Income Contigent Loan (ICL)

Income Contingent loan is a form of loan proposed for public higher education fund that departs from more conventional mortgage type loan. It is argued as more efficient because govt ends up collecting more than otherwise while it is less burdensome for graduates.

This post aims to show just how efficient is Income contingent loan model for tertiary education purpose. It uses the Mara overseas loan program below as an example.

Basically MARA offers 85% discount on their overseas loan. As a cited above , an overseas medical student will get RM850,000 paid for by general taxation. This is equivalent to average annual cost of 42 students in govt tertiary institutions. In fact, you probably can educate 3-4 extra doctors in govt institutions in Malaysia with that same RM850,000.

I understand why the discount is there. If wasn't for that discount, it wld be burdensome for these students to pay off that loan within stipulated 35 years. We don't want to burden this student especially in early stage of her career. We want her to up-skill herself and become a medical specialist therefore adding more value to the society. Drowning her in debt esp in early stage of her career is not going to do the trick

Hence an income contingent loan whereby u maximize loan collection without burdening fresh graduates.

Here is an example(right). So basically if your annual assessable income hits above RM36,000 , then you have to start paying for your higher education loan. The repayment rate starts at 4% & increase as your income increases. That means if you reported RM36,0001 of assessable income, you have to pay 4% of that income for your loan. This is equal to RM120 per month.  If you making more than RM76,001, than your monthly repayment wld be RM506. This assessable income threshold will be adjusted at an appropriate inflation rate.

So imagine the aforementioned medical graduate earlier earning an average RM200,000 in the last 10 years of her career. That would entail collection of RM160,000 just for that last 10 years alone. Note that MARA only aims to collect RM150,000 for the entire 35 years of her career.
So clearly evident that we able to collect more via this scheme without burdening her.

The point is we don't want to burden her with repayment of higher education debt in the early stage of her career. We want her to up-skill herself. This would move her up the income tax bracket. Its not in our interest as a society to stifle her career progression especially when we as a society paid RM850k for her to have a medical degree.

On the flip-side, she could be an high flying medical specialist one day. Perhaps making millions. So its unfair for other Malaysians to give her an outright RM850k discount in the beginning 

There is few caveats in order for ICL to truly work :

•  Administered via a single fund under MoHE(Education Assist Fund) 
•  Entirely funded from govt's consolidated fund(instead of borrowing from private banks).
•  Implement robust fee cap for IPTS
•  Rpayment collection is done by Tax Office(Important!).  

Other few suggestions in regards to public higher education

• Increase student co-contribution amount from 11% currently to 25% so that we can expand IPTA from 50% to 75% in next 10 years. 
• Put a stop to PFI schemes in building new higher education facilities.
• Education Assist Fund is demand based. it is automatic to anyone who secure a seat in IPTA/IPTS. Guaranteed up to degree level. 

lastly I must emphasize I actually disagree with using public funds(whether its a ICL loan or out right grant/scholarship) in sending students abroad especially for first degree. If one wants to experience UK, Australia etc as a student, one should opt to do it on their own dime especially at a masters degree level which is shorter thus more affordable.