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Saturday, October 11, 2014

Better to reform PTPTN than blacklist defaulters

Implementing a CCRIS blacklist will do more harm than good.
COMMENT
By Ganeshwaran Kana
PTPTNLast year, Second Education Minister Idris Jusoh made newspaper headlines when he announced that PTPTN loan defaulters would be listed under the Central Credit Reference Information System (CCRIS).
The statement drew an unexpected backlash from the masses as well as vocal ministers like Youth and Sports Minister Khairy Jamaluddin.
Now, Idris is saying that the PTPTN recipients who defaulted on their loans from 1998 to 2010 will be given three months to repay their loans before being blacklisted in the CCRIS.
While the idea of CCRIS listing does not sit well with the rakyat, is it really such a bad idea?
CCRIS is a database system run by Bank Negara where the financial track records of Malaysian borrowers are stored and used as a reference by financial institutions to sanction new loan applications.
It should be made clear that CCRIS is not a bankruptcy listing system as only the Department of Insolvency can declare a person bankrupt.
So, will an individual with a bad financial track record in CCRIS be given a loan in the future? That lies within the discretion of financial providers.
Listing PTPTN borrowers under CCRIS is a good idea and should be welcomed as this would compel them to honour their contract by repaying their debts.
Usually, errant PTPTN defaulters are warned with three notices before further action is taken. Thus, defaulting on a loan repayment should never be an option.
However rather than implementing a CCRIS blacklist which may do more harm than good, it would be better to reform PTPTN in the following ways:
Start collecting payments six months after the graduate gets a job
PTPTN should help young Malaysians, not be a stumbling block to their dreams of receiving a higher education and better future.
PTPTN should consider revising its repayment schedule to require PTPTN loan applicants to repay their loan six months after landing a job instead of six months after graduation, which is currently the case. This is because most graduates are likely to be unemployed for the first six months to one year after graduation as there are more graduates than there are jobs.
If the current repayment scheme continues, more defaulters will emerge and more graduates will be financially hurt.
Abolish the Ujrah scheme’s one per cent administrative cost
As the PTPTN was formed by the government for a specific purpose, it should be kept interest free. Although the flat rate of only one per cent has been imposed under the new plan, it is still considered a substantial burden for loan takers.
While the PTPTN does incur management and operational costs, these can be absorbed by the government to allow PTPTN to remain interest free.
This is cheaper for the government than providing free education and ensures that future graduates will not be bogged down by huge debts. After all, graduates are the nation’s assets.
Set a common threshold for converting loans into scholarships
Prior to this, PTPTN introduced a commendable plan that allowed students receiving First Class degrees to convert their loans into scholarships. However, in the current practice, this has failed to be fully effective as tertiary institutions have differing threshold Cumulative Grade Point Averages (CGPA).
For example, Universiti Malaya’s CGPA is 3.75 while Universiti Teknologi Mara CGPA is 3.50. This could result in the discrimination of students in institutions with a higher threshold.
The CGPA threshold for converting loans to scholarships should be standardised at 3.50 (for Arts stream subjects) and 3.30 (for Science stream subjects). If such a move is to be introduced, a level-playing field can be fostered.
Mandatory payments imposed only after a certain salary limit
With the cost of living sky-rocketing and salary increases slow to come by, new graduates may find themselves struggling to repay their loans.
Most graduates can expect a starting salary of RM2,000. I propose that PTPTN allow the borrowers to repay their loan only after their monthly salaries reach RM2,500. This is only a suggestion to ensure that loan takers do not default on their payments and PTPTN is free to set its own threshold but only after discussing this with stakeholders, which must include university students themselves.
Top up the PTPTN fund annually
PTPTN has complained that the fund is quickly shrinking and affecting its ability to help future borrowers. This should never have happened as the defaulters (although some are financially troubled) should not have benefited at the expense of others.
I recommend that the government top up the PTPTN fund every year to make sure all financially vulnerable varsity students’ loan applications are sanctioned.
Critics may say that such an approach is counter-productive to the fiscal consolidation measures of the government because it increases spending. However, all quarters should understand the importance of higher education and helping students who are struggling financially.
This is considerably better than providing universally free education, which serves as a blanket subsidy.
Scholarship recipients should not receive PTPTN loans
Scholarship recipients, particularly those receiving JPA scholarships, should not be entitled to PTPTN loans. It has been noted that those receiving JPA’s PIDN scholarships are also receiving PTPTN loans.
Worse, some students have become “financially creative” by investing these loans in trust funds to make money.
These could be remote cases, but they shouldn’t be taken lightly as there could be more cases in Malaysia where unscrupulous students are stealing the opportunity for education financing from those who are really in need.
Ganeshwaran Kana is a former Perdana Fellow and third-year economics undergraduate in University Malaya

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