Students' Loan Bureau to take hit from loan reform
The Students' Loan Bureau (SLB) is projecting that it will lose up to a quarter of its regular income based on the new method of calculating interest on student debt.
The agency has made the switch from the add-on method to computing loan interest on the reducing balance - a system that should result in less costly loan-servicing costs for borrowers.
Executive director of SLB Monica Brown told Sunday Business that the agency estimates it will lose around 20-25 per cent of interest income due to the switch to the reducing balancing methodology (RBM). But, at the same time, the agency expects to see a reduction in delinquencies as loan payments are now expected to be more manageable for borrowers.
Brown said that while the expected reduction in the agency's roughly $1 billion of interest income has created need for capital injection, inflows from the education tax has also "helped tremendously in plugging that gap".
Additionally, "based on the fact that the monthly payments will be lower, it is expected that the rate of collection should be increased over time so that gap would be reduced", she said.
SOME LOANS NOT UNDER NEW SYSTEM
The SLB head said some 60,000 loans were migrated to the reducing balance regime on April 1, 2016. She conceded, when pressed, that there are still "a few hundred loans" that have not yet been brought over to the new system - confirming anecdotal reports from borrowers.
"Those are being worked on so that we can get those to RBM. I cannot give you a specific figure now, but I'm advised by my technical team that it's only a few hundred," she said.
The delay, she said, is likely due to the status of the loans or the detection of some anomaly.
"Some late charges may have been applied or some insurance payment may have been omitted - it would vary," she said, while affirming that all loans will eventually be migrated to the new methodology.
The target date for full migration of loans is mid-June - less than two weeks away.
Under the changeover, the life of all loans that were formerly less than seven years to maturity but in arrears or delinquent as at March 31, 2016, were re-extended to seven years for pay-off.
"So if you have six years to maturity and you have arrears, then your period would be extended to an additional year to the seven years to allow you to pay an amount that would not be more than what was paid under the add-on interest," Brown explained.
However, Sunday Business has spoken with borrowers who say their loans were not in arrears, but had their repayment periods extended, anyway.
To that, Brown said verification is being done to minimise discrepancies in the system.
The verification must also be completed before borrowers are officially notified of their new loan terms, Brown said.
"We are going through a period of verification checks, and there may be instances where a few of them may have got the extension when they shouldn't have," the executive director conceded.
"We are very careful to complete our checks before we send out the communications to our customers. As you know, there is likely to be some hiccups, so we are taking our time to go through to make sure that where adjustments [are needed], those are made before sending out any communication," she said.
Borrowers are currently unable to ascertain their loans status through the SLB's newly launched Interactive Voice Response System (IVR), which Brown said was taken offline to ensure misinformation isn't given to callers regarding the loans status.
Additionally, the SLB had committed to providing quarterly statements on loans to borrowers but has been lax in this regard.
Brown said this, too, will also be addressed moving forward.
"What we have been encouraging persons to do is to continue paying what they are accustomed to paying. That will cause them to finish paying their loan even before the original maturity date under the previous regime," she said, while reaffirming that the new RBM structure would give borrowers a better deal.