Half of student loans in default

Deputy Finance Minister Tanusak Lek-uthai recently stated the level of student loan defaults had reached an unprecedented 50 percent of loans outstanding as at the end of July this year.

It appears the rate of default has been steadily climbing from a low of 28 percent on previous years, which is a sad indictment on a scheme only introduced in 1996.

Student loans were introduced 17 years ago during the Chuan Leekpai government with the aim of widening educational opportunities for low and middle income families. Since then between 800,000 and 900,000 students have been able to secure loans.

Unfortunately, the failure of so many students to repay their loans on time has had a knock-on effect for future student loans. The Deputy Finance Minister stated the budget for student loans has been cut to 23 billion baht, about a 20 percent reduction. This will mean a maximum of 35,000 new borrowers will be able to access student loans for 2013.

At the end of July the total outstanding for student loans due to be repaid was 50 billion baht, but only 25 billion baht was remitted by the deadline.

Naturally, the government is hoping to find a way of recovering a percentage of the loans outstanding and one of the ways it intends to do this is by shortening the period that defaulters are on the credit bureau blacklist to three years after graduation.

In the past, the time limit was five years after graduation to pay back the loan debt in full.

The government has announced that students who are granted loans from 2014 onwards will have to sign a consent form which will note they can be added to the default blacklist if they fail to repay their loans in the time frame stipulated.

Anyone who is added to the credit default blacklist will not qualify for loans from the majority of financial institutions. Credit bureaus generally keep a record of default borrowers for three years or more.

Of course the problem for many students with loans is that upon graduation they are not able to find employment in the disciplines for which they have studied. Many take up poorer paying positions than they might have expected and fall behind on their debts. Since many of them are also trying to send money back to their families as well, the burdens become onerous and they default.

On the other side of the coin, there are those who simply have no concept of budget management and are not concerned about repaying a debt, despite the impact it may have on future loan applicants.