Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) has been around for the past 25 years and it has assisted the needy to obtain student loans. PTPTN also runs a savings scheme, Skim Simpanan Pendidikan Nasional (SSPN), which allows parents to plan early via an education savings scheme that will benefit their children in their time of need.
As PTPTN was government-funded, much of the funds raised have been via the issuance of long-term debt papers, bank borrowings, and deposits derived from the SSPN scheme, which can then be used to provide student loans to the needy.
Source: https://online.sspn.my
Over the years, according to its 2021-2025 Strategic Plan, PTPTN has faced many challenges, which, among others, were zero payments received from those who have already completed their studies. Based on statistics for 2021, some 2.44 million student loan borrowers with some RM25.5bil in loans were supposed to repay their respective loans but only 32.2% have done so, while 17.8% are in some form of consistent repayment scheme.
But 29.3% of them are not consistently paying student loans. Worse, 504,311 or 20.7% of the borrowers with some RM5.04bil outstanding amount have not repaid a single sen.
Interest on student loans is subsidised by the government as student loans granted by PTPTN only carry a rate of interest of just 1%, calculated upfront, over the duration of the loan. Repayment starts one year after a student completes his or her studies but there have been exceptions to this rule as graduate unemployment and low starting wages have made it difficult for some to repay their loans.
The good news is that if a student achieves a first-class honours degree, the student will be exempted from having to pay back the loan, effectively converting the loan into a scholarship.
While PTPTN charges very low interest for its student loans, the same cannot be said for the source of its funds. Based on the latest audited accounts for the financial year ended 31 Dec, 2021, PTPTN had a total of RM40bil in the form of short and long-term borrowings. Of this, some RM16.9bil is via local financial institutions while sukuk government-guaranteed bonds amounted to RM23.1bil. PTPTN had also some RM8.35bil in the form of deposits under the SSPN scheme while its investment book had a total of RM13.4bil, of which some RM11.2bil were held-to-maturity and RM2.2bil in available-for-sale assets.
As at the same balance sheet date, PTPTN’s total student loan book totalled some RM44.06bil.
Based on the average student loan book for the year of RM43.5bil, PTPTN generated net service charge income of RM220.4mil in 2021 and another RM60.5mil in administrative income. Together, the revenue generated from its student loan book was approximately RM281mil in 2021, giving a yield of just 0.69%. PTPTN also generated an income of RM411.7bil from its investments, translating to a net yield of 3.22% based on the average investment book of RM12.8bil for the year. On a blended basis, PTPTN generates a total income of approximately RM693mil on the total average investment and loan book of RM56.3bil, translating into a yield of just 1.23%.
As for interest cost, PTPTN spent some RM1.6bil to service its borrowings, translating to an effective funding cost of 3.68%. In addition, PTPTN also paid RM206.4mil in the form of dividends to SSPN depositors in 2021 and this was based on its dividend rate of 3% for that year.
In essence, SSPN paid some RM1.81bil in total interest and dividends for its borrowings and to its depositors, translating to an effective funding cost of 3.84%. Hence, on a net basis, PTPTN has a deficit income margin of 2.61%, which is covered by the government’s grant of RM1.81bil in 2021 (2020: RM1.97bil).
With collection becoming an issue, PTPTN has introduced many incentives to borrowers to repay their loans early as well as encourage borrowers to obtain first-class degrees, which will allow them to convert the student loan into a scholarship.
Despite the incentives and cheap financing, PTPTN faces multiple challenges and in 2021, PTPTN provided some RM219.4mil as doubtful debts. In addition, PTPTN provided another RM921.2mil in the form of a waiver for those who obtained first-class degrees and another RM981.6mil in the form of a discount to borrowers. All in, some RM2.12bil alone was written off during the year, translating to a reduction of 4.7% in its net student loan book.
Education, just like healthcare, defence, national security, and to a certain extent, public housing and infrastructure, are deemed to be public goods.
Public universities are funded by the government and the actual fees charged to students are bare minimum. Doing a Bachelor of Medicine and Bachelor of Surgery at the Universiti Malaya (UM) barely costs RM3,000 a year for a five-year programme for a local undergraduate while an overseas student pays approximately 45 times more. Some courses at UM only cost about RM1,200 per semester or less than RM9,000 over the seven to eight-semester course for local undergraduates.
As the government directly provides grants to PTPTN to the tune of RM1.8bil, the same funds can be used to provide 600,000 students free tuition fees per annum, based on an average of RM3,000 per year per student. This will in essence cover all the public universities and undergraduates will have little to worry about when it comes to paying for their education. Of course, this excludes living expenses and accommodation for those who are forced to stay off-campus.
As for private universities, which probably have the same number of students as public universities, the government is not obligated to provide free education, theoretically. However, as places in public universities are rather limited and difficult to obtain, most students opt for private higher education where fees can be at least 15 to 20 times more than public universities, depending on courses. If the government has the right data, the government could also focus on those who are clearly in need and not those who can very well afford the fees.
Based on data from PTPTN, the number of new student loan borrowers is less than 150,000 per year or less than 40% of total enrolment to the private and public universities per annum, while total active borrowers are probably about 1.2 million in total.
The government should relook at PTPTN’s role in providing student loans and perhaps provide direct assistance for the needy in the form of education grants. At least the students are not burdened by debt as they start their careers after completing their studies.
Otherwise, we are carrying a time bomb of RM40 billion or so. And that will continue to “balloon” in the years ahead. A new business model has to be drawn-up, not this negative interest scheme with annual government grant to cover the deficit. Look at a graduated loan scheme with priority courses at lower rates and student rating reviewed yearly – higher the risk, higher the rate.
Reference:
PTPTN: A boon and a bane, Pankaj C. Kumar, The Star, Insight, 30 September 2023
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