Billions in unpaid student loans present headache for KL govt

The low interest rate of the National Higher Education Fund Corporation, or PTPTN, and lack of punitive punishment by the government led to borrowers putting repayment on the backburner.
The low interest rate of the National Higher Education Fund Corporation, or PTPTN, and lack of punitive punishment by the government led to borrowers putting repayment on the backburner.PHOTO: BERNAMA

Malaysia's Pakatan Harapan (PH) administration is having a hard time keeping up with its election promises.

Stuck with a RM1 trillion (S$330 billion) debt pile and populist pledges, the seven-month-old government recently backtracked on a promise to allow workers who took study loans from the government to defer payments if they earn below RM4,000 a month.

The National Higher Education Fund Corporation, known by its Malay acronym PTPTN, is tasked with helping Malaysians finance tertiary education. Just this month, it irked thousands of borrowers after announcing that a Cabinet-approved mandatory salary deduction scheme would come into effect next month.

The move backfired and the government quickly said it would obtain feedback first before any implementation of the plan.

"The Cabinet has decided to delay the implementation of scheduled salary deduction to enable PTPTN to conduct discussions with all relevant stakeholders," Education Minister Maszlee Malik said in a statement on Dec 7.

To date, 1.4 million borrowers have not made repayments, and the fund's outstanding student loans have ballooned over the years.

"PTPTN's RM40.5 billion (student) debt was second only to 1MDB," PTPTN chairman Wan Saiful Wan Jan told The Straits Times, referring to the scandal-tainted state development fund that at one point had debts of RM42 billion.

"After Pakatan took (over) government, that debt had reduced to RM37.6 billion as of Oct 31," he said.

One reason for the huge backlog is that though many borrowers had graduated and found jobs, they have been slow in paying up.


Its low interest rate and lack of punitive punishment by the government led to borrowers putting repayment on the backburner - choosing instead to spend their money elsewhere.

That is putting a strain on PTPTN channelling funds to current students. In its 2016 annual report, the fund stated that an estimated RM3 billion is needed for yearly disbursements. But its annual spending has consistently been higher than repayments. Short of the government stepping in to inject money for next year, The Straits Times understands that PTPTN has managed to raise only half the amount needed for next year.

For years, the then Barisan Nasional government has tried various means to collect the loans in between elections.

In 2005, thousands of borrowers were listed in the pages of Malaysian newspapers. In 2015, defaulters were blacklisted from taking bank loans. The following year, over 111,000 defaulters were put on a no-fly list, since Malaysians who can afford to fly abroad should make repayments. These tactics had limited success.

Worse, the then opposition parties grouped under Pakatan Rakyat, and later Pakatan Harapan (PH), also promised leniency to woo support. In 2012, Pakatan leader Rafizi Ramli said repayments should be abolished since profits from national oil company Petronas could be used to clear the PTPTN debts.

And just before the May polls this year, PH promised to lift the travel ban imposed on 433,000 borrowers should it come to power.

After winning the elections, however, the PH administration has been called out by many voters for its slow response in keeping up with election promises. Cost of living remains an issue, while highway tolls have yet to be removed.

Though PH lifted the travel ban, it reneged on the promise of deferring repayments, instead asking borrowers to quickly pay up.

The government today is led by Prime Minister Mahathir Mohamad, who started PTPTN in 1997.

"When we owe someone, it's hard to pay back. Take the PTPTN. It's not much that we need to pay back, just a little," Tun Dr Mahathir said in September.

  • RM37.6 billion

    Outstanding student loans owed to the National Higher Education Fund Corporation, known by its Malay acronym PTPTN.

    1.4 million

    Number of borrowers who have not made repayments to date.

Calling defaulters "stingy", Dr Mahathir said: "Whatever excuses we give, the fact is we don't pay our debts."

The backlash facing the now-withheld repayment scheme stems largely from the percentage deductions, which many said are too high and a burden on those with other commitments. Under the plan, borrowers would see between 2 per cent and 15 per cent of their monthly incomes deducted automatically, for those with a salary of RM2,000 upwards.

"The proposed rates were ridiculous. It's almost akin to a new income tax bracket for payees," said Mr Ong Hean Loong, 37, a software engineer. Mr Ong, who repaid his loans in full, said mandatory repayment is an "acceptable idea" but the rates have to be "adjusted accordingly" to allow payees to still have disposable income.

Ms Aina Syafira posted on Twitter that the proposed salary reduction scheme is "unfair to those who are actually paying diligently", piling on extra payments than what was agreed on.

  • Q & A

  • The Malaysian government's National Higher Education Fund Corporation, known by its Malay acronym PTPTN, started operations in 1997. It manages tertiary education loans - both disbursements and repayments.

    Q How much has been disbursed since 1997?

    A The fund has lent out RM48.56 billion (nearly S$16 billion) up to 2016 - the last published figure. Over 2.6 million borrowers have benefited.

    Q How much has been repaid?

    A Collection stood at RM13.86 billion but the Pakatan Harapan government says PTPTN's debt soared to RM40 billion when it took over the government in May.

    Q What has the new government done to fulfil its election pledge tied to PTPTN?

    A It cleared some 433,000 loan defaulters from a no-fly blacklist. But the move led to lower loan repayments in subsequent months, with a 38 per cent drop between June to September.

But not everyone is against it, since the government has reiterated that low repayments are hindering fund allocation for incoming students.

"PTPTN loan should be treated as a bank loan," said Mr Khaw Seek Chuan, 30, a diving project coordinator. He said the loan was helpful in easing his family burden, "but if borrowers don't pay up, it'll affect students who truly need it".

In response to the public uproar, fund chairman Mr Wan Saiful said: "PTPTN is an implementing agency and whatever Cabinet decision we will always implement it to the best of our ability."

In just one month, the administration has bowed out of promises linked to its manifesto. It decided against ratifying a United Nations convention against racial discrimination, rejected bringing back local council elections and is still undecided on abolishing highway toll collections.

"This whole (PTPTN) episode serves as a reminder that the honeymoon period is over and the government needs to be more sensitive to public sentiment before articulating policy positions or framework on complex issues," said Mr Amir Fareed Rahim, an analyst at KRA political consultancy.

Mr Amir commended the government for being willing to listen, but said it also needs to "manage the expectations of the electorate, be bold enough to make tough decisions and manage the consequences".

A version of this article appeared in the print edition of The Straits Times on December 22, 2018, with the headline 'Billions in unpaid student loans present headache for KL govt'. Print Edition | Subscribe