Defaults may lead to student loans re-think

If the revolving fund in the SLP keeps dwindling, young pupils may find it hard to get the loan they need to undertake study. Or maybe the government will have to pump money into the SLP every year – if it becomes a “black hole” for state funds.

The default reflects several problems. 

Has the SLP database of loan recipients been properly updated? And have all recipients really received notices when it’s time to repay? 

According to a study by Rawiwan Dechanupaprittha, the average monthly income of loan recipients who responded to questionnaires in 2002 was between Bt15,000 and Bt17,000. The amount back then was clearly high enough for them to repay funds to the SLP. But the study suggested the SLP was not efficient in following up on repayments. 

The blame, however, should not lie with just the SLP. Loan recipients should share the flak. Are recipients aware that the loan gives them much-needed educational opportunities and after they have received this money, they are obligated to repay the amount in full? It’s their duty to pay this sum back to the state. Students cannot just say they need to pay other bills first. 

The 2002 study by Rawiwan Dechanupaprittha found close to 87 per cent of SLP loan recipients in 1996 had to allocate 36 per cent of their monthly income to repay home loans. The findings showed that 61 per cent of loan recipients had problems repaying the SLP.

The SLP is, in fact, very generous to its loan recipients. It allows them an interest-free period for the two years after they graduate to ensure that they can find a job and settle down in a career prior to the start of repayments. After those two years, an interest rate of just 1 per cent is applied. 

The repayment schedule is also up to 15 years. But because so many recipients fail to repay their loans, the SLP needs to spend hundreds of millions of baht on legal fees in a bid to recover the funds they lend. 

The SLP has tried to settle these cases out of court. Yet, its efforts have not received a warm response.

Not all defaulters decide to ignore their obligation to repay. Some really earn so little they don’t have enough cash to repay their loans. 

This problem reflects the fact some students – eager for a particular career – may end up in fields of work that offer meagre incomes. Social-welfare workers, philosophers and archaeologists – to name a few – are jobs that usually don’t offer attractive pay scales, despite their contributions to society. 

Such problems also reflect the disparities in educational services. While some loan recipients graduate in fields that pay well, they still don’t earn a good income because their performance levels are not high enough. 

All the above problems are something that relevant parties should address. No one should stay idle, otherwise the problems will accumulate to the point where this scheme becomes an unworkable mess.

Even if all loan recipients pay on time, the SLP will still struggle because its 1-per-cent interest rate is lower than the average inflation rate. 

Relevant parties, therefore, must take steps to sustain the SLP and tackle all related problems. 

The United States, for example, has considered a plan to inform students and their families of the average wages for graduates of programmes they are interested in – before they start to enrol. This way, students will see the picture of their future more clearly and should know if they can repay the loan after graduation. 

Recently, the US Senate approved a bill that would peg interest rates for student loans in the future to the market rate for the 10-year US Treasury Note. 

Authorities in Thailand should also offer career advice to youths, who, of course, know much less than those in the real world. Given that the country has long faced a serious shortage of skilled workers, why don’t authorities usher more students to the fields where jobs are aplenty? 

Surprisingly, while top education officials say they will try to raise the number of vocational students, those enrolling for the vocational-diploma programmes are allowed to seek between just Bt25,000 and Bt30,000 in student loans per year. This is a far cry from the Bt60,000 to Bt200,000 in other higher-education programmes. 

The Income Contingent Loan (ICL), another programme of student loans to boost Thais’ access to higher education, will start collecting its repayments this year. It remains to be seen how its repayment rate will stand up. 

If the ICL also runs into default problems, then it’s time for the country to rethink its entire whole student-loan implementation.