BY DUNCAN GABI
Papua New Guinea as a third world developing nation’s social or economic issues are no different to first world developed nations like the United States of America (USA). This literature review reviews the literature written on the student debt problem in America, where most of the studies and researches were conducted. It also does a comparative analysis of the student loan debt problem in America, and attempts to predict the dilemmas of newly introduced HELP Student Loan Scheme by the Papua New Guinea government. It will analyze how the loan will affect borrowers in terms of the repayment of the loans and its impact on the borrowers and the guarantors.
HIGHER EDUCATION: DISINVESTMