Bad debt related to student loans hits 100 billion baht
The Student Loan Fund (SLF) is facing debt of more than 100 billion baht, up from 90 billion baht in 2022. The increase is due to several factors, including the economic downturn, the rising cost of living, and the difficulty of finding a job after graduation.
The SLF is a government programme that provides loans to students who cannot afford to pay for their education. The loans are typically repaid over 15 years.
The increase in debt is a major concern for the government. The SLF is not only a major financial burden but also a source of stress for many students and their families.
The government is working to address the problem. Last year, a new law was passed making it easier for students to repay their loans by allowing them to delay repayment for up to two years after graduation. It also provides for more flexible repayment options.
Chainarong Katchapanan, manager of the Student Loan Fund (SLF), said the calculation method for new debts has been adjusted to comply with the government's amendment to the Student Loan Fund Act (2023), Previously, when borrowers defaulted on payments and subsequently began repaying, the money was first used to settle the overdue fines. Next, it was allocated to clear the outstanding interest, and finally, the principal amount was deducted. This resulted in a significant reduction in the principal only when borrowers with overdue payments repaid their debts.
Under the new law, when repayments are made, the money will be deducted from the principal first, followed by clearing the overdue interest and, lastly, settling the fines.
Additionally, the new law reduced the interest rate. The original law set the interest rate at 1% per year, while the new law stipulates it must not exceed 1% per year, allowing for a rate lower than 1%. In addition, while the old law imposed a 7.5% penalty for late repayment, the new rules only impose a 0.5% penalty
These changes in debt calculation will require borrowers to repay their overdue debts more quickly, as the debt burden will decrease faster than before. Currently, the SLF has accumulated outstanding debts of approximately 100 billion baht since its establishment. This debt figure is nearly double that in 2017, when outstanding debts were around 60 billion baht.
One reason for the significant increase in bad debts is the SLF's low interest rate of 1%. Commercial bank deposit interest rates are higher than the interest on SLF loans and thus many borrowers choose to repay other debts, such as home loans, credit card debts, or car instalments with higher interest rates before repaying the SLF.
Despite its debt, the SLF continues to provide loans to students in need of financial assistance for education, releasing approximately 40 billion baht in loans annually. A portion of these new loans eventually turns into bad debts, contributing to the current outstanding credit of the SLF, which stands at 480 billion baht, owed by 3.5 million borrowers.
The government hopes that the new law will help to reduce the amount of debt and improve the repayment rate, Chainarong said.
