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Published on January 10, 2008

The Student Loans Fund (SLF) has been struggling for some time to bring the number of late-paying borrowers and loan defaulters under control. In the latest development, the SLF, in cooperation with the Criminal Court, has offered almost 90,000 defaulters a last chance to avoid prosecution if they agree to come forward to restructure their debts or repay them in full. These 90,000 defaulters have not made any repayments when they became due over the past five years. But this is just the tip of the iceberg. There have been too many late-paying borrowers, who, at one point, made up about half of the total number of all debtors.

According to the SLF - which has provided more than two million students with loans averaging Bt80,000 each since it was established in 2002 - most of the late payers and defaulters said they found it difficult to repay on time, if at all, because they had been unemployed.

As a revolving fund, the SLF is designed to operate on a self-sustaining basis, but it has failed to do so because of the apparent lack of financial discipline on the part of the borrowers. In order to keep the Fund going, as well as to expand access to loans to more students, the government has been forced to inject new funds to cover uncollected debts. About 800,000 students are expected to apply for loans in the upcoming academic year, including 350,000 new applicants.

Depending on the situations that individual debtors find themselves in, many of the late payers and defaulters may deserve some leniency in the form of a grace period, easier repayment terms or debt restructuring. However, total debt forgiveness must be considered and permitted only in cases of extraordinary circumstances and in cases of hardship that affect the borrowers' ability to repay to avoid moral hazard. But some of the defaulters have made the lame excuse of claiming they mistook the loans they had signed up for as grants or scholarships that required no repayment. These irresponsible people should be prosecuted unless they agree to discharge their obligation and start to repay immediately.

Under the student loans programme, students are required to start repaying the debt two years after graduation or after they complete their studies. The student loans, which are part of the government's effort to ensure equal access to education beyond the compulsory level, carry a concessional interest rate of one per cent per year, with a maximum repayment period of 15 years.

A penalty fine of 18 per cent per year will be imposed on late payers, while those who repeatedly fail to respond to notices seeking payment will be prosecuted.

The SLF said the defaulters' combined debts were about Bt4 billion and if legal proceedings were initiated against them, it would cost the Fund about Bt400 million to collect the debts - not to mention the legal fees on the part of the defaulters.

Many students apparently underestimated the legal consequences of failure to honour the loan agreement by repaying on time. They should be told straight away that failure to repay their loans reflects badly on their character and will seriously affect their employment prospects in today's fiercely competitive job market.

Following the carefree student years, many of them are in for a rude awakening to the realities of life. One of the first valuable lessons in adulthood is: always repay your debts.

But the SLF must also tighten the rules and requirements imposed on prospective borrowers, to make sure that loan applicants are aware of the job market situation, particularly employment opportunities in the fields of study that they seek to pursue. In this regard, the SLF must work closely with schools, universities and educational institutes to emphasise the importance of making career guidance available to students.

Some of the common mistakes that many students tend to make include their preference for studying social sciences at university level, when many of them should be considering vocational studies that promise a greater number of available jobs and therefore greater career opportunities. Better career guidance for students taking out loans mean greater employment prospects, improvement in loan repayment and less waste of resources.