Student Loan Fund recalculates debt repayment to reduce 100 billion baht bad debts

With a staggering 100 billion baht (US$2.8 billion) in bad debts, the Student Loan Fund (SLF) is set to see a decline in its debt pile following the implementation of a new debt repayment calculation method, according to SLF manager, Chainarong Kajchapanan. This change is a result of the recent amendment of the Student Loan Fund Act (No.2) 2023, which came into effect last year on March 20.

Previously, repayments made by debtors after a default were primarily directed towards offsetting default charges, followed by overdue interest and principal payments. This system often resulted in minimal payments towards the principal debt. The new calculation method, however, prioritises loan principal repayments, followed by overdue interest and default charges.

This significant shift in payment structure is further augmented by changes in the interest rate and default charge. The interest rate has been altered from a fixed 1% per year to a fluctuating rate capped at 1% annually. Simultaneously, the default charge has seen a drastic reduction from 7.5% to 0.5%, reported Bangkok Post.

Chainarong believes that these recalculations will substantially lessen the debt burden on borrowers, thus encouraging more repayments.

“With these recalculations, the debt burden for borrowers who have been making repayments will significantly decrease, which incentivises borrowers to make more repayments.”

The SLF’s bad debt has been steadily increasing, reaching 100 billion baht since its inception, in contrast to 60 billion baht (US$1.68 billion) in 2017. Chainarong attributes this rise partially to SLF’s low interest rate of 1%, which falls below the deposit rate of commercial banks. Consequently, debtors are inclined to prioritise debts with higher interest rates before repaying SLF.

Despite the current situation, SLF continues to provide approximately 40 billion baht (US$1.12 billion) in loans annually to students from low-income families, some of which inevitably become bad debt. Currently, the fund has outstanding loans totalling 480 billion baht from 3.5 million borrowers.

The SLF was established following a cabinet resolution on March 28, 1995. Initially a revolving fund in accordance with the Currency Reserve Act 1948, it was later granted legal entity status under the Ministry of Finance following the promulgation of the Student Loan Fund Act 1998. Its main objective remains to provide loans to students from low-income families, enabling them to pursue a university education.

In related news, approximately 60 Thai nursing and public health students requested government action on delayed student loan disbursements, threatening their education.