Everyone knows that higher education finance in Malaysia has been stumbling from one crisis to another for decades.
My own research showed that 44% of private universities were technically insolvent, 64% in some form of debt distress and 84% in some form of financial stress.
My research also showed that 60% of loans from the PTPTN Education Loan Scheme went to private universities and more than 40% of that was spent on corporate debt, dividends to owners, fat-cat salaries to vice-chancellors and expensive marketing campaigns. Quality teaching and academic salaries deteriorated as a result.
Now, PTPTN loans have ballooned to almost RM67 billion and the unsustainable debt identified by PTPTN itself in 2019 has reached such serious proportions that compulsory repayments through the tax system are now on the agenda.
This is essentially a graduate tax and is a good idea. Those with high incomes pay the loan through taxes and those on low incomes are exempted until they earn more.
The burden is not the tax payment but the loan itself and so the question is – why have expensive and unsustainable loans in the first place when you can pay for higher education through equitable and efficient government funding and taxes?
It is simply not true that fully funded higher education is unaffordable. To abolish loans and make undergraduate degrees essentially free at the point of study would cost only RM1.7 billion. If diplomas were included it would be RM2.3 billion.
This could be easily covered in the existing budget or by the RM2 billion subsidy given by the government to PTPTN each year. So, no taxes are necessary.
Alternatively abolishing loans and having a 1-3% tax on new graduates who received their degree for free would be sufficient to cover the cost of new admissions.
The RM2-3 billion cost would be self-sustaining and grow over time with the graduate tax paying for new intakes first and eventually financing the whole system.
To maintain equity, those who have paid their loans would be exempt from the graduate tax. Those with outstanding loans can pay the debt or can choose to repay through taxes until their loan is cleared.
The graduate tax would apply to people who received their degrees for free as a way for them to repay as their income allows without incurring a huge loan.
The outstanding debt of RM67 billion should be taken away from PTPTN and placed into the Debt Management Office in the ministry of finance where it can be recovered through repayments with generous discounts, collected through income contingent taxes or monetised.
Most importantly this scheme has no loans, no debt burden on students and parents, no accumulating debt and losses at PTPTN, no multi-billion contingent liability for the government and no risk of sovereign debt default bringing down the entire financial system.
PTPTN would continue its core mission of supporting higher education and helping people save for their future studies but would be relieved of its debt collection burden.
Private universities should jump at this proposal. Enrolment in fee-paying private higher education fell 23%, or 153,000 fewer students, since 2017. Low-fee public universities have 57,000, or 10.6%, more students now than in 2017.
In the meantime, the crisis in private higher education finance is worse with as many as 15 universities involved in fire-sales or sell-offs in the last two years alone.
Price competition has forced down fee income and profitability, and this in turn has affected the stability and quality in many universities.
These problems will persist until Malaysia has a more sustainable higher education funding process. Abolishing loans must be at the heart of that new system.
The views expressed are those of the writer and do not necessarily reflect those of FMT.