Student loans need overhaul

Student loans need overhaul

The Student Loan Fund (SLF), which was supposed to help students pursue higher education, ended up being the most counterproductive financial scheme in the country. The latest law amendment to help fix the fund is a good start but the agency that runs the fund needs major reform.

Founded in 1995 to provide loans to students from low-income families so they could pursue a university education, the SLF is ridden with debts -- now some 90 billion baht.

The fund has the highest non-forming loans (NPLs) in the country, 47% higher than the toxic debt incurred during the "Tom Yum Kung" financial crisis of 1997, according to information from the Bank of Thailand.

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. It is disheartening to see the fund result in acrimonious lawsuits between the government and students.

But hope arose last week when the Lower House approved the amended version of the SLF Act on its third and final reading, resulting in interest-free loans for borrowers and no fines for those who default on their repayments.

The new law also provides retroactive benefits for borrowers and loan guarantors under the SLF resulting in legal amnesty.

Critics warn that such a populist legal amendment will place too much of a financial burden on the SLF which is intended to be a revolving fund that needs to be replenished continually when loans are taken out so it can be readily available to other students.

Deputy Finance Minister Santi Promphat warned the zero-interest loan proposal would only promote irresponsibility and a lack of financial discipline among borrowers, eventually resulting in the fund being dangerously depleted.

The management of SLF needs to take heed of this warning and come up with realistic payment plans to make debt service easier, providing flexible payment choices instead of sticking with the same old yearly basis, and a rigid debt-reduction calculation.

Fund management can penalise late payment and default cases by forcing them to work for the government or the community. The SLF should also partner with agencies and the private sector to provide educational counselling and assist borrowers find a job. A major cause of debt payment avoidance is that many students cannot find decent jobs.

That requires the SLF to get itself a new soul. For the past few decades, the fund has faced criticism for focusing too much on trying to make students pay back loans and prescribing unrealistic payment plans that finally lead to massive defaults.

The government needs to also change its attitude and give the SLF adequate funds so the agency stays afloat. Indeed, it's senseless that the SLF chose to operate as a financial fund that needs to file lawsuits against students and guarantors to get revenue.

We should also bear in mind that education is the best development investment that the government can make. The government has provided many subsidies since the 1997 financial crisis, such as rice and agricultural product subsidies and recently oil and gas subsidies.

Now it is time to provide a subsidy to assist our young generation to attain a higher education.


Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

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