Dear Editor,
On May 14, 2024, the Ministry of Finance announced a debt-forgiveness initiative that would see about $11 billion in loans taken by some 13,000 students who attended the University of Guyana (UG) being written off. Clearly euphoric that another PPP/C manifesto promise had been ticked off, the Ministry’s release disclosed that the initiative was the first step to making university education completely free by 2025.
Interestingly, the release did not say how many steps it would take for fees to be abolished at the university. What was indicated, however, was that the debt-forgiveness came with conditions attached, particularly the payment of at least 156 contributions to the National Insurance Scheme (NIS). A few days later, at his weekly press conference, the Vice President announced that this criterion was not mandatory. Soon, thereafter, there appeared on the Ministry of Finance’s website, an additional set of conditions for past UG graduates living in Guyana and overseas. That such confusion prevails is indicative of the absence of planning and consultation.
No Green or White Paper was developed and made publicly available for inputs from stakeholders; no brainstorming sessions were held; and no feedback mechanism was developed to guide the process. Small wonder the state of confusion that characterised the rollout of the programme.
The Government appeared ecstatic at their accomplishment. No mention was made of the fact that the right to free education from nursery to university is enshrined in the Constitution. No mention was made of the fact that this right was afforded by the then PNC Government and enjoyed by students who attended UG between 1976 and 1994. And, of course, no mention was made of the fact that it was the PPP/C Government, a mere 2 years after coming to office, in October 1992, that re-introduced fee paying at the university, at the princely sum of US$1000, equivalent to $127,000.
The irony of this is that fee paying at UG was first introduced, circa 1963, under a PPP Government, led by Cheddi Jagan, an avowed communist, who is credited with establishing UG; and was re-introduced under a PPP/C Government, again led by Cheddi Jagan, in 1994. This attempt to whitewash the history of free university education in Guyana is analogous to the colonials capturing a free people in Africa, enslaving them for 250+ years, then returning their freedom with a smug sense of benevolence and gratitude.
But facts are stubborn, and history can be unkind to those who seek to embellish or airbrush. It was on Labour Day, May 1, 1976, that the announcement was made of free education, from nursery to university, effective from September 1976. Prior to that, tuition at UG was $100 per year. Although in today’s dollars, it may not amount to much, in 1976, it was a substantial sum. Access to higher education was restricted to those who could have afforded to pay. For many persons, university education was a distant dream.
As was to be expected, the sudden announcement of free education had a tremendous impact on UG’s student intake. The UG administration was unprepared to deal with the huge increase in demand for higher education, a dilemma that would continue to bedevil the university in its quest to deliver quality education. I foresee the same thing happening now, unless UG is given a massive injection of funds to cope with the projected increased demand for its services. Given the budgetary allocations to UG over the past 4 years, one is not sanguine that the necessary resources would be forthcoming.
The write-off of student loans, while commendable and beneficial to the students, has several implications. Obviously, there is a fiscal effect. There is a loss of revenue to the Treasury. The release cites a sum of $11 billion, but this is clearly inaccurate. While this sum might represent the amount outstanding, a large part would be bad debts arising from students not making payments. In effect, the Treasury’s loss is equivalent to the sum currently received from students. The Government has not said how this loss in actual revenue (as opposed to potential revenue) would be made up: new taxes, transfers from the Natural Resource Fund (NRF); cut in expenditure.
Then there is the moral effect. The debt forgiveness initiative also brings into sharp focus, the concept of moral hazard, that is the engagement in risky behaviour by one party (delinquent student) knowing that the other party (Government) will bear the economic consequences of their behaviour. Clearly, the write-off of the student loans will have an asymmetrical effect since it will reward those who have not repaid their debt, in part or whole, and penalise those who have either repaid their debt or are currently making payments. The Government must be careful about the signal it is sending and the future implications for the formation of public and private contracts.
The Ministry of Finance’s release claimed that after 2015, the APNU+AFC Government had proposed to introduce travel bonds with the intention of barring students with outstanding loans from travelling. I take this opportunity to respond to this. The Coalition Government undertook a series of forensic audits, one of which was conducted on the operations of the Student Loan Agency, for the period December 2011 to May 2015. Among the findings of the Report, which was compiled by R. Seebaran & Co. and submitted in September 2015, were the following:
i. Between September 1994 and December 2014, a total of 25,335 students had been granted loans valuing $9.1 billion.
ii. Between September 1994 and May 2015, the Government had approved $9.1 billion.
iii. Of the 25,335 students who received loans, 17,561 or 69.4 percent were delinquent.
iv. The principal sum outstanding at December 31, 2014, was $8.2 billion, while installments due, including interest was $5.4 billion.
v. Total repayments over the life of the Scheme (up to May 2015) was $1.4 billion.
vi. Only 1,776 students or 7 percent had repaid their loans in full, valuing $680 million.
Perhaps, the most startling finding was that 5 persons had had their loans written off. The PPP/C Government must tell the nation who were these persons, and why were their loans written off when they had the ability to pay but neglected to do so. Importantly, how could these 5 persons benefit when the Government had never announced that such a policy existed, if at all, and the criteria for accessing the student debt write off? Compare this secret write off with the transparent policy of the Coalition Government which, in 2016, made a Jubilee Offer to graduates, as follows:
i. A reduction of 75 percent of the accumulated arrears interest if defaulters paid outstanding sums by August 31, 2016.
ii. A reduction of 50 percent of the accumulated arrears interest if defaulters brought their accounts up to date by September 30, 2016.
iii. Graduates could apply to have their student loan balances written off, after serving for 5 years in a Region in which they were not resident.
The Jubilee Offer was highly successful.
When the Student Loan Agency (SLA) was hurriedly established in 1994, it was housed in cramped conditions, in a little hut on UG’s Turkeyen campus. The few staff was overwhelmed but laboured mightily to meet the demands of the students, many of whom were forced to brave the elements in their quest for financing for their education. All of this changed, on the assumption of the Coalition Government to office. A spot was secured on the campus and a modern office was built and commissioned in July 2016.
Cabinet established a Sub-Committee to examine the forensic report and make recommendations. Several improvements were made to the operations and business processes of the SLA. Among these were:
i. Engaging a systems analyst to develop and implement a new, effective and proficient student loan management and record keeping system
ii. Development and implementation of an organisational structure, where none existed previously.
iii. Advertising, interviewing, hiring and contracting of critical staff, including Director, Deputy Director and Accountant. Though emoluments and conditions of service were greatly improved, they were apparently insufficient to attract an in-house attorney-at-law to deal with the large number of incidences of delinquency.
iv. The provision of structured repayment plans; increasing the number of financial institutions (commercial banks) and methods of payment (salary deductions, Standing Orders, Mobile Money, Bill Express, Sure Pay).
v. Brought the SLA under the Credit Reporting System.
The Student Loan Scheme was meant to be a revolving fund. If repayments are not made, the Scheme would soon be exhausted, clearly to the detriment of current and future students. Indeed, because of the extremely high delinquency rate, the Government was forced to transfer funds to the Scheme annually, from 1994 to 2017. This 23-year period was more than the time projected for the Scheme to revolve. In an interview I gave on July 29, 2016, I stated, “In putting in these measures, we do not want to make life hard for any student, but we will be irresponsible and derelict in our duty as a government if we allow hard-earned taxpayers’ moneys to be frittered away in high delinquency rates and low recovery ratios.”
Consideration was given to debarring graduates from leaving the country unless satisfactory provision was made to settle their debts. This action would have been consistent with what already exists in Section 71 of the Income Tax Act and Section 45 of the Value Added Tax Act, and targets persons attempting to leave the country without honouring their tax obligations. In the event, such action was never pursued since it was not approved by the full Cabinet. I challenge the government to provide free, quality education at all levels, now that the country has the means to do so.
Sincerely,
Winston Jordan
Former Minister of Finance
