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Indebted Generation, Part 3

From Student Debt to Individual Educational Accounts

How can we reduce the reliance on student debt? We argue for a significant shift towards a funding approach grounded in continual education.

By Ooi Kok Hin, Khairil Ahmad and Nelleita Omar22 November 2021

Baca Versi BM

In Part 1 of this research series, we outlined the quandary of student debt in Malaysia. As public universities were being corporatised and private universities expanding, student loans were introduced to finance higher education costs thereby rapidly increasing the number of graduates. Since the establishment of Malaysia’s primary student loan institution PTPTN in 1997, RM62.5 billion in student loans have been issued to 3.5 million borrowers. These quantums would be tolerable if it was accompanied by broadly positive returns to higher education; however, upward social mobility has not been evenly realised.

In Part 2, we advocated three bold policies to address issues related to current outstanding student debt: targeted partial debt cancellation, income-based repayment, and greater oversight on the workings and financing of PTPTN. Segmenting existing borrowers by their capacity to repay is a key pillar of these recommendations.

In this third instalment, we propose  ideas for reforming the way Malaysians finance their higher education. A crucial part of this discussion is to recognise the changing face of higher education itself which is diversifying from traditional degrees. Another key part of reform is the required changes in institutional structures, or how to organise education financing anew. The final part of our reform ideas is providing fairer education financing measures for households in need rather than broadly relying on student loans.

In previous articles, we noted media reports of young Malaysians getting stuck in low-waged jobs after having accumulated significant student debt to fund their higher education. This is consistent with a survey we conducted from August to September 2021. A third of respondents said their education was not worth the student debt incurred. 59% said student loans contributed to financial stress while 57% said the loans contributed to a delay in purchasing a home. 77% of respondents either somewhat agree or strongly agree that youth should not need to get into debt to attain higher education, and an even bigger majority, 82%, said the poor should not have to do so.

The burden of student loans received some attention in Budget 2022 where discounts for student loan repayments were announced. While it is a positive sign that the government is paying attention to student loan issues, the discounts offered are mainly for borrowers with the means to make large loan settlements or for borrowers that can afford scheduled deductions – in short, benefiting higher income borrowers rather than the less privileged. The discounts – which is a repeat of a past Budget announcement – are a reflection of longstanding policy thinking on student loans and higher education that is ripe for real change.

From traditional degrees to TVET and microcredentials

A key consideration in our recommendations is the increasing shift away from degree programs. In America and the UK, students and parents are now questioning the traditional college or university education and whether the cost of attending is worth it anymore. The COVID-19 pandemic may have only accelerated this trend, leading to a dramatic decline in enrolment recently.

Malaysia will gradually reach the same conclusion. COVID-19 aggravated, but did not cause, the long-running trend of graduate unemployment and graduate low pay. Graduate unemployment rose 22.5% last year to 202,400 in 2020 from 165,200 in 2019 and appears to be on an upward trend in at least the last four years; graduate unemployment stood at 162,000 in 2018, up from 154,900 in 2017. It also affects Bumiputera graduates who face a high rate of unemployment.

On top of the graduate unemployment rate, fresh graduates are earning wages as low as RM1,000-1,500 a month. Compare these outcomes to the time and financial commitments of a degree program which typically takes at least four years to complete. A diploma program is not much shorter, taking about 24-36 months to complete and longer still if done on a part-time basis.

Given these trade-offs, policymakers should reconsider Malaysia’s decades-old narrative favouring traditional academic degrees. The pursuit of knowledge via a degree is a commendable goal in itself, but are traditional degrees the right choice for all school leavers? As developed countries have learned or are learning, the answer is no. Many school leavers could be better off – and save substantially – by enrolling in technical training, ‘learning on the job’ apprenticeships, lifelong short-term courses or some combination of all these.

Apart from financial considerations, the shift away from degrees is also driven by the changing face of work. School leavers today can opt to build up their portfolio for freelance work rather than enrol in college to burnish their resumes for full-time jobs.

Malaysian educational policy observers have long envied the importance of Technical and Vocational Education & Training (TVET) in countries like Sweden and Germany, where the TVET system trains for a wide range of occupational fields and livelihoods. The employment rate for those with vocational degrees in these countries are nearly as high as bachelor’s degree holders.

Employability for TVET graduates is also high in Malaysia, reaching 98% employability in the past few years, which is a clearly better performance than their degree-holding counterparts. Last year, TVET Division director Azman Adnan of the Ministry of Higher Education said that vocational colleges are the country’s largest provider of skilled workers and that TVET is a solution to the skills mismatch and unemployment issues.

TVET is cheaper, shorter, and closer to industry needs. And yet, the policy focus and resource allocation on TVET has yet to catch up to levels received by the traditional degree system.

