Tuition Fees Are Expensive, "Student Loans" Are Reviewed So They Are Not Burdensome

Income-based loan schemes are considered lighter for students and reduce the potential for default.

KOMPAS/MACHRADIN WAHYUDI RITONGA

A number of students from the Bandung Institute of Technology demonstrated in front of the ITB rectorate office on Sulanjana Street in Bandung, West Java on Monday (29/1/2024). They demanded ease in paying the single tuition fee without involving high-interest online loans.

JAKARTA, KOMPAS — The government is working on an education loan scheme or student loan to address the issue of high tuition fees. The loan scheme is still being studied in depth so as not to trap students in a long-term debt trap. Loans need to be adjusted to the student's income level and economic capabilities after graduation.

So far, there are two loan scheme options that have emerged. First, mortgage-based loans or long-term credit with mortgage rights. This scheme resembles student loans in the United States and Canada. In this system, the payment tenor is determined from the start. This type of loan is usually more burdensome with a greater potential for default.

Also read: Behind the high cost of UKT, higher education is not yet a priority in the APBN

Second, an income-based loan system or Income Contingent-Loan (ICL). In this scheme, installment payments are adjusted to the student's income level after graduation. Students only start paying loans once their income reaches a certain level. The smaller the salary, the smaller the installments covered, and vice versa.

These two options were studied in a study by The SMERU Institute entitled "Financing Higher Education in Indonesia: Assessing the Feasibility of an Income-Contingent Loan System". On January 29 2024, when the issue of the high cost of single tuition (UKT) emerged and sparked student protests in various regions, Ministry of Finance invited the SMERU Institute to consult.

KOMPAS/NIKSON SINAGA

Students of the University of North Sumatra held a dialogue with the Vice Rectors of USU while protesting against the increase of single tuition fees by 30-50 percent at the Office of the Rector's Bureau of USU in Medan on Wednesday (8/5/2024).

Senior Researcher at The SMERU Institute, Asri Yusrina, Friday (24/5/2024), said that according to the results of his institution's study, the option proposed to the Ministry of Finance at that time was an income-based loan system or ICL. The technical implementation can be through funding from the State Revenue and Expenditure Budget (APBN) or collaborating with third parties, such as state-owned banks (Himbara).

"Indeed, the alternative is that funding for higher education must be supported by the state through the APBN. People who want to continue their education at university can take out light loans and not from loans (online loans). "This scheme is also being discussed at the Ministry of Finance," said Asri when contacted.

Different from the mortgage scheme, the income-based loan or ICL scheme is considered more flexible and less burdensome for students after graduation. Countries that have implemented the ICL system include Australia, Sweden, England and Germany.

Indeed, the alternative is that funding for higher education must be 'supported' by the state through the APBN.

ICL has a lighter and more flexible installment payment burden, which reduces the potential for default. Lower-middle class students can continue their higher education without worrying about future installment payment burdens. This is because the amount and tenure of payments can be adjusted to the income level of students after graduation.

Nevertheless, according to Asri, this scheme requires thorough preparation. The country must be able to detect and trace the lifelong income of borrowers (students) to determine the amount and tenor of installments. The ICL loan system requires strengthening of the tax administration system.

"The capacity of our tax office to implement this system still needs to be evaluated. This is because it will involve the tax office in debt collection given that loan payments are automatically deducted together with the borrower's Income Tax," said Asri.

Also read: Regarding the UKT Increase, What Actually Happened?

Never implemented

Educational loans for students are not a new commodity in Indonesia. Quoting a special report by the Institute of Economic and Social Research of the Faculty of Economics and Business at the University of Indonesia (LPEM FEB UI), in 1982, during the New Order government, similar loans were provided in the form of student credit in Indonesia.

This credit is disbursed to students through several banks, such as Bank Negara Indonesia (BNI) 46, Bank Rakyat Indonesia (BRI), and Bank Ekspor-Impor Indonesia. However, this policy was closed through Bank Indonesia Director's Decree Number 22/81/KEP/DIR/1990 on the Improvement of Credit System. The reason is due to bad debt and poor management.

The report underlines that there are several aspects that the government needs to pay attention to so that education loans do not lead to credit failure in the market while still providing facilities for the community. Similar to SMERU, a study by LPEM FEB UI also proposed an ICL loan scheme compared to mortgage-based loans to reduce the potential for bad credit.

The scheme is believed to work well considering the mandatory spending policy for education, which is set at 20 percent of the national budget each year. The education endowment fund within the national budget should still be sufficient to provide education loans.

"Graduates who are below the average standard will pay lower installment repayments with longer tenors, and may also receive loan forgiveness after a certain period of time," said LPEM FEB UI researcher Nauli A. Desdiani.

Senior Researcher at the Institute for Development of Economics and Finance (Indef), Tauhid Ahmad, said that another way to lighten the burden of loans for students is by applying low interest rates, unlike the conventional interest rates applied by banks and other financial institutions.

KOMPAS/MACHRADIN WAHYUDI RITONGA

A number of students from the Bandung Institute of Technology displayed several #InstitutButWithPinjol (Institute but with no online loan) slogans during a rally in front of the Institute's Rectorate Building on Sulanjana Street, Bandung City, West Java, on Monday (29/1/2024). They demanded the campus to remove the option for providing online loans that are considered to have high interest rates and add to the burden of students.

"If possible, the interest would be 0 percent because it would be covered in full by the government. From a fiscal perspective, we should still be able to do it. In addition, this further strengthens the evidence of the state's presence. "If it still comes with interest, let alone high interest, what's the difference with loans from private banks and loans?" said Tauhid.

Management of loan funds also does not need to go through Himbara, but can be handed over to a special unit at a higher education institution. "Just pass through campus. If you go through a bank it will definitely be very strict because the economic calculations will be strict. Meanwhile, if you go through campus, there are usually policy elements that can be more flexible. "Although of course we need to be careful so as not to cause moral hazard," he said.

Also read: New Students Can Request UKT Review

Previously, Finance Minister Sri Mulyani Indrawati stated that the government is currently conceptualizing an education loan system through the national budget. The scheme is being discussed together with the Supervisory Board of the Educational Fund Management Agency (LPDP) and the Ministry of Education, Culture, Research, and Technology. However, the overall design is still being refined to ensure that students do not fall into long-term debt traps.

"Later we will look at the affordability of the loan so that it does not burden students, but also prevents moral hazard and provides affirmation for disadvantaged groups," said Sri Mulyani, January 30 2024 Then.