NOVEMBER 23 — The Government’s strategy on the reform of student loans through PTPTN is now finally becoming clearer. After much reflection, the emphasis is on improving the repayment rates from borrowers rather than reforming the system as a whole. As always, the weight of the problem will fall on the students.
The introduction of tiered repayments between 2-15 per cent based on income for those earning more than RM1,000 per month angered many people who argued that this is a breach of the Pakatan Harapan (PH) election manifesto to limit repayments only for those earning more than RM4,000 per month.
On reflection it may be too early to be so harsh and perhaps the new policy is better viewed as a sensible mechanism for the Government to stabilise the system and then raise the threshold from RM1,000 to RM4,000 before GE15.
The real disappointment in the PTPTN reform announced in the 2019 Budget is that it fails to address the substantial structural issues underlying the use of PTPTN funds, particularly in the private universities. Just fixing the repayments will not settle the PTPTN problem — we need to know how the universities are spending the billions in PTPTN funds that they receive each year.
Our research on private university finances, presented at a public lecture at Monash University on 27 November 2018 shows that billions of ringgit are transferred out of the private universities each year.
Based on audited financial accounts from Suruhanjaya Syarikat Malaysia (SSM) for 75 out of 96 private universities we estimate that in 2016 transfers out in the form of dividends, taxes, marketing and senior manager salaries amounted to around RM838 million. This is equivalent to 41 per cent of the PTPTN loans allocated to the institutions in our sample in that year.
From 2010-16, we estimate that at least RM4.7 billion has been transferred out of the private higher education institutions (HEIs) in our sample. This is an amount equivalent to 29 per cent of the PTPTN loans over the same period.
The biggest share of these transfers-out goes to pay the owners of the companies that run the private universities. Between 2010 and 2016, RM1.98 billion was transferred out of the private HEIs as dividends to owners. This is equivalent to 9 per cent of the PTPTN transferred into the system
Ironically this means that students are borrowing large amounts of money to pay shareholders rather than to pay for their own education. In 2016 the amount of dividends paid was enough to retire 21 per cent of the PTPTN debt allocated to students the private universities in our sample in that year.
Another drag on resources for the private universities is the Government itself. SSM data shows that RM781 million in taxes was paid between 2010 and 2016. In another irony, to save money PTPTN reduced the maximum loan for private students by 15 per cent in 2014 but this cost the Government RM90 million in lost taxes due to the negative impact on private HEI profits.
Despite falling profits and an increasingly unstable financial environment for private universities, their senior managers are very well paid. Over the period 2010-16 we estimate RM672 million was paid to vice-chancellors and chief executives across the under-performing private higher education sector. This is despite worsening profits and rising financial instability.
The intense competition for students among private universities leads to high spending on marketing, advertising and recruitment agents. Our conservative estimate is that RM204 million per year or RM1.43 billion between 2010 and 2016 has been spent on marketing.
This is enough to build one new private university per year or to fund the income of three average-sized private universities for the same period. Actually, anecdotal evidence suggests that as much as RM700-800 may be wasted in marketing, advertising and recruitment each year across the almost 100 private HEIs.
It goes without saying that all of this money lost to the system from dividends, taxes, marketing and salaries could be better spent on improving the financial stability of the universities and raising the quality of education for the students. It would also go some way to improving the pay and conditions of academics and staff.
The solutions must include a combination of effort from the Government and the private universities themselves. For the Government, solving the tax problem is a simple matter of giving tax relief, on specific terms, to private universities that show they are investing profits back into their stakeholders.
Cutting marketing expenditure requires a mature collaboration between private universities to create a new centralised system for recruitment of students. This would cut the need for intense head-on competition and the high, wasted costs that this creates. Sadly I fear that we will wait a long time for this to happen if left to the universities themselves — so the Government may have to lead on this as well.
Dealing with salaries requires that senior managers in private universities and their public counterparts for that matter, follow the example of listed companies and now even ministers in the Government and publish their pay and bonuses. This would help to ensure that they can be held to account by shareholders, students and staff alike.
Tackling dividends will prove trickier but since many private HEIs, or more precisely their senior managers, claim to have been established or to be run with a primarily eleemosynary objective, it may be time to hold them to that claim and require them to reinvest their profits for the benefit of their stakeholders.
* Professor Geoffrey Williams is a Professor at ELM Graduate School at HELP University. He was formerly Deputy Vice Chancellor of UNIRAZAK. The research in this article will be presented at a public lecture at Monash University Malaysia on November 27, 2018 and can be obtained from the author on request. The views expressed here are his own.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