There is some improvement. In the 12th Malaysia Plan, the government plans to strengthen TVET by upgrading the industry ecosystem, improving accreditation, creating a TVET institution rating system, and promoting a centralised platform showing data on job offerings. Under the 2021 Budget, the government had allocated RM60million for the Sistem Latihan Dual Nasional (SLDN), a competency-based, industry-oriented training scheme. The SLDN allowance was also increased from RM600 to RM1,000 to encourage more participants from B40 households to enroll. Reflecting the government’s growing priority, overall allocation for TVET has also grown from RM6 billion in the 2021 Budget to RM6.6 billion in the 2022 Budget.

But much more needs to be done. The 2019 Auditor General’s report found that government-funded TVET programs as a whole fell short of 11th Malaysia Plan targets, producing only half the number of projected graduates. Enrolment has been on a downward trend from 2016 to 2020, though COVID-19 was definitely a contributing factor since many TVET programs require face-to-face training.

The fragmentation of government-funded TVET across six ministries has been well documented and the need for better coordination has been acknowledged by both Pakatan Harapan and Perikatan Nasional governments. Beyond ‘coordination’ though, a major overhaul in governance, policy planning and quality assurance has yet to be implemented though the need for it has been raised multiple times, including by MP Nurul Izzah Anwar who served as chairperson of the TVET Empowerment Committee.

To accord as much importance to TVET as to traditional academic education requires a structural overhaul. In Singapore and Vietnam, a single entity oversees the respective countries’ TVET system. In the case of Vietnam, there is even a law specifically on vocational education, enabling the Vietnamese government to invest substantially on TVET as well as promoting private sector participation through incentives on land, taxation, credit, and training of educators.

Despite having a much smaller population and only eight TVET institutions, Singapore has over 113,000 TVET student enrollment, a figure comparable to the total enrolment in Malaysia’s polytechnics and community colleges. This is consistent with a survey by KRI which found that less than 10% of youth in post-secondary education are enrolled in TVET polytechnics (excluding skills training centers).

Apart from TVET, we should also give more emphasis and resources to short-term reskilling and upskilling courses including so-called microcredentials. Compared to traditional degrees and TVET certificates, microcredentials are shorter, more flexible with respect to attendance, and tend to be more narrowly focused on specific skills or topics. They can be offered online, in the classroom, or via a hybrid of both.

In Malaysia, the policy narrative around skills development and microcredentials has been mainly targeted towards working adults and funding is tied to the promoting agency such as the Human Resources Development Fund (HRDF), the Employment Insurance Scheme under SOCSO, and the Malaysian Digital Economy Corporation (MDEC) amongst others. But as with TVET, the policy narrative for skills development and microcredentials should also extend to school leavers.

Not every school leaver is certain in what they want to study or what career they’d like to pursue. Microcredentials offer an opportunity to test things out before large time and financial commitments for further studies are made, if at all. And here, support means not only access to courses. Singapore’s SGUnited Skills program, for example, not only offers access to a wide range of subsidised short training courses for in-demand and emerging skills, it also offers career advisory support and monthly training allowance of SGD1,200 over the course duration to help cover basic living expenses.

In this section, we have argued for a policy shift away from favouring academic degree programs to more support and promotion of TVET and short skill development courses or microcredentials amongst school leavers. We maintain that student loan indebtedness amongst young people was driven in part by the decades-long assumption of status and positive returns from having a degree. This assumption needs to be re-examined, not only by policymakers but also by employers. Young jobseekers today are confronted with degree inflation, or the demand for bachelor’s degrees in jobs that don’t truly require one. A policy shift towards TVET and skills development would also need to be accompanied by efforts to update and re-educate employers on setting more relevant qualifying criteria.

From loans to direct subsidies for B40 students

Increasingly, the government is shifting from student loans towards encouraging early savings as a means to fund one’s higher education, which is a good step. However, the policy incentives to encourage savings will likely be taken up more by middle-to-higher income families who can set aside money for this purpose. What about households who can’t?

We need to move away from asking B40 families to rely on student loans and consider direct educational subsidies. Firstly, the burden of student debt appears to impact B40 borrowers disproportionately. PTPTN chairman, using PTPTN’s own records, wrote that 55% of all borrowers come from B40 households but that 97% of loan defaulters are from the B40 income group.

Secondly, as we outlined in Part 1, the government and taxpayers are already paying for a significant proportion of PTPTN borrowers’ education by paying the interest rate gap between PTPTN’s subsidised rate to their borrowers and the market rate PTPTN is charged by institutional lenders. It makes more sense to do away with this rather roundabout approach of subsidising a person’s education – replacing interest subsidies paid to financial institutions in favour of an outright tuition subsidy and cost of living stipend for B40 school leavers. It would also be beneficial for the loan administrator (i.e. PTPTN) as it provides some relief from managing a chunk of borrowers most likely to default on repayments.

