Monday, May 20, 2024
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Student loans need fixing

The Upper House is facing a major challenge in deliberating a controversial amendment to the Student Loan Fund Act. That's mostly because the Student Loan Fund (SLF) is complicated.

Funded by taxpayers to provide poor students with loans so they can pursue higher education, the SLF has to juggle between providing welfare-style education loans and collecting debts while making returns on interest rates and late fees so to maintain liquidity.

Senators must now create a law that can make SLF serve both purposes.

The legal amendment of the SLF Act became politically controversial in September when the House of Representatives passed a bill that resulted in interest-free loans for borrowers and no fines for those who defaulted on their repayments as well as providing retroactive benefits for borrowers and loan guarantors.

Critics say the approved legislation, sponsored by the Bhumjaithai Party, damages people’s financial discipline and undermines the SLF’s long-term liquidity. Political pundits — including senator Seri Suwanpanont — criticised politicians for using the SLF as a populist ploy for the next election.

It’s reported the rate of loan defaults rose substantially after the Lower House passed the amendment with many borrowers deferring paying loans as they believed politicians would make it a policy to write off their debts. That triggered fear that the fund — which for the last five years was financially independent and no longer needed taxpayers’ subsidy — might collapse and need the taxpayers to bail it out.

Founded in 1995, the SLF is now ridden with debt — some 90 billion baht — the highest non-forming loans (NPLs) in the country.

Last year, the fund had more than 2.3 million defaulters out of 6.4 million borrowers. These default cases ended up badly in civil lawsuits, in which debt guarantors — most of them teachers and relatives — had to give up their houses or land to clear debts, plus pay a hefty late penalty fee.

Many borrowers have lamented they could not service debt as the interest rates and late fees exceeded the original borrowing sum.

Senators now must make a law to make the SLF serve its original purpose of helping poor students get a higher education first and foremost. The new law must at least lead to low-interest rates, low penalty fees and no collateral placement to obtain a loan. The new law must open the door to debt refinancing and debt cuts. Above all, the law must change how the SLF calculates debt payments and deductions so as to assist students in paying back loans.

The SLF office is criticised for behaving and thinking like bankers and fund managers, as opposed to being enablers of education.

Critics and experts have proposed to make SLF provide job-finding services or career and education consultations to help students find better jobs in future. Indeed, there are other good ideas that propose students perform community services and work for the government to repay debts.

The Upper House also needs to communicate with the public and politicians — especially populists in the Lower House — to accept their final version of the amendment which is expected to be tabled for joint house sessions by year-end. The SLF problem has dragged on for far too long, and lawmakers must do their utmost to help poor young students attain a better future instead of focusing on collecting debts.

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