The Student Loan Fund had enough cash to sustain the disbursement of loans to prospective University of Guyana (UG) students for the 2014/2015 academic year even though its annual allocation was caught in opposition budget cuts but its real problem is the whopping $7.3B in receivables
As has been stated by A Partnership for National Unity (APNU) financial spokesman Carl Greenidge, government has been adding around $450 million to the fund since it was created in 1994.
In 1994 the fund was started with $500 million. The following year there was no allocation, and the reason is not clear. Allocations resumed in 1996 when $400 million was paid over. The same amount was allocated in 1997 and in the two years that followed (1998 and 1999) the amounts allocated were $350 million respectively.
Government gave $535 million to the fund in 2000, and the next year (2001) the single largest allocation, $790 million, was made. In 2004 the amount went down to $350 million and the next two years (2005 and 2006) saw the fund receiving allocations of $450 million on both occasions.
The amount spiked again in 2007 when government put $740 million into the fund, and from 2008 to 2012 government paid $450 million over to the fund annually.
To date, total disbursals amount to something in the vicinity of $8 billion, Greenidge has said. He is arguing that students should have begun to repay their loans by now and that the fund should be able to withstand the disbursement of loans this year even if government did not make this year’s $450 million allocation as was intended.
The question of the amounts in the Fund arose after this year’s allocation became collateral damage when the combined opposition slashed $37.4 billion for the 2014 budget. In the wake of the budget cuts many feared that students seeking to enter the UG this year would be unable to do so as there was a perception that there would be no loans available.
This fear was heightened by members of government, including President Donald Ramotar.
There was even talk of cutting staff and programmes at the university to help cope with the lack of funds.
However, financial papers tabled in the National Assembly on Thursday revealed that government, despite the cut, has already used the Contingency Fund to allocate $225 million to the Student Loan Fund. It is unclear when/if the remaining sums will be restored.
While efforts to officially ascertain the Fund’s current balance were unsuccessful, sources have informed Stabroek News that its total assets amount to around $8.6 billion. However, around $7.3 billion of the amount are receivables, which means that only about $1.3 billion is actually in the fund.
The staggeringly high receivables point in the direction of poor collection on loans from students who have up to 15 years to repay a year after graduation.
According to the official, some of this money in the fund, around $12 million, will be used to facilitate the payment of salaries to the staff of the Student Loan Agency at UG.
As such, the official conceded that the money can indeed be taken out of the fund, although he said doing this is unethical and would defeat the purpose of the fund which is meant to be taking in money as fast as it disburses loans. When students get their loans approved the government pays the money over to UG, which in turn uses the funds to purchase materials, pay utility bills, make salary payments etc.
A student is expected to commence repayment of the loan a year after graduating from the university. It is assumed that graduates would have gotten jobs by this time and would therefore be able to make the monthly installments. Students, particularly those who studied a social science, typically have fifteen years to pay back the loan plus the interest, which is relatively low.
It has now been twenty years since government started allocating money to the fund and so only the students who graduated in the first five years of the Fund’s existence are expected to have made full repayments.
The source, however, says that a very large number of these borrowers are delinquent.
Many are still in Guyana and are either not up-to-date with payments, or are not paying at all. There are also persons who have migrated and are not making payments. Some of these persons stopped making payments after migrating, while others migrated before making a single payment.
These factors are responsible for the mammoth receivables figure. It should also be noted that receivables remain this high ($7.3 billion) although some of the outstanding loans are written off every year.
It is against these realities that Greenidge suggested that the Fund, despite this year’s allocation can be used to disburse loans. But the official warns that such an action, if continued, can do further damage to the Fund. He said that if such practices are allowed, and continued, it will affect the Fund’s ability to sustain future loan payments to prospective students.