How much will this cost? Our rough estimate puts the direct subsidy cost at 1.3-2 times more than the current regime of subsidising student loans and covering default rates, conservatively assuming that all the courses financed are for degree programs and with a relatively high ratio of IPTS students. The cost multiple for direct subsidies could be lower with a scheme that supports primarily IPTA students as well as a shift away from traditional degrees in favour of diplomas, TVET and microcredentials.

Gratuidad is an income-targeted free tuition program implemented in Chile. This policy was enacted after years of student protests against escalating fees and student debt. Gratuidad provides free tuition to students from the bottom 60% of households. The tuition subsidy is determined by a formula that divides institutions into categories according to the length of their accreditation term (a proxy for quality) and then sets the regulated tuition for each group and each study program.

Tuition fee subsidies and living cost stipends for B40 students need not come only from the government and taxpayers; corporations, private foundations and high net worth individuals could also be incentivised to contribute and supplement these direct subsidies. In the next section, we propose the final component of our education financing reform proposal to make education contributions simpler and part of the Malaysian social fabric.

From disconnected schemes to individual lifelong education accounts

Today, one could save for their education via SSPN-i; apply for a loan from PTPTN or PTPK; contribute to HRDF, EPF (Account 2), or EIS;  or track down different agencies’ offerings and take subsidised courses from for example MDEC, MARA, TEKUN and many others.

What if there was a better way to fund one’s post secondary education all the way to old age? One that accommodates early savings by parents as well as direct subsidies by the government and contributions or scholarships from future employers or benefactors? One that ties the funds to each Malaysian individually rather than with training agencies?

Tying together the two proposals above, we propose lifelong education accounts (LEA) for each Malaysian that are managed as an investment fund similar to the EPF. The accounts are only to be used for educational purposes, including cost of living stipends. The funds are automatically set up at birth, and each Malaysia-born child will receive RM100 credited to their LEA upon birth registration. Children born in B40 households could be credited with higher amounts depending on the level of household income.

This account will be the primary vehicle for voluntary savings schemes incentivised by the government for the child’s future educational expenses, combining features of ADAM50 and SSPN today. This account will also be the primary deposit vehicle for any future direct subsidies by the government to incentivise working age reskilling, much like Singapore’s SkillsFuture program. The account may also accept transfers from EPF Account 2 as well as deposits by government agencies, private foundations, benefactors, or future employers to support post-secondary education, be it loans or scholarships for degrees, diplomas, TVET, microcredentials, apprenticeships and other forms of learning or upskilling in future.

PTPTN could be best positioned to administer this fund given that they are already managing SSPN and are the entity in charge of promoting education savings. However, PTPTN has to be re-structured to improve its governance and expand its mandate. Appointment into PTPTN’s board should be as stringent as appointment into EPF’s board to ensure a qualified, competent and autonomous board. For greater streamlining, the Skills Development Fund Corporation (Perbadanan Tabung Pembangunan Kemahiran, or PTPK) and the Human Resources Development Fund (HRDF) could eventually be merged with PTPTN to create a focused superfund managing finances for lifelong education.

Thus far, the Malaysian government has introduced tax relief for employers (until 31 December 2021) who help pay off their employees’ student loans. If Malaysians had individual lifelong education accounts, such incentives could also be offered to individuals and companies that contribute into the account.


Paying for higher education is a substantial financial decision. To reduce inequalities, we first need to acknowledge that this decision is riskier for less privileged segments of the population. Our three-part series have demonstrated the mixed consequences of the current policy of relying on student loans to pay for higher education. While loans do increase access, it traps many graduates in debt – particularly those from the B40 households – with uncertain prospects of high wages.

With this backdrop in mind, we advocate for direct tuition subsidies and living cost stipends for B40 school leavers. We should also recognise that traditional degree programs, which tend to be lengthy and expensive, are not a surefire path to social mobility. An under-emphasised alternative is TVET, which should receive greater focus, support and promotion. Short skill development courses or microcredentials should also be encouraged, not only amongst working adults but also amongst school leavers.

To reduce dependency on student loans and to habituate Malaysians en masse towards educational savings and contributions, we also propose lifelong education accounts (LEA) automatically set up at birth for each Malaysian. This automatic enrolment account (opt-out rather than opt-in) will be the primary vehicle for voluntary savings schemes incentivised by the government, as well as any cash or voucher incentives for educational purposes.

To be clear, we are not questioning the worth of higher education. But we must reconsider how we define higher education and how we fund that learning. Moving forward, we ought to design policies to increase access to quality education (knowledge, skills, and technical training), especially those who have the least, without nudging them to incur burdensome debts.

The policy designs described here are by no means exhaustive, but they offer an example of how access to higher education can be made more future-oriented, far-sighted and less expensive. As Covid-19 disruptions bring a sense of urgency to address inequities, there appears to be a real policy window to advocate for better education policies, especially for those in low-income families. In our view, this is best served by rethinking the entire edifice of student loans and the narrative of the traditional university degree. We envision a future of diverse (and cheaper) educational pursuits, a culture of investing in continual learning, with greater assistance to those who need it most.

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