Student loans need to be reviewed

The Student Loan Fund (SLF), supposed to help students pursue higher education, has proven to be the most counterproductive financial device in the country. The latest amendment to the law 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 riddled with debt – today some 90 billion baht.

The fund has the highest non-forming loans (NPLs) in the country, 47% more than the toxic debt incurred during the 1997 “Tom Yum Kung” financial crisis, 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 cases of default ended in civil lawsuits, in which the guarantors of the debt – mostly teachers and relatives – had to give up their homes or land to settle their debts, in addition to paying a hefty sum. late penalty. It is disheartening to see the fund result in acrimonious lawsuits between government and students.

But hope was born last week when the Lower House approved the amended SLF Act at its third and final reading, resulting in interest-free loans for borrowers and no fines for those who default.

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

Critics warn that such a populist legal amendment will place too heavy a financial burden on the SLF, which is intended to be a revolving fund that needs to be replenished constantly when loans are taken out so that it can be easily accessed by other students.

Deputy Finance Minister Santi Promphat warned that the zero-interest loan proposal would only promote irresponsibility and lack of financial discipline among borrowers, which would eventually dangerously deplete the fund.

SLF management should heed this warning and come up with realistic payment plans to facilitate debt servicing, offering flexible payment choices instead of sticking to the same annual basis and a rigid reduction calculation debt.

Fund management can penalize late payments and defaults 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 counseling and help borrowers find employment. One of the main causes of debt payment avoidance is that many students cannot find decent jobs.

This forces the SLF to acquire a new soul. Over the past few decades, the fund has been criticized for focusing too much on trying to get student loans paid off and prescribing unrealistic payment plans that ultimately lead to mass defaults.

The government also needs to change its attitude and give the SLF sufficient funds to keep the agency afloat. Indeed, it makes no sense that the SLF has chosen to operate as a financial fund that has to sue students and guarantors for revenue.

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

Now is the time to provide a grant to help our younger generation achieve higher education.

Editorial

Bangkok Post editorial column

These editorials represent the Bangkok Post’s thoughts on current issues and situations.

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