Introduction
In recent years, education debt has emerged as a pressing issue in Malaysia, capturing the attention of policymakers and the general public. The rising cost of higher education, coupled with stagnant wages and a competitive job market, has led to an increasing number of students and graduates struggling under the weight of student loans. This situation not only affects borrowers but also has broader implications for the economy and society simultaneously. This article explores the challenges posed by education debt in Malaysia and suggests potential pathways to alleviate the burden on future generations.
Why Education Debt Matters?
Education debt is more than just a personal financial burden; it has broader implications for social mobility and economic equality. Higher education is often seen as a pathway to better employment opportunities and higher earnings. However, when the cost of education outweighs the benefits, it can instead create a cycle of debt that is difficult to escape.
For many students, especially those from lower-income backgrounds, the decision to take on debt is not a choice but a necessity. Around 55% of graduates from B40 households rely on PTPTN loans, hoping that their degree will secure a job that pays well enough that not only covers their debt but also provides financial stability for a decent standard of living. Unfortunately, this ideal outcome is not guaranteed. While graduates with tertiary education qualification generally earn higher incomes (RM3,890) compared to their peers with only primary (RM1,493) or secondary (RM1,873) education, the tertiary wage premium for graduates has been sluggish in recent years where it has decreased by between 7 to 10.5% during the 1995-2019 period. This stagnation in wage structure in Malaysia created a gap between earnings and the rising cost of loan repayments, causing significant financial strain on young graduates.
This burden of education debt extends beyond individual finances, as it affects long-term social mobility. Students from wealthier families are more likely to afford higher education without taking on significant debt, giving them a head start in building wealth and achieving financial independence. By contrast, students from lower-income households may spend years, if not decades, repaying education loans, and thus limiting their ability to save, invest, or improve their economic standing. This disparity can perpetuate income inequality and hinder opportunities for upward mobility, further entrenching socio-economic divides.
Conclusion and policy implications
While we fully agree that repaying education loans is a matter of moral responsibility, it is equally crucial to look beyond individual accountability. We must address the root causes of the education debt crisis by examining the broader landscape of graduate labour market outcomes. The mismatch between educational qualifications and the realities of the job market—such as stagnant wages and underemployment—must be factored into policy discussions. Several targeted policy interventions are crucial to alleviate this burden and ensure a sustainable higher education financing system.
i. Promote Education Savings: While various education savings options exist across various institutions in Malaysia, Skim Simpanan Pendidikan Nasional (SSPN) stands out for its affordability and offers decent protection measures for depositors. Designed by PTPTN, SSPN offers a secure and structured platform for families to accumulate funds specifically allocated for educational purposes.
ii. Strengthen Financial Literacy Programs: Enhancing financial literacy is essential to equip students and families with the knowledge needed to make informed decisions about education financing.
iii. Revise Loan Repayment Structures: The government can consider reintroducing the income contingent loan (ICL) with a better version, particularly by looking further into the borrowers’ income threshold.
iv. Encourage Alternative Education Pathways: It is equally important to expose students to educational pathways that offer better returns for their future, rather than relying on incomplete or biased information.
