The Student Loan Fund's (SLF) bad debts, tallying 100 billion baht, should gradually reduce after the fund adjusts the calculation method for debt repayment, says fund manager Chainarong Kajchapanan.
The latest amendment of the Student Loan Fund Act (No.2) 2023, which went into effect on March 20 of last year, adjusted the calculation method for debt repayment.
In the past, if a debtor defaulted on debt repayments to the fund but later made incremental repayments, such payments must first be used to write off default charges, followed by overdue interest and principal payments, which resulted in a minimal principal payment.
Under the new calculation method, repayment will be used to deduct the loan principal, followed by overdue interest and default charges.
In addition, the new law changed the interest rate from 1% per year to a maximum of 1% per year, and cut the default charge from 7.5% to 0.5%.
"With these recalculations, the debt burden for borrowers who have been making repayments will significantly decrease, which incentivises borrowers to make more repayments," Mr Chainarong said.
SLF outstanding bad debt has tallied around 100 billion baht since its establishment, compared with 60 billion baht in 2017.
Mr Chainarong said the reason why bad debts are rising is partly because of SLF's low interest rate of only 1%, while the deposit rate of commercial banks is still higher than the SLF loan rate. As a result, debtors choose to pay off debts with high interest rates before they repay SLF.
Moreover, each year SLF still provides loans to students from low-income families accounting for roughly 40 billion baht, of which part of it becomes bad debt.
At present, outstanding loans total 480 billion baht from 3.5 million borrowers.
SLF was established pursuant to the cabinet resolution on March 28, 1995, to be a revolving fund in accordance with the Currency Reserve Act 1948. In 1998, to streamline the fund management and provide the Fund Management Office, the government promulgated the Student Loan Fund Act 1998, resulting in it becoming a legal entity under the supervision of the Ministry of Finance with the objective of providing loans to students from low-income families so they could pursue a university education.