The National Higher Education Fund Corporation (PTPTN) caused a stir earlier this week when they announced there will be a 5% reduction in loans for students in public institutions of higher learning and a 15% loan reduction for students in private institutions starting this month.
Under PTPTN’s new requirements, only students whose parents receive the 1Malaysia People’s Aid (BR1M) are eligible for a full education loan. Meanwhile, students from households with a monthly income of less than RM8,000 will be given 75% of the maximum loan amount. Students from households with a monthly income exceeding RM8,000 will receive only 50% of the maximum loan.
PTPTN – Affordable Student Loan
PTPTN was established under the National Higher Education Fund Corporation Act 1997 to be a rolling fund to provide loans to students who could not afford tertiary education. Back in the day, very few banks were willing to provide loans for students, and those who did were charging extravagant interest fees. PTPTN is funded by the Malaysian government, and has a low interest rate of 1% per annum (p.a.).
Unfortunately, the education lifeline has been abused by errant loan borrowers who refused to repay their loans after completing their studies. The amount has reportedly hit RM1.3 billion, and has greatly affected the operation of PTPTN.
To counter the funding constraints resulted from unpaid loans, PTPTN chairman Datuk Shamsul Anuar Nasarah said the corporation had no option but to either reduce the number of students receiving the loans by 50,000 or reduce the loan amount.
He said PTPTN chose the latter, so that the number of student loan recipients would remain the same. The initial mandate was to provide financial assistance for underprivileged applicants. The new requirements would affect the candidate’s ability to obtain optimum loan benefits.
Loans for students who are taking medicine courses would be maintained due to its high fees. However, business administration, computer and information technology, and engineering, some of the most sought-after courses by many Malaysian school leavers, are deeply impacted.
Here is how the new loan mechanism will affect new borrowers:
Datuk Shamsul Anuar Nasarah said BR1M was a reliable indicator to ascertain one’s eligibility for the maximum loan amount.
Middle-income households are the ones who will bear the brunt of the PTPTN’s loan reductions. Currently, households earning between RM4,000 and RM8,000 make up 41.6% of the demographic. Meanwhile, some 15.4% of households in Malaysia make a monthly income of RM8,000 and above.
Those planning to further their studies in private institutions will face difficulty, as competition for public universities and scholarship is stiff.
However, Datuk Shamsul has hinted the reduced financing for student loans may be lifted once PTPTN recovers unpaid loans.
Those who are unable to get sufficient financial loan to further their studies may have to turn to alternative options such as study loan, personal loan or 1Malaysia Education Caring Scheme (SPP1M).
You can obtain a study loan from a number of local banks. One popular option is the Education Financing-I Falah loan offered by Bank Rakyat. It offers financing up to RM200,000 for a maximum loan period of 15 years.
The good side is, Bank Rakyat offers a larger loan amount compared to PTPTN and funding is not limited to local universities, as long as it matches with the loan amount.
The downside is, it has a much higher interest rate compared to PTPTN. You will need to pay an interest rate of 7.6% p.a. if you are able to repay your loan within 5 to 10 years. The interest rate increases to 8.1% p.a. if you take 10 to 15 years to repay your loan.
Personal loans also come with high interest rates, which could range from 7.68% to 13.75% p.a. depending on how long you take to repay your loan. Furthermore, the repayment starts immediately, hence your parents would probably need to repay the loan while you are still in college.
Meanwhile, SPP1M is more of a special “top up” loan scheme than a fresh loan, offering the maximum funding of RM150,000 for medical courses and RM100,000 for other courses, for as long as 15 years. This is good for those who are not eligible for the full loan and have no fund to cover the shortfall.
The catch is, to qualify for the loan, candidates will need to apply with the list of participating universities on their SPP1M’s list. As of mid-2013, SPP1M is available to Maybank and priority is given to students in local universities.
As part of its efforts to recover the unpaid loans, PTPTN would be listing defaulters, amounting to 500,000 individuals, in the Central Credit Reference Information System (CCRIS).
Currently, PTPTN loan takers are required to repay six months after graduation. Effective January 2015, those who have never paid their loans three years after graduating will have their names and details listed in CCRIS.
Loan defaulters will not be blacklisted under CCRIS. However, being listed on the system will affect their ability to apply for loans from financing institutions in the future.
Prime Minister Datuk Seri Najib Tun Razak announced during Budget 2015 last month that borrowers can expect a 20% discount if they repaid their loans in full by March 31, 2015 while borrowers who could not do so could still get a 10% off their loans if they made consecutive payments for 12 months till December 31, 2015. Borrowers were given similar discounts under the Budget 2013.
PTPTN is a great avenue for those who cannot afford tertiary education. With the new loan mechanism, it may be more difficult for youths to further their studies, and the quality of the workforce may be affected in the future.