Study now, pay never

The Free Higher Education Law (RA 10931) established a Student Loan Program for Filipino students enrolled in higher education institutions. Under this law, the UniFAST Board was mandated to develop an income-driven student loan program with a repayment system that begins once the beneficiary secures gainful employment. 

The repayment will be made by deducting a portion of the loan from the employee’s monthly SSS or GSIS contribution, based on a reasonable repayment schedule and interest rates.

The UniFAST Board must establish loan repayment guidelines for beneficiaries whose income is not covered by the GSIS or SSS programs, including overseas Filipino workers, emigrants and self-employed individuals.

The provisions of RA 10931 effectively replaced earlier “study now, pay later” programs, such as those established by Presidential Decree No. 92, also known as the Education Assistance Act of 1976.

This provision of RA 10931 has not been implemented.

As expected, the EDCOM II found fault with the UniFAST by trumpeting in its report that “most responsibilities of UniFAST under RA 10931 are still unimplemented 10 years later.”

The Philippine version of the “study now, pay later” program was likely based on similar income-driven loan programs in developed countries. Unfortunately, it appears we did not replicate their models effectively.

There is a “study now, pay later” program in Canada, run by provinces called the Canada Student Loan program, that allows students to finance their education upfront and start repaying after graduation.

There is a similar income-driven student loan program in the US that helps students pursue their education. The program has experienced rising delinquency and default rates, along with systemic failures in loan servicing and policy. The total student loan debt is now estimated at $1.814 trillion. 

I heard about the Study Now, Pay Later program when I was an undergraduate student at UP. Some of my friends borrowed and repaid their loans to finish their studies using this program.

But for the list of successful students who borrowed and repaid, the list of those who borrowed but never repaid is longer.

I realized this when I was appointed CHED chairman in 2018 and, to my horror, the COA auditor reported that CHED was unable to collect delinquent loans from scholars dating back to the 1990s.

The repayment rate was less than 10 percent. In short, the administrative cost of running the program may actually be higher than the money repaid to the government.

In essence, the “Study Now, Pay Later” concept is similar to the “Buy Now, Pay Later” financing system used by consumers to purchase clothing, appliances and cellular phones. It is an appealing, flexible financing concept, but as credit card owners know, those who can’t keep up with payments can end up with late charges or interest they can’t afford.

It can be a debt trap for the wrong shopper, and a similar pitfall for students – and often with much higher stakes.

Is a “Study Now, Pay Later” program feasible in the Philippines?

The data indicate that the answer is likely no. There are several reasons why repayment rates are extremely low.

First, the loan becomes due once you find a job. Unfortunately, the waiting period for a first job is still long due to weak job market conditions. Underemployment remains high. Many graduates often end up in low-paying jobs, leaving them with little or no disposable income to cover their obligations.

Students who cannot pay their loans on time are then burdened with penalties, making it difficult to settle their accounts. 

We should mirror Canadian and US policies on interest reduction and loan forgiveness. The Canadian government has eliminated interest on federal education loans to reduce the burden on students. US president Joe Biden implemented a $188.8-billion student loan forgiveness program for 5.3 million borrowers.

Second, since the underground economy of the Philippines is estimated to comprise 40 percent of the GDP and employs a large part of the workforce, many graduates are beyond the reach of GSIS and SSS for salary deductions related to their loan obligations.

Third, CHED cannot manage a national student loan program because it is not a financial institution. Its primary expertise lies in education, and its staff are stretched thin across the country. It is currently busy with the Free Higher Education program for three million students and 900,000 TES and TDP beneficiaries. 

The authors of RA 10931 were wrong in giving the mandate to CHED-UniFAST. They should have assigned the responsibility to government financial institutions like the Land Bank and the DBP.

Fourth, studies show that short-term student loan programs have higher repayment rates compared to income-driven loan programs. Short-term student loan recipients tend to repay their loans because they need their diplomas and transcripts of records. Once students receive their academic credentials, it becomes difficult to collect loan repayments. 

Finally, a “Study Now, Pay Later” program doesn’t work because we lack a culture of repaying obligations. Many Filipinos see government programs as dole-outs.

The ongoing flood control investigations have worsened the situation. While the EDCOM advocates for an income-based student loan program, trillions of pesos from TUPAD, AICS, AKAP and MAIP are distributed to individuals chosen by politicians. If 4Ps families receive cash grants because they are poor, can we really expect a student who took out a student loan to pay it back?