Prospective university students who were staking their future on getting loans from the Students' Loan Bureau (SLB) must now be filled with despair following Wednesday's stunning revelation about the dire state of affairs at the Bureau.
The entity is broke and unable to fund the increasing demand of a growing tertiary-level student population. SLB Executive Director Monica Brown spelt it out for Parliament this week when she revealed that there was a $350-million shortfall for the 2012-2013 period, and that the SLB was not sure where it would find the $6.9 billion required for the 2013-14 academic year. Added to the gaping hole in its budget is a roughly 30 per cent rate of delinquency among graduates.
After the SLB executives laid out the facts, it became clear that student debt has the potential to become a major economic headache for the Government of Jamaica. After all, student loans are made at concessionary rates and the Government has to provide guarantees for the SLB. So Government pays the interest while the students are getting their education. And when they graduate, students do not repay a real rate of interest because these are non-commercial loans.
Things have not been going well at the SLB for a very long time. Studies reportedly done by PwC and the Caribbean Development Bank (CDB) have pointed to the unsustainable nature of the SLB model.
According to the CDB, even if there was 100 per cent compliance by beneficiaries, given increased demand on the SLB, greater capital input would be required. Currently, the delinquency rate is 30 per cent. This has to be viewed in the context that as many as 49 per cent of last year's graduates are ranked among the unemployed or underemployed, and this can be blamed on the sluggish economy.
What has changed in the last couple of years is that the Bureau has found it more and more challenging to fund its operations. Now there is urgency to ensure the organisation's sustainability. The eerie question that floated around Parliament this week was this: Can we afford a SLB?
It seems almost certain that the SLB must undergo fundamental restructuring, which could dramatically affect its ability to fulfil its mandate to students. The blueprint for these changes will come from an expert valued at US$178,000 who will be hired to help the SLB address its current operational challenges and plot a path to eventual viability.
Even without any expert invention, it seems the SLB has to arm itself with stronger tools to help recover debt from delinquent borrowers. The Bureau acknowledges that more robust legislation and regulations may induce borrowers to honour their loan obligations. It has suggested withdrawing loan commitments from the source. The SLB could also work towards making it more difficult for delinquents to borrow future loans or access mortgages.
But additional reforms regarding loan eligibility, repayment schedules and interest rates are critical at this time. All the key players involved in the education system must help the Bureau solve its problems, because if fewer students are able to take up university places, the viability of these institutions will be threatened.
The fact that loan applications have increased dramatically over the years is commendable because it means that there are more Jamaicans who will be qualified to enter the workplace of the future. The reality, though, is that students from low-income families are not able to afford higher education unless they can access financial services such as loans or grants. Will reforms mean that they will be denied this opportunity?
The economic outlook for the country and scores of bright people will be bleak if the SLB fails.
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