This article first appeared in Wealth, The Edge Malaysia Weekly on September 23, 2024 - September 29, 2024

Pandemic, inflation, low income and financial literacy are usually blamed for the lack of savings of many Malaysians. However, an area that could have been overlooked is education loans among the youth. How can they start saving early when all they do for years after securing their first job is to survive while repaying loans?

According to Ahmad Dasuki Abdul Majid, CEO of the National Higher Education Fund Corporation (PTPTN), there were 3.92 million PTPTN borrowers with loans amounting to RM70.91 billion as of October last year. This doesn’t include youths who obtain education loans from private institutions, such as banks.

Among these borrowers, some are struggling to save for the future while repaying their debts. Others repay them by dipping into their Employees Provident Fund Account 2, which sets them back several years in their financial journey for retirement.

Financial experts who spoke to Wealth say that millions of youths took on education loans which they have to start repaying after they graduate from colleges and universities. Many took it from PTPTN, which only charges them an interest rate of 1% per annum with a flexible repayment schedule. Hence, there isn’t an “education loan crisis” among the youth as most of them can still make repayments.

Yet, education loans have a bearing on the financial woes many Malaysians face. Youths who do not have a meaningful amount of savings in their bank account feel discouraged from learning more about financial planning. Those who dip into retirement funds to pay off loans need more time to recuperate their nest eggs, contributing to the country’s deteriorating retirement landscape. As they move into their 30s, are married with children and are required to support their parents in old age, many find themselves without adequate savings and some go bankrupt.

Nirmala Supramaniam, head of the household financial education department at the Credit Counselling and Debt Management Agency (AKPK), says most bankrupt individuals who reached out to AKPK for help are aged between 35 and 45. But their financial challenges could stem from when they were young.

“We can surmise that people from 35 to 45 years old with financial problems might not have managed their finances well when they were young. You only have to look after yourself [at that age] and might have delayed planning your finances, telling yourself that you only live once (YOLO), and you will start doing it later.

“When you reach 35 years old, you start committing to things. You probably got married, started a family and, you know, bought a house. Your parents get old and you have more things to take care of,” she says.

Dr Yeah Kim Leng, professor of economics at Sunway University Business School, cited less recent but more comprehensive statistics regarding PTPTN borrowers. He says there were 2.1 million PTPTN borrowers in 2020 and about 60% (1.2 million) of them have not been repaying their loans consistently, which isn’t a good sign.

“Nearly 400,000 borrowers (18%) who collectively owe RM4.6 billion (or RM12,000 each) have not made any repayment at all, indicating that the well-intended national education loan scheme is also one of the contributing factors to the youth’s debt woes,” he says.

Adding salt to injury is that the unemployment rate among youth between 15 and 24 years old was over 12% recently, compared with the nation’s overall unemployment rate of 3.3% (as of June).

For PTPTN borrowers who get a job, 51.6% earn below RM2,000 or contend with irregular income streams, according to a report published by the Khazanah Research Institute (KRI).

“Present-day youths are confronted with low wages and underemployment, especially for those with tertiary education. This further exacerbates the hurdles faced by the B40 and M40 families in moving up the income ladder, and achieving financial health and decent living standards,” says Yeah.

However, Yeah says the 1.2 million PTPTN debtors is a sizeable number, but it is only about 20% of the almost six million youth population between 15 and 24 years old. It doesn’t seem to imply that the country is experiencing a “credit crisis” or “debt trap” among the youth.

Nirmala agrees with Yeah that there isn’t an education loan crisis among the nation’s youth. “But it can be a crisis if the situation isn’t managed well moving forward,” she says.

According to the most recent data provided by AKPK, 8,822 individuals with PTPTN loans enrolled in its debt management programme from 2016 to July 2024. Among them, 2,701 (30.62%) are 20 to 29 years old while 5,572 (63.16%) are 30 to 39 years old.

This view is also shared by Dr Suraya Ismail, director of research at KRI, and Dr Mohd Amirul Rafiq, senior research associate at KRI.

However, Suraya and Amirul point out that the debt situation among the youth could further deteriorate as more students are taking on education loans compared with the past, with 55% of PTPTN borrowers coming from households within the B40 category. They have less resources to rely upon during emergencies and are likely to shoulder more financial responsibility for the family.

To make matters worse, the income of fresh graduates has also been largely stagnant, according to the “The financialization of our lives: values and trade-offs” report, prepared by seven individuals, including Suraya and Amirul.

The report, published in May, mentioned that in 2021, some 59.6% of fresh graduates made RM2,000 or less for their first job, showing only marginal improvement compared with 60.8% in 2010.

“And while the growth of ‘tertiary educated persons’ continues to rise, the growth of ‘skilled employed persons’ has plateaued since 2002, making overqualification and underemployment issues of pressing concern,” according to the report.

