Editorial | Income-linked student loans

The Government’s movement to implement its so-called debt-reset programme for student borrowers will be of unquestionable value to the debtors, especially in an economically difficult post-hurricane period.

However, the scheme, rolled out last week by the Students’ Loan Bureau (SLB) in fulfilment of the administration’s campaign promise for the September’s general election, is unlikely to provide a long-term, sustainable fix to the problem of financing tertiary education, or to the perennial crisis of students’ repayment arrears.

It is in that context that The Gleaner again invites the government to seriously consider the question of income-contingent loans for people who borrow for their university or college education, and the possibility of unlocking billions of dollars held in pension funds for education and training, thereby offering Jamaica’s investment market a new asset class.

The SLB, a government agency, is Jamaica’s largest provider of loans for tertiary education, accounting, by its own estimate, for nearly 40 per cent of the market. It has over 35,000 accounts on its books, of which approximately 42 per cent (nearly 15,000) are in the moratorium period – meaning that the borrowers are either still in school or have not yet completed the post-study grace period before repayment begins.

For the current financial year, ending March 31, 2026, the SLB, according to Ministry of Finance budget documents, projected to disburse J$8.8 billion to borrowers, up 14 per cent from the previous year.

It is estimated that the bureau disburses upwards of 10,000 loans annually, but not all of these are to new borrowers. Some are to students seeking additional funding.

PERENNIAL PROBLEM

However, the SLB, whose most widely tapped loans attract interest of 7.8 per cent during study and 9.5 per cent during repayment, has had a perennial problem with collection. It has sometimes resorted to publishing the names and photographs of delinquent borrowers.

Indeed, of the approximately 20,500 loans that are in their moratorium period, nearly six in 10 (57 per cent or 11, 634) are currently delinquent, the agency reported last week. Just under 8,900 (43 per cent) are current.

For the current fiscal year, first bad debt expenses of J$987 million, an increase of six per cent. This is against expected bad debt recovery of J$165 million.

This is part of the backdrop against which Prime Minister Dr Andrew Holness made his debt-retrenchment promise during the election campaign – the details of which were fleshed out by the SLB last week. Borrowers will receive a 50 per cent write-off of interest arrears, plus a waiver of late fees and insurance charges, with the possibility of a two per cent discount on interest rates, if they remain in good standing for a year. They have a five-month window, with the clocking running from the start of November, to take up the offer,

In addition to the relief for delinquents, the borrowers in good standing will be credited with J$100,000, essentially a write-down of their debt by that amount.

While these initiatives will be widely welcomed, they fall short of fundamentally addressing the financing/affordability problem of tertiary education, which partly explains why fewer than 10 per recent (27 per cent) of Jamaicans receive tertiary education.

POTENTIAL BURDEN

Many potential students complain, not only of the difficulty of borrowing for their tuition, but the potential burden of servicing loans after their graduation, given their existence in a generally low-wage economy.

It is in that context that this newspaper has long promoted linking the repayment of education loans to people’s salaries, of which Professor Densil Williams, the principal of The University of the West Indies (UWI) at Mona, has been a strong proponent. Under this arrangement, the level of a borrower’s repayment would never rise above a specific proportion of his income. Because the loan would be linked to a unique number, say the borrower’s tax registration (TRN) or social security, it would follow the person from job to job. Payments could be deducted at source and remitted to the lender, similar to what happens with income tax, social security, or National Housing Trust (NHT) contributions. Such loans could also have time limits, in specific circumstances, for people whose wages, over their working lives, do not rise at a rate to fully clear the debt.

The bottom line, however, would be to allow people to access tertiary education without being totally stymied by debt and-or the capacity to service it.

An underpinning of this idea would be to adjust the pension fund regulations to allow these plans, with long-term money in search of investment opportunities, to put some of it into education – a long-term appreciating asset.

More than two years ago, Ravi Rambaram, a respected actuary with a regional practice, estimated that J$50 billion could be readily accessed from Jamaican pension funds for this kind of investment. At the time, Fayval Williams, then the education minister, seemed very receptive to the idea when Mr Rambaram spoke at a colloquium at The UWI. She is now the finance minister, in a unique position to act on the proposal. Or talk seriously about it.