A recent news item captured public attention about a female school director in Kamphaeng Phet province who guaranteed student loan fund (SLF) debt for her 60 students, 21 of whom defaulted. After her finances ran dry, the court ordered seizure of her assets, a stark reminder that debt can ruin even a guarantor's life.
Since it was established two decades ago, the SLF has granted loans to about 5 million students for a total of 500 billion baht. Some 3 million are in the process of repaying their loans, while 2 million have defaulted on at least one instalment. Total defaults stand at a shocking 200 billion baht.
Although the SLF offers a 15-year repayment period to borrowers, which costs them hundreds of baht a month, the repayments can be a heavy debt burden for entry-level workers.
If borrowers default, the penalty rate is 12% per year for payment failure of less than a year, and 18% per year for defaults of more than one year.
Moreover, there are severe consequences for defaulting on student loans, including potential lawsuits, asset foreclosure and a bad credit record.
"SLF: Take on debt, able to manage debt repayment" is a Facebook page arranged by a student group at Khon Kaen Vocational College, aimed at encouraging their friends at the school to pay student loans after they graduate to open opportunities for younger students to study. The group calls itself KVC Strong.
The KVC Strong team also took part in the Bank of Thailand's financial planning contest, Fin D, and won the competition.
Khon Kaen Vocational College has about 3,000 students, of which one-tenth have applied for student loans. Like their peers at other schools, most of the college's students who have student loans failed to service the debt after they graduated, though they now work and have repayment ability.
Thanabut Boonjuang, a first-year student and a member of KVC Strong, said his team launched a financial planning programme for student loan borrowers in May.
Under the programme, participants are required to report income accounts on a weekly basis via email for five straight weeks. The practice is designed to help students gradually realise their financial condition. The next step is to encourage them to save money.
During the programme, the team cultivates participants' awareness about savings, financial planning and financial discipline to prepare them for future payment. Participants are advised to save 10% of their earnings.
Some 100 participants were picked from 150 applicants who are student loan borrowers, said Mr Thanabut, who is 15 years old.
The programme has been successful and had more applicants than expected, he said.
KVC Strong uses several social networks, including Facebook, Line, Instagram, Twitter and YouTube, as communication channels to educate programme participants.
"The participants are familiar with social media channels and they can easily access our information there," Mr Thanabut said. "We've created interesting content that is easy to understand, making financial literacy enjoyable."
KVC Strong selected student loans for its financial planning campaign because defaults have been on the rise, both among those who can service the debt but ignore it, and those who have no ability to pay.
"We created the project to encourage debt payment because a lot of students at our school use student loans," Mr Thanabut said.
Given that student loans are a revolving credit facility, defaulting on debt repayment hurts educational opportunities for younger students.
The programme faced some hiccups initially when some participants didn't report their income, so they had to be pushed to gradually adjust their behaviour, Mr Thanabut said.
After KVC Strong successfully convinced participants that the report would help them with personal finance, more of them bought into the programme, making personal reports until it ended, he said. Some of them continue to report even now.
Mr Thanabut said the team invited former student loan borrowers who have paid off their debt to hold talks, giving participants advice about debt repayment.
Vichai Weingviset (nickname Mor) was one such borrower who related his experience to participants of KVC Strong's programme. Mor now works at the state-owned Bank for Agriculture and Agricultural Cooperatives.
"Pee Mor is our idol and he can inspire others regarding student loan repayment," Mr Thanabut said. "He gave us hope for a better future."
Mor's family was poor and his parents could not afford for him to pursue a bachelor's degree. Student loans were his only choice to make his dream come true, Mr Thanabut said. Mor managed to pay off the student loan before 15 years, he said.
In addition to the face-to-face discussion, the team made a short video clip about Mor's story of paying off his school loans and posted it on social media to get others interested.
Financial planning was the key factor that helped Mor pay off the debt early. During his undergraduate study, he also worked part-time jobs and saved, helping with his early debt repayment.
"Hopefully, all students who join the programme will be good borrowers and are willing to repay debt," Mr Thanabut said.
Golden rule
No amount of financial advice would be complete without the golden rule of personal finance: spend less than you make. This rule was essential for Chorpaka Trisjanmas (nickname Nan), a participant in KVC Strong's financial planning programme.
She said the scheme inspired her to adjust, cutting down on unnecessary spending and saving more.
Before joining the programme, Nan had never saved money and had no plan to ever do so.
"To control spending, I started by reducing the number of times I eat barbecue buffets, which costs 199 baht per person, from four times a month to one or two," she said. "I can save what I don't spend at the buffet."
Nan now has some savings, though the amount remains minimal.
She plans to use the savings for further study to avoid using student loans. If her savings amount gets large enough, she wants to invest it in the future.
Some 5.4 million students have borrowed money from SLF since its founding 20 years ago. PATTARAPONG CHATPATTARASILL