During an interview with Wealth, Amirul adds that the impression that youths should be able to repay their loans without much struggle as most of them are PTPTN borrowers, charged only 1% interest per annum, isn’t accurate.

Based on his research, about 50% of education loan borrowers study in private universities and colleges, where tuition fees could be three to four times higher than public universities. A low interest rate can still amount to a relatively substantial repayment sum.

As an example, Amirul says a friend of his paid about RM65,000 for a diploma in nursing and was required to pay RM350 a month after graduation. While the repayment amount seems insignificant, her starting salary was just RM2,500.

Rani (not her real name), a 29-year-old doctor at a government hospital, is a PTPTN borrower. She took an RM150,000 loan to help pay for a medical degree at a private university.

Almost a year after graduation, she was required to repay about RM750 a month for about 15 years, which she struggled with when she first started her housemanship at a government hospital in Perak.

Her salary was only about RM3,000 at that time. On top of her daily expenses, she drove back to Selangor once in two weeks to spend time with her family, which added to her monthly expenses.

Rani stopped repaying her PTPTN loan until she was rejected for a credit card application due to being blacklisted. She quickly realised her bad credit history could block her from other financial products like car loans and mortgages.

Rani paid off the backlog of her PTPTN loan with her mother’s help and was removed from the blacklist. She also started repaying the loan dutifully after.

The repayment sum of RM750 per month had also become less of a burden a few years later as she sometimes worked for longer hours (on-call allowance) and earned a slightly higher salary. Today, Rani is a permanent medical officer under the government and is posted to work at a hospital in East Malaysia.

During an online interview with Wealth, Rani says she hadn’t been repaying the PTPTN loan partly because she wanted to save some money for herself.

As much as RM750 is a burden, she adds that it still can be repaid and that her peers who took up PTPTN loans to become doctors aren’t severely stressed out by their loan repayments. She doesn’t think there is an “education loan crisis” among the youth.

Today, Rani says she can save up to RM250 to RM1,000 per month, depending on her working hours and how she manages her expenses. In the worst-case scenario, she can only save up to RM3,000 a year, which isn’t a meaningful sum for her future.

“It’s not a lot, and it’s very difficult to invest [with that money]. Then you think about buying a car and a property. RM3,000 a year isn’t enough,” she says.

Mohd Aliff, a 32-year-old journalist working in East Malaysia, is more “fortunate” than Rani as he graduated from the University Technology MARA (UiTM), where education costs are significantly lower.

He had to pay RM15,000 for his diploma, which has been fully repaid, and RM13,000 for his degree, which was waived as he graduated with first-class honours.

Aliff was initially paying RM100 per month to PTPTN for his diploma studies. But he later decided to accelerate the repayment with the money in his EPF Account 2.

“In 2019, I found that my EPF Account 2 had enough money to clear the balance of the loan. I withdrew RM8,324.31 for it. The process is easily done through an online application and a fingerprint verification at the nearest EPF office.

“After that, I still have a loan balance amounting to RM2,621.36. I paid this off with my savings. I do save up from my salary for emergencies. I started repaying the loan in 2016. In December 2019, PTPTN sent me a notification letter that I’d settled my loan with them.

“I heard from my friends that they also fully or partly settled their PTPTN loans by withdrawing from EPF Account 2. There are also some who make automatic salary deductions to PTPTN,” he says.

He adds that although the loan he took seems sufficient to cover his tuition fees at university, one shouldn’t forget that the money is also used to pay for his living expenses, reference books and carry out various assignments.

Aliff, who comes from a B40 family, is very grateful to PTPTN for providing him with an opportunity to further his studies. He tries his best to repay the loans; he doesn’t want to burden his parents and family with debt if anything happens to him.

Today, he is earning RM2,188 per month. While it did not seem like a lot, he fully repaid his car loan and tuition fee for a Master of Management at Open University Malaysia.

Flora, a 25-year-old PTPTN borrower, also expressed her gratitude to PTPTN. She used the borrowed money for tuition fees, reference books and rent, among others. She sometimes worked part-time during university, earning about RM600 per month, which wasn’t enough to cover her monthly expenses.

Like Aliff, Flora graduated with first-class honours and her PTPTN loan was waived. She later worked full-time at a fashion store of a local brand with a basic salary of about RM2,500 per month, which sometimes can go as much as RM4,000 including commissions. She then worked as a human resources executive at a manufacturing company with a higher base salary and better career progression.

Would she struggle to repay her loan if she didn’t graduate with first-class honours? Flora says it would be manageable as she lives with her parents without paying rent, electricity, water and internet bills.

“It would take out a lot from my monthly income as well if I’m required to repay the PTPTN loan. But I wouldn’t be under a lot of stress,” she says.

Flora says a PTPTN loan could be a bad thing for borrowers when they use it for self-gratification. “There were those who used the money to buy a phone or even a car. There are people who do that.”

According to KRI’s Amirul, about 5% of PTPTN borrowers get their loans waived after graduating with first-class honours.

Industry experts agree that education loans made better monetary sense decades ago. A university degree was more likely to result in a better job with a salary enough to pay off the loan and save for the future. It is deemed a “productive loan”. But the situation isn’t quite the same today.

It is important that the youth accept the financial reality of their family, be resourceful and understand and weigh their options in furthering their studies, says AKPK’s Nirmala.

She says education costs have gone up but youth today are also provided with more options in terms of scholarships, courses, universities and future job opportunities than decades ago.

“They would have to do their homework [and know their options well], such as future job opportunities and if the salary allows them to pay off the loan. Passion is important but the reality is that you have to feed yourself after that,” she says.

Parents should be honest with their children and help them understand the financial reality of the family, she adds. “Never use words such as ‘ok lah’, ‘never mind lah’ or ‘let’s do it and we see how to manage’. Those words are very dangerous.

“I’m saying this from the heart because I’ve got two children studying in a higher education institution now. When they are researching the course, I’m looking at the cost,” she adds.

At AKPK, Nirmala once came across a dire case where a mother wanted to fulfil her daughter’s dream of studying medicine in Indonesia and ended up borrowing RM75,000 from an illegal money lender. “She was digging a deep hole. That was one of the worst cases I’ve seen [involving education loans],” she says.

Personally, Nirmala adheres to the value of honesty when communicating with her children when the latter wanted to further their studies. “I said I can only allocate this much for you. If you find something within this range, we are good. But if it’s something beyond, we have to keep searching. I was very honest and blunt, and some universities were out of the range.

“I said you can cry today, thinking that I’m being so cruel. But I don’t want you to cry in the future. Some parents give their children everything, and the children might think everything comes easy. When they are on their own, they could really suffer,” she says.

From a bigger picture, there is some low-hanging fruit for the government to improve the overall situation. KRI’s Amirul says the government can consider reintroducing the income contingent loan (ICL) solution.

“We should bring back the ICL with a better version, particularly by looking further into the borrowers’ income threshold. The government should also get timely updates on their incomes so that their threshold and repayment amount can be revised regularly and appropriately,” he says.

The KRI’s report, which Amirul was involved in, mentioned that education loans in Malaysia predominantly adhere to a time-based structure. In the case of ICL, repayments are only initiated when a specific income threshold is surpassed while the repayment scale remains tied to the income levels of the borrowers.

ICL was introduced by the government in 2018, before it was scrapped. According to Amirul, it received backlash from the general public as the income threshold for when a borrower starts repaying the loan was deemed too low, while the initial repayment amount and the repayment scales weren’t appropriate.

“It is actually a good initiative if implemented with the right measures, like what is being done in Australia,” he says.

If Malaysia were to adopt the ICL structure, PTPTN borrowers would only be required to fork out 2% of their monthly income (RM40 to RM49) for loan repayment. It would ease their repayment burden and give them more room to manoeuvre financially.

The government can also subsidise some students who need financial assistance by injecting funds into the National Education Savings Scheme (SSPN), which currently yields investors decent returns at about 5% on average in the past years, according to Amirul.

“Why doesn’t the government top up another 1% to 2% [for those who need it]? They will get 7% per annum. The government can put in certain measures, such as allowing the money to be withdrawn after 18 years old, to make sure the funds are used for education. With more savings, maybe their education loan amount can be reduced and the repayment tenure can be shortened,” he says.

Other potential solutions include exploring the option of Technical and Vocational Education and Training (TVET) programmes and courses that come at a much lower cost and provide job opportunities, he adds.

The KRI report pointed out that TVET graduates have better employment outcomes compared with their traditional degree counterparts. It also mentioned that about 90% of TVET graduates earn less than RM2,000 per month, but such a trend is also observed across graduates with certificates and diplomas, including those outside the TVET domain.

Another practical solution is for graduates to find job opportunities abroad. KRI’s Suraya says it is a reality that Malaysia is experiencing wage stagnation. Living standards for a significant portion of households are deteriorating, which contributes to the trend of an increasing number of youths securing loans to further their studies.

“However, that [graduating from a higher education institution] has not translated into favourable outcomes for the youth. It is reflected through the starting pay of many of them of less than RM2,000 per month. The unemployment of fresh graduates, within a year of graduation, has also been stagnant at about 15%.

“Unemployment is a consequence of the economy, not higher education. Therefore, it’s an opportunity to reconsider policy options to induce more graduates to work abroad,” she says.

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