A file photo of a school front yard. (Source:Wikipedia)

Changes to student loan system eases debt burden, but inequality remains

The debate following the dramatic amendment to the Student Loan Fund Act reveals the problem of student loans in relation to wealth inequality, access to education, and the current job market for recent college graduates.

A House bill to amend the Student Loan Fund Act, which incorporates the Student Loan Fund (SLF), successfully passed its third reading on 14 September 2022. If enacted, the amendment will set SLF interest rates to zero, remove fines for students facing default, and remove the guarantor requirements to receive financial assistance, affecting the lives of millions of past, present, and future indebted students.

The Senate may deliberate the amendment  in the next Parliamentary session, starting in November. The amendment was proposed by Pheu Thai MP for Lopburi Ubonsak Bualuang-ngam and in its third reading has received strong backing with 314 votes for and 3 against. Both Move Forward party leader and MP Pita Limjaroenrat and Public Health Minister and Bhumjaithai party leader Anutin Charnvirakul  have voiced their support in reducing student loan interest rates.

The motion is retroactive, meaning that the 3.45 million students currently making repayments, including the 1.1 million facing prosecution, will have interest-free loans and charges for failure to pay will bedropped.

The SLF and student debt

The SLF was established in the mid-1990s as an independent legal entity under the Ministry of Finance and has operated under the aegis of the Student Loan Fund Act since 1998. This Act was amended for the first time in 2017, and this amended version currently governs the SLF.

The SLF is designed to provide students in need of financial assistance with loans to fund high school, vocational, and higher education. Secondary school students and undergraduates pursuing Bachelors degrees make up the majority of loan recipients today. The SLF additionally aims to shore up the economic sectors perceived as lacking sufficient skills training, manpower, or expertise by encouraging study in these target areas.

Since 1995, the SLF has lent to over 6 million students according to BBC Thai. 3.45 million people are in the loan repayment process, 1.6 million have completed their repayments in full and 1.1 million are being prosecuted for failing to make their repayments.  6,800 have passed away prior to completing their payments. Krungthai Bank is responsible for processing loans on behalf of the SLF.

The Fund’s current balance is 696.8 billion baht and it is owed 337.86 billion baht in loans. According to Thai PBS, the SLF has been self-sufficient since 2018 due to its ability to fund newly issued loans from repayments of old ones in addition to an annual allocation from the government. Matichon reports the Fund’s annual operating cost at 2 billion baht and its income from interest at 6 billion baht.

Why is student loan debt a problem?

On the upside, the bill means a huge debt burden will be resolved. Sustarum Thammaboosadee, assistant professor of international relations at Thammasat University, a vocal proponent of access to education as a form of social welfare, told Prachatai of the positive impact of the new changes.

“Average student loan amount for one student is around 200,000 -300,000 baht, the interest for normal loans is around 15,000-20,000 baht for the whole loan period (15 years) excluding penalty fees which can double the size of the debt. The new regulation will directly benefit more than three million students. According to the report more than 30% of the students who take loans are not able to pay back and are forced to pay high penalty fees,” said Sustarum.

For former students Por and Dan, their student loan debt constitutes a significant challenge to their financial well-being and future plans.

Por, 34, graduated from Asia-Pacific International University in 2012 with a total debt of 290,000 baht, of which he has repaid about 33%. At this rate, it will take him twenty years to repay in full. He described his debt as a slippery slope, noting that it only takes “one sickness or injury to lose your job and be unable to make payment”. He also talked about the job market for recent graduates. “I think in Thailand, when you graduate from university, your basic income salary is not much for pay everything, and now is not enough.”

Dan (pseudonym), 25, graduated from Thammasat University in 2019 with a total debt of 250,000 baht, of which 10,000 baht has been repaid since 2021 and the debt is expected to be paid off by 2030. They now work as a research assistant and cite the debt as a constant burden.

They plan on applying for a Masters degree program, but worry about the looming loan balance in the meantime. Commenting on the proposed changes, they said that the removal of interest rates and penalties will be helpful, especially because they want to attend graduate school in the future.

Dan said “In the big picture, the [changes] help people, but they do not fix the problem.”

Alternative solutions

Both debt forgiveness and free or low-cost higher education have been brought up as possible alternatives to address wealth inequality in relation to access to education. United States President Joe Biden shone a spotlight on the idea of debt forgiveness when he cancelled up to $20,000 of student debt by executive order.

The move sparked renewed re-energised campaigns such as #SLFdebtforgvness in Thailand, but it remains a controversial issue. What happened in the US was also brought into the domestic debate about whether it is a bad example of spoiling the populace who do not have to pay back debt or a good solution toward equality.

Por and Dan disagreed with the concept, saying that students should be responsible for their loan payments.

Both former students were interested in free education as the more attractive option. Dan expressed a desire to see the Thai government implement education subsidies such as in Singapore, not loans, to support free job skill training and lower college tuition rates. The creation of and access to higher earning entry level jobs for recent graduates was another common theme for the two respondents.

Dan said “people who cannot repay need help to find a good job rather than debt cancellation”, suggesting that low average incomes for recent graduates may be part of the problem.

Sustarum, meanwhile, is all in on loan forgiveness and free education.

“Though the new regulations on interest and fees may benefit the majority, I insist that we should move forward to free higher education,” he said. “There are more than 20 countries and billions of the world population who are eligible for free university. According to the Thai annual budget, we may use only 6% of the annual budget to achieve free higher education with living expenses; 1% of the annual budget (over 10 years) for debt forgiveness.”

As for what the government could do to increase access to higher education, he repeated, “free education and debt forgiveness. Even highly commoditized education in the USA can introduce debt forgiveness for 40 million citizens. We use less money for 5 million students who are in debt, and 500,000 students each year who are admitted as first year students. Interest cancellation is a good move but not enough.”

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