Many refusing to repay student loans despite fat bank accounts: study
Graduates are still defaulting on repayments despite having more than enough savings to pay off their student loans, according to a study by the National Economic and Social Development Council.
The NESDC report on ex-students taken to court for defaulting in 2020 found that 40 had over 5 million baht in their bank accounts, 431 had more than one million baht, 637 had over 500,000 baht, and over 9,000 had 50,000 to 500,000 baht.
The survey on repayments to the student loan fund was part of the NESDC’s third-quarter report on Thailand’s social situation and outlook.
The NESDC expressed concern that the problem of ex-students defaulting on loans could escalate into a severe social issue.
The NESDC said the issue covered 6.4 million ex-students and other people, including loan guarantors. Of these, 1.5 million are facing either lawsuits or repayment demands after court rulings on unpaid debts. Defaulters face being blacklisted by the Credit Bureau, making it harder for them to obtain loans from banks or financial institutions.
The NESDC reported that by September-end this year, 2.3 million or 65% of 3.5 million ex-students debtors have defaulted on repayments worth a total 90.856 billion baht.
The Bank of Thailand reports that the student loan fund has the country’s highest level of non-performing loans. NPLs accounted for 62% of the fund’s loans at the end of 2020, the central bank said.
The fund provides loans to students in four groups:
- Poor students
- Students studying in fields important for national development but short of workers
- Students studying in fields promoted by the fund
- Students with outstanding academic performance.
As of September 30, the fund had approved loans for 6.4 million students worth 706.357 billion baht or an average of around 110,000 baht per student.
The NESDC report attributed the loan defaults to four main causes: students themselves, debt repayment mechanisms, fund rules, and the national education system.
The NESDC said many students lacked financial discipline and refused to service their debt despite having more than enough savings to pay each instalment. However, it also blamed financial burdens and lost income due to Covid-19.
The report said the fund’s repayment mechanism made it harder for ex-students to service their debts in later years.
Graduates get a two-year grace period before the stepped 15-year debt repayment period kicks in, starting with 1.5% of the loan in the first year and rising to 13% in the 15th year.
The study found that ex-students often started defaulting in the sixth or seventh year because their income does not match the rising debt level.
The NESDC also found that student loan fund rules lack flexibility for debt restructuring or renegotiation. The study found that up to 85% of ex-students who had renegotiated their debt repayment with the fund still defaulted on loans because of the inflexible rules.
On the educational structure, the report said that most debtors studied in fields where graduates flooded the market, such as business administration, economics, arts, social sciences, and education.
The NESDC said only 20.56% of the debtors studied science and technology and even fewer (7.55%) studied engineering.
The report disagreed with the government’s draft bill to exempt student loan fund debtors from interest or penalty payments. This would leave the fund with insufficient money to help future students, meaning it would again become dependent on national budget, it said.
Waiving interest penalties would create a moral hazard as well as being unfair to those who serviced their debt, it added.
The House of Representatives in September passed a bill to waive interest on student loan repayments and exempt late payers from penalty interest.
The fund currently charges annual interest of 1% and penalty interest of 7.5%.
Reviewing the bill, the Senate retained the penalty interest exemption but reinstated the 1% interest rate.
The NESDC proposed several alternative solutions, including calculating instalments based on each ex-student’s monthly income rather than the fixed 15-year ladder of 1%-13%.
