Lapses in Management of Student Loans

Mdm Speaker, the Ministry of Education (MOE) is committed to ensuring that no Singaporean is denied an education because of financial reasons. Therefore, for tertiary education, we have provided bursary schemes for students who need additional financial help and a further layer of student loans comprising two schemes. First, a tuition fee loan which covers up to 90% of the tuition fees at the undergraduate level. Second, a means-tested study loan to cover the remaining fees payable and a modest amount for living expenses. Access to these loans is deliberately made easy to help as many students as possible.

So, this was never meant to be a commercial operation, but part of our policy to help students with their education and it also serves a social objective. The loans are interest-free during the period of study. For the tuition fee loan, the repayment of principal and interest can commence one year after graduation for diploma students, and two years after graduation for university students. In addition, we have set the monthly minimum repayment at $100 per loan, with a maximum repayment period of 10 years for diploma students and 20 years for university students.

These loan repayment terms represent an intended subsidy from the Government. They are made flexible to give students time to settle down in their careers and to lessen their financial burden immediately upon graduation. As students earn more over time, they may then adjust the monthly repayment upwards to pay off their loans as quickly as possible.

Notwithstanding, we expect students to be responsible in repaying their loans. For borrowers who are late in making their loan repayments, there are established processes in place for the banks to follow up with them. The banks will first send reminder letters and make follow-up phone calls. If the delay becomes severe, Letters of Demand may then be sent to the borrower, and the guarantor for the loan alerted, and legal processes can start.

The Auditor-General's Office (AGO) has made certain observations on the operation of the student loan schemes. MOE will take action to resolve them. There is an observation on the review of agency fees payable to the banks. The review really should not have taken so long. We are already in talks with the institutions and banks and will get the review done as soon as possible.

We will also need to enforce the processes to manage loan recovery more promptly. As the Member pointed out, while doing so, there will be cases where we need to exercise some flexibility, especially when the borrowers require more time or face temporary difficulties in repaying their loans on time. This is in line with the spirit and policy intent of the student loan schemes.

The main reasons today for appeals received by MOE from such borrowers are: (a) they were pursuing further studies and did not have income to pay off the loans; (b) they are still unemployed or seeking employment; and (c) medical or family reasons, such as the borrower or his family members falling seriously ill. MOE assesses each of these appeals individually, taking into account their unique circumstances. Many have been granted temporary deferment of payments.

The students who were offered deferment do repay their loans over time. Today, of the total loan amount outstanding, 1.4% is in default and deemed unrecoverable. This is not a high default rate for student loans internationally. It is about 40% in the United Kingdom and 10%-20% in the United States. And write-off of loans is considered only as a last resort when the banks have exhausted all means and all efforts to recover them.

MOE intends to continue to exercise sensitivity, judgement and compassion in dealing with these cases, to help our students.

Mdm Speaker, I thank the Acting Minister for the reply. AGO has advised MOE to incentivise the banks to ensure more expedient loan recoveries. I would like to hear from the Acting Minister how he would balance this so-called instruction with the need to be sensitive to cases where there is genuine hardship.

As AGO pointed out ‒ and we are appreciative of AGO pointing it out ‒ today, the fee is based on a percentage of the total loan amount outstanding. I think that should be reviewed and we are already doing so. There are various ways to tweak the formula and we will need to strike a balance. But more importantly, if need be, we will have to articulate the social objective and the purpose of student loans more clearly, so as to facilitate future auditors' work in this area.