Interest rates mismatch ails federal students’ loan provider

By Yow Hong Chieh, The Malaysian Insider

The National Higher Education Fund Corporation’s (PTPTN) practice of borrowing money from financial institutions at higher interest rates to lend to students at very low interest rates has led it to its current deficit crisis.

The Malaysian Insider understands that PTPTN admitted to taking out 10-year loans from financial institutions to bankroll students who then have up to 20 years to repay them when it briefed the Public Accounts Committee on Tuesday.

Not only has this caused cash flow problems, but the education fund also borrows money from institutions like the Employees Provident Fund at five per cent interest which it then lends to students at only one per cent interest, a source told The Malaysian Insider.

The administrative charge was originally set at four per cent until January 2004, when it was cut to three per cent before being once again reduced to the current rate in January 2008.

PTPTN acknowledged that this “unbalanced tenure” was one of the main reasons why it is haemorrhaging money, which the Auditor-General’s Report estimates will hit RM45.89 billion by the end of the 11th Malaysia Plan in 2016.

As such, PTPTN will need extra funds amounting to RM15.67 billion under the 10th Malaysia Plan and RM21.66 billion under the 11th Malaysia Plan, in addition to the RM8.56 billion it received under the Ninth Malaysia Plan.

From 1997 until September 30, 2010, PTPTN approved loans worth RM36.5 billion to 1.66 million students in public higher education institutions (IPTA) and private higher education institutions (IPTS). A total of RM20.6 billion (56.4 per cent) went to 1,180,195 students in public institutions while RM15.9 billion (43.6 per cent) was set aside for 483,802 private institution students.

This year alone, RM2.27 billion in loans has been approved for IPTA students, together with RM2.85 billion for IPTS students.

Compounding PTPTN’s woes is the fact that repayment rates have traditionally been low, in part due to its own inability to track delinquent loans.

Loan repayment rates have hovered just below the halfway mark for the past three years. The rate of repayment was 48.5 per cent in 2008, 49.6 per cent in 2009 and 48.3 per cent as of September this year.

From PTPTN’s inception in 1997 to the end of last year, a total of RM22.2 billion in loans was issued, with an expected repayment of RM4.1 billion. However, only RM2 billion was ever paid back.

As of April 1 this year, “0 per cent” of the loan collection module under its End-to-End Financing System (ETEFS) database had been completed. The module covers delinquents, non-performing loans, recovery and litigation.

The other two modules, loan origination and loan management, were 46.7 per cent and 4 per cent complete, respectively. Loan origination deals with application processing, approval and disbursement and document tracking while loan management cover accounting and administration.

PTPTN opted for Ministry of Finance Inc wholly-owned subsidiary Prokhas to help develop the database system in 2006 after passing over the more established PricewaterhouseCoopers (PwC).