I wrote this as one of my contributions to my former college’s blog. At that time, (September 01, 2016 to be precise) Hilary Clinton was set to pick up the US presidency. Now we know to take pollsters’ “conclusions” with a large table spoon of soy source! In view of the results of the poll in the US presidential election I had edited the last sentence of the last paragraph!

My argument is simple. If an institution keeps churning out graduates who are likely to default on their student loans, then the risk factor to the loan awarding body for this institution should be higher. Thus a ranking of colleges and universities with the highest rate of default among their graduates will force all colleges and universities to educate their students accordingly. PTPTN can also distribute its funding more fairly whereby colleges with good graduate repayment records (i.e. lower risk) will be given more allocation or even higher quantum of loans for its students. At present, the private sector students only get the maximum of 85% of the top loan for their respective fields of studies. This translate to no more than RM13,000 for most students following a diploma programme. With an average price tag of RM30,000 for a full diploma (for colleges not among the top players), the maximum PTPTN loan will cover no more than 43% of the tuition fees on average, putting students in private colleges and universities at a great disadvantage. By redistribution of money to the lower risk borrowers, PTPTN could “reward” the students of colleges with low rate of default by raising the ceiling of the maximum loan quantum for all fields of studies. The billion Ringgit question is, will there be the political will to do so?

An article in Education Drive entitled “Clinton hire signals more trouble for for-profits” caught my eye. In this analytical briefing, the author related that the hiring by Hillary Clinton of Rohit Chopra as a part of her presidential transition team would spell more troubles for the for-profit universities and colleges in the USA. The author opined that due to Chopra’s track record of exposing financial irregularities in two significant cases against for-profits (citing Corinthian Colleges & ITT Tech), any institution in the US  with high student loan default rates will be hit if Clinton clinches the presidency in November 2016.  Interestingly, Hillary Clinton’s husband, former President Bill Clinton served as the honorary chancellor of the for-profit Laureate Group’s Laureate International University, better known in Malaysia as the owner of Inti International University and Colleges from 2010 through to 2014. [At the time of writing, Hillary Clinton was set to win the presidency, but we all now know the outcome! But I think the Trump administration, putting the problems of Trump University aside, may also need to take some cues from this & go after the institutions with dubious student loan records.]

The bulk of the defaulters of student loans in the US are indeed coming from the for-profit universities and colleges. The aggressive and misleading recruitment methodology is the main cause coupled with the lower than average employability of graduates of some of these institutions in the US together created the student loan default crisis.

It was reported that till December 2015, Perbadanan Tabung Pendidikan Tinggi Negara (PTPTN) collected only RM7.9 billion from its borrowers which was much lower than the RM15 billion that it had targeted to remain financially healthy. Although PTPTN does not provide the demographic details of its 1.25 million loan defaulters, generally it is an accepted fact that the bulk of these people were students and graduates of public institutions of higher learning (IPTA) as opposed to private institutions of higher learning (IPTS). Although there has been good coverage of the consequences that blacklisted PTPTN loan defaulters  would face in the online press and personal finance sites such as  iMoney,  and even a popular motoring website, the message seems not to have percolated through.

Perhaps the power that be should seriously be considering arresting this problem “upstream”.  That is to make it harder for students from universities and colleges with high default rates to get loan or limit the number or quantum of loans for these institutions. A “league table” of the institutions with the highest PTPTN default rate (and number) should be published to make this policy more transparent. If this is implemented more funds will be channelled by PTPTN to institutions with better loan repayment records among its graduates and former students. This will have the direct effect of forcing all institutions to ensure that they produce employable graduates (who are also not underemployed).

The most heard of excuse from loan defaulters is the fact that they are unemployed or underemployed hence if PTPTN disburses its loan in accordance to the track record of the institutions (in terms of loan default rate), it will reduce the default rate and number accordingly. It is a no brainer really, you should only give out loans to people who have the best chances of repaying and minimise your risk by reducing the exposure to those with a high chance of default.

The billion ringgit question is, will the power that be and PTPTN collectively have the political will to publish this “league table”.


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