current administration needs to be cognisant of the facts and put in place comprehensive measures to ensure PTPTN is able to sustain itself for future generations.
Allow loan recipients working in the private sector to use 50% of their EPF contributions to repay their loans until they reach the age of 30.
Concurrently, parents are also joint signatories for the loan and they should not be allowed to abdicate their duties. A small amount of a RM100 monthly payment from the date the loan was disbursed until their graduation can reduce the loan amount by 30%. This is in view of the fact that the maximum loan given is only RM13,000 nowadays.
For those in public service, initiate compulsory salary deduction equivalent to 10% of their salary.
Due to the high level of delinquency, perhaps a better option would be to sell off the loans at a discount (factoring) to banks. This will result in defaulters being subject to banking rules on bad loans and PTPTN having the funds to provide loans rather than more borrowings.
There is a plethora of private educational institutes that have mushroomed over the years whose very existence depends on the PTPTN loans. Colleges were accorded university status which meant they are allowed to issue their own degrees. Those without basic entry requirements can take their foundation courses as a back door entry to their degree programme.
A judicious re-look of such universities is mandatory. Students are taking degrees and diplomas that are not recognised and offer little solace by way of employment.
The current administration must set up a financial oversight committee to conduct a thorough due diligence and recommendations.
Perhaps, it would also be opportune to place the agency under the Finance Ministry or Economic Planning Unit or for that matter to let a financial institution, not purely profit-driven, take over PTPTN, with the resources and manpower skill-set.

B. J. Fernandez
Shah Alam