Loan crisis and samfie education policy
Published:Sunday | October 14, 2012 | 12:00 AM
Martin Henry, Contributor
When the two morning dailies manage to deliver the same lead story on the same day, something big must be going on. 'Students' loan crisis,' The Gleaner announced on Thursday, October 4. 'Cash crunch hits SLB', the Observer reported more colourfully.
If you listen to the traditionally guarded civil-service pronouncements of the Students' Loan Bureau (SLB), including its publication of delinquents, you could easily come to believe that the failure of borrowers to pay back loans was the big problem faced by the agency.
Yes, delinquency is running at 30 per cent. But Executive Director Monica Brown admitted in a frank discussion of the crisis crunch with Parliament's Public Administration and Appropriations Committee (PAAC) that even with a 100 per cent compliance rate, the bureau would still be faced with "a crisis of its own viability", as PwC put the matter in its recent study of the SLB to which the PAAC was responding.
And even when you get past the "culture of entitlement" which makes some borrowers not wanting to pay back, Brown advised the PAAC that a study has shown that around 49 per cent of 2010 graduates at the time the study was undertaken had either not found a job or were underemployed. They can't pay!
basket to carry water
The SLB and the tertiary-level students it serves are the victims of a samfie education policy imposed upon them for political reasons by successive governments bent on providing education for the people without being able to pay the cost. And the educational institutions receiving the students are also victims of this unholy policy.
For this academic year, the bureau has committed $4.2 billion to be disbursed to 14,000 applicants. But six weeks into the academic year, it has been able to identify only $1.7 billion, 41 per cent of commitment. The Observer headlined, 'Loans bureau has $2.5-billion disbursement gap'. And The Gleaner puts it, 'Gov't-owned lending agency struggles to find funds to make disbursement.'
And who is holding the promissory note? Not the student borrower in the first instance. On the strength of the SLB's letter of commitment, tertiary institutions, certainly the public ones, allow admission and progression of students. The Government has mandated these institutions to provide education to the nation's youth. A fine political goal. And don't ask if the higher-education institutions are not going at it!
The SLB is reporting a 153 per cent jump in loan applications over a six-year period - up from 6,600 in 2007 to the 16,676 this year. Just between last year and now, there has been a 23.5 per cent increase from 13,500 to 16,676. And we must bear in mind that there is a stringent means test. The children of the working poor with professional jobs but lower-class incomes are widely excluded.
The spike in loan applications is influenced by rising tuition costs and declining economic circumstances for many families. But importantly also, the spike is driven by expansion of the tertiary sector, an expansion taking place under samfie financing arrangements.
Institutions holding promissory notes from the SLB, in lieu of live cash, and with growing student numbers, are facing a serious cash flow problem. The University of Technology (UTech), for example, has grown from around 7,000 to some 13,000 students over the same five-year period, nearly doubling. At the same time, direct government subvention to tertiary institutions is at best stagnant, or is declining, in real terms. In UTech's case, entire schools have been transferred to the university without adequate subvention following. Nonetheless, these public tertiary institutions are to carry on, doing more with less.
These well-behaved suffering institutions, wrapped in their academic dignity, are quietly bearing their cross. They have, so far, refused to place the burden imposed upon them by the samfie education policy of Government in the court of public opinion. Subventions pay salaries, so there are no staff strikes. But the quality of education for more is bound to be affected.
Students don't curse the Government promising them an education moon on a silver platter. They don't march to the finance and education ministries. Their anger is turned upon the education institution and upon the SLB which have been set up.
Where is the SLB to get the money to lend? The agency is not a regular bank - and cannot be. Set up as a revolving loan fund in 1970, it cannot revolve without an actuarially sound capital base. The SLB has never had such a base. PwC, in its report, states diplomatically that the crunch crisis facing the 42-year-old agency "will require key policy decisions that can only be addressed by the Government of Jamaica, in consultation with its various stakeholders." ED Brown, finding her voice at crunch time, told the parliamentary committee: "What we really need is a clear policy direction as to where we are going with the funding of tertiary education and SLB's role."
The current policy is quite clear - and quite pretentious and quite wicked: Qualified students who want to gain access must, almost as a right,
The actuaries are in. PwC is projecting a growth in demand for student loans to $34.5 billion by 2016-2017, just three years away from this academic year, and up to just under $88 billion by 2020.
And should the secondary level begin to qualify more than about 10 per cent of its graduating cohort for tertiary education each year, that is, with five CSEC subjects, including English and math, these demand projections are bound to shoot upwards.
Let me quite categorically state, at some personal peril, that I am strongly in favour of shifting resources to the primary and secondary levels to drive improved performance. But this should be accompanied by better loan support being made available to students at the tertiary level.
The Student Revolving Loan Fund can only revolve if it acquires a large enough capital base which allows it to absorb its non-banking practices. SLB borrowers enjoy a moratorium on loan repayment for the years of their course of study. Interest rates are politically, not market, determined.
MIXING POLITICS WITH ECONOMICS
So the minister of finance in the Budget presentation announces, to the wild thumping of desks and a shouts of "Hear! Hear!" Mr Speaker', Government is proud to announce, that, with immediate effect, interest rates on student loans will move downwards from X to Y per cent as this administration honours its campaign commitment to provide more educational opportunities to our young people." By political decree, the SLB interest rate has been slashed earlier this year from 12 to 9 per cent, with further cuts promised. Average bank interest rate for August, according to Bank of Jamaica data, stands at 17.55 per cent.
The Caribbean Development Bank has told Government that the SLB's current loan model cannot sustain the growing demand for student loans without significant increases in capital.
Because of government delinquency (I will say it for you, Ms Brown), the SLB cannot now find a mere $2.5 billion to honour current commitments. PwC is estimating the need for an injection of approximately $26 billion over the five-year period up to 2016-2017, and a cumulative total of $64 billion by 2020. Taken one year at a time, as the Government should have been doing since 1970, these are not exorbitant, or unaffordable, amounts.
Or, the current Government, headed by a prime minister who can frankly tell the country "the plain truth" that "the Government has little money to do anything" and with a reverend minister of education, should honestly let the people know that the Government cannot assist everyone who would ordinarily qualify for a student loan under current rules. Rules which are already eliminating many needy applicants.
The plain - and painful-- truth is that tertiary institutions would be economically better off by reducing their student numbers, upping fees, and limiting their intake to a clientele that can pay without SLB loans. But some of the allegedly brightest people in the country who run these institutions have allowed themselves to be duped by a grand political three-card trick into carrying the patriotic duty of expanding access to tertiary education, while maintaining quality, without money.
In many of these institutions, student fees have overtaken government subvention as the main means of income. Strictly speaking, these institutions can no longer be regarded as state-financed institutions. They are businesses. They must collect or perish. Business is business.
The case of the SLB and the financing of tertiary education is far from being the only case of a samfie government giving a 6 for a 9 in the political mathematics of deception. The last administration, having recklessly removed cost-sharing fees at the secondary level as its first policy act in office and first election promise kept, never made the necessary compensatory allocation in subvention. The schools should simply carry on, squeezing blood out of stone.
To add insult to injury, governments, across the political parties, have insisted that no child whose parents are unable to pay any auxiliary fees charged by her school should be turned away. Inability determined how, and by whom? Or is it refusal?
But the Government itself is not about to make compensatory payment on behalf of that child. Nonetheless, the schools are to press on and use whatever they can collect to supplement meagre subventions and deliver quality education.
Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com and medhen@gmail.com.