A desire to pursue higher education rises as the economic prosperity boomed around 1990s and 2000s. As education is believed to be the key for better livelihood and economic growth (through the increasing labour quality), any educational support is a positive one. Many governments then helped to liberalize access for education and one of them is through student loans. So, students in need can pursue higher degree and pay off their tuition after they graduate and have a job.
However, many Asian countries, as well as Western countries, are now facing the opposite results.In South Korea, the education debt grew by 12% in 2013, which was twice as fast as the consumer debt, and 90% of their young generations pursue higher education. In the neighboring country, Japan has 76% of high school graduates who pursue higher education and 78% of them enrolled to private institutions, which adds to high tuition and loan became their only option.
Recently, Malaysia’s economy faces a fiscal weakness that roots in the RM39 billion ($9.5 billion) debt owed by students and former students to the National Higher Education Fund Corp (PTPTN) as per 2019. Students are unable to fulfill their obligations mostly due to unemployment or underemployment.
In Kuala Lumpur, Malaysia, nearly 50% of working adults are earning below the official standard living wage. About 28% of bachelor degrees are unemployed (2015). With wages that barely enough to survive, it’s near impossible for them to pay off their student debts (51% of borrowers did not fulfill the required payment). Some of them are also bound to other debts along the way, such as credit cards, cars, homes and personal debts.
The high growth in population contributes to the rising number of students enrolled in universities. This was not balanced with the educational system’s growth, that it causes a decline in graduates’ quality. Entering the labour market, their prospects isn’t much better. In many developing countries, the number of labour surplussed the jobs available. Also, not all of these labours meet the industry’s requirements. The situation creates unemployment or minimum wages for the graduates, thus they struggle to survive, let alone to pay off their loans.
The mounting of unpaid debt will affect future generations who need student loans, as the government’s ability to loan educational tuition becomes limited. Eventually, if the problem is let to rise, it will threaten the national economy.
Regarding the student debt problem, Malaysia’s finance ministry introduced an income-contingent loan scheme in its 2019 budget. According to this system, borrowers who earn more than RM1,000 a month can have 2-15% of their salary automatically deducted for loan payment. However, if unemployment rate remains significant and wages depressed, while living costs rises up, income deductions will probably not be a reasonable solution.
Aside from that, PTPTN allows borrowers who earn less than RM4,000 monthly to delay payment. They also spare any remaining debts for 350 borrowers aged over 60 years old who earn less than RM4,000.
The problem above does not necessarily mean that student loan should be discontinued. Education plays a critical role to support high quality labour and national prosperity. Therefore, educational rights should be available to as many people as possible. However, as per student loan, there should be a more sustainable management and tighter regulations.
For starters, the government can change loan disbursement criteria, so that the students can still receive scholarships to cover some of the cost. Having the loans free of interest also helps, given that fresh graduates won’t earn much and they still have desires to start car or house installments and are vulnerable to be caught up in various debts. Interests will only prevent them to pay in full. Surely, getting repaid is better than none at all.
Another long term solution is to monitor how the educational institution’s quality meet the needs of the industry. If more students are graduating and enter the labour market without meeting the industry’s needs, then the tuition support will be fruitless.