This article first appeared in The Edge Malaysia Weekly on February 20, 2023 - February 26, 2023

IF the first step to fixing a problem is admitting that there is one, Malaysia may finally be moving in the right direction on the highly politicised student loans given out under National Higher Education Fund Corp (PTPTN), for which reforms are long overdue.

Malaysia missed the opportunity to reform PTPTN after the 2013 general election and can no longer forgive the entire sum today as total debts had ballooned past “a certain number”, Economy Minister Rafizi Ramli was reported as saying on Feb 15. What was around RM20 billion a decade ago had doubled to nearly RM50 billion, he said.

The government has no immediate plans to abolish PTPTN loans in a targeted manner among the poor and B40 households — a move that would involve 1.84 million borrowers with loans totalling RM42.34 billion — Higher Education Minister Datuk Seri Mohamed Khaled Nordin told parliament on Feb 14 in reply to the Machang member of parliament Wan Ahmad Fayhsal Wan Ahmad Kamal’s question on targeted forgiveness of PTPTN loans, the parliament Hansard shows.

Indeed, forgiving even a portion of the loan would prove costly as the sum involved is some 2% to 3% of the country’s gross domestic product (GDP).

The problem was much smaller a decade ago. PTPTN debt that was directly guaranteed by the federal government stood at RM24.2 billion in 2012 and RM29.2 billion in 2013.

Just 15 years ago in 2008, PTPTN debt that was directly guaranteed by the federal government was RM11 billion. From there, it only took three years for the total to double to RM20.35 billion in 2011, and just five years to double again to RM40 billion in 2016 — a level it was still hovering at in June 2022, according to official figures compiled by The Edge (see chart).

Many politicians want to help the lower-income PTPTN borrowers. In his 2022 book SCRIPT for a Better Malaysia, Prime Minister Datuk Seri Anwar Ibrahim wrote: “In a strike against poverty, we need to abolish repayment to [PTPTN] for the B40s.” Targeted PTPTN loan forgiveness for B40 and scheduled loan repayments for graduates earning below RM4,000 a month were among promises in Pakatan Harapan’s election manifesto.

Yet, if the intent is to alleviate poverty, forgiving the loans is not the only way — even if the government’s fiscal capacity were bigger.

Rather than forgiving outright the PTPTN debt for the B40, could the prime minister-cum-finance minister say efforts are underway to step up skills training and job placements to lift the earning capacity of lower-income PTPTN borrowers when Budget 2023 is re-tabled on Feb 24?

After all, with a higher income, borrowers can better afford loan repayments. Ideally, they should not only be able to repay those PTPTN loans but also move up the income ladder, afford a home and earn enough to retire.

Whatever the current administration decides, it is clear that the PTPTN model is unsustainable in its current form. Apart from collection issues from borrowers, many of whom say they earn too little to afford repayments, PTPTN loans are charged 1% interest per year, much lower than its own borrowing cost, which its former chairman Wan Saiful Wan Jan said is 4% to 5% a year.

The Edge had previously written about the need for the government to consider the country’s fiscal situation, global socioeconomic headwinds, the size of PTPTN loans as well as the country’s talent pool needs when coming up with a solution to correct the current unsustainable PTPTN model. (Scan the QR code to read “Link broader talent, economic goals when recasting PTPTN loans, grants” in Issue 1452, Dec 19, 2022.)

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