East Malaysia's oil will pay huge RM45bil PTPTN bad debt

With only about half of the money owed to it collected, one may think that it is time for the National Higher Education Fund Corporation (PTPTN) to start tightening the screws.

However, according to its chief executive officer Agos Cholan, PTPTN still wants to do things "the nice way".

"We have the nice way and the harsh way. So far, we have been quite nice and moderate. We advertise in newspapers, on billboards and hold awareness campaigns to tell the people ‘pay back, lah', and so on.

"We tell them ‘just pay whatever you can (afford)'. The next thing we do is send letters of demand," Agos said.

But with a significant portion of PTPTN's data on borrower contact details yet to be updated, the likelihood of those letters of demand reaching the recipients remain low.

Facing these odds, Agos, a former banker, said PTPTN is still reluctant to emulate banks in engaging debt collecting agencies.

"We have a list of debt collection agencies, but we have not started using them yet... we worry that they might not be professional enough.

"We now do it ourselves. We go through the legal process and we blacklist the (bad debtors) with the Immigration Department, so that when they find themselves unable to leave the country, they come to us and we get their latest contact details," he said.

Unwilling to take sterner action

But even this has limited success. Of the 130,000 odd borrowers on the immigration blacklist, only about 20 percent have started paying back their student loans.

"The rest have not yet come forward. We are still waiting," Agos said.

PTPTN's unwillingness to take tougher action, such as linking its system with the banking network to block bad debtors from obtaining commercial loans, underscores the political nature of the situation.

Already, the corporation is portrayed as a loan shark, squeezing funds from youths whose meagre, fresh graduate salaries can barely help them to make ends meet.

In April, a number of students from around the country camped out at Dataran Merdeka to demand the abolition of PTPTN loans and questioned the interest rate imposed on the loans.

Borrowers were at one point charged up to three percent interest (or "administration fee"), but those who opt for the Ujrah scheme, introduced in 2008, can enjoy a lower interest rate of one percent.

It is not clear how many of the existing borrowers, particularly those who have racked a mountain of debt as a result of non-payment at the initial interest rates, have come forward to take up the Ujrah offer.

As at 2010, two years after the Ujrah was introduced, an estimated 800,000 borrowers are being still charged the three percent interest.

Politics at play

The opposition, eager for votes from the youths, has latched on to the free education movement and has included the writing off of PTPTN debts in its 2013 alternative budget - a venture it estimates will cost RM2 billion a year.

Deriding what it claims are "false promises", the government had, at the height of the PTPTN debate and without warning, temporarily halted loans to students of universities owned by Pakatan Rakyat-led states to "test" the coalition's resolve to provide free education.

As PTPTN tries to walk the political tight rope as ‘Mr Nice Guy', the total loans it has approved have grown to RM45.41 billion, with RM5 billion more to be added to that by the year end.

Smarting from a stern ticking off by the auditor-general in 2010, PTPTN chairperson Ismail Mohamed Said set a 70 percent repayment rate target - but this will only take effect when its new database is fully operational.

Agos claims that the new database, which had to be rebuilt following the debacle involving Finance Ministry-subsidiary Prokhas Sdn Bhd, is expected to be fully ready by 2014. However, he said, it is already functional.

Today, RM3.48 billion out of the RM7.83 billion due for collection has been received. At 49.07 percent, the rate is a far cry from the target, and it would have set off alarm bells in commercial banks.

While Agos feels it is unfair to compare the not-for-profit PTPTN with commercial banks, he agrees that sustainability is a concern for the corporation.

The government, too, is taking the matter seriously and has engaged international consultants to review the sustainability of PTPTN.

Plugging the hole

Another way PTPTN hopes to balance things out is to encourage parents to save for their children's education by depositing funds into the National Education Savings Scheme (SPPN).

At one point, those seeking PTPTN loans were required to show that their parents had set up an SSPN account in their name, but according to the PTPTN website, this is no longer so.

But the idea of seemingly plugging PTPTN's repayment hole, albeit sparingly, with SSPN is evidently still being pursued with the recent national budget doubling tax relief for SSPN accounts to RM6,000.

In the meantime, the CEO said, the corporation is "focused" on collection, including hiring more staff to deal with this aspect.

"We are reorganising how we work. If before, one officer is in charge of 18,000 borrowers. Now we want to expand the staff force to one officer to 15,000 borrowers," he said.

He said PTPTN has 1,500 officers on board to deal with its two million borrowers, but of that only one third are permanent staff, while the rest are on contract.

PTPTN is now also offering rebates for those who make regular payments and a 10 percent discount for those who settle their entire debt in a lump sum.

Looking at the glass half full, Agos said, 70 percent of the two million borrowers have made some manner of repayment, and about a third of them are regular payers.

As for the rest: "They may pay this month, but not the next, and if they do pay, they don't pay the full amount owing for the month."

Yesterday: Dirty data behind PTPTN's mountain of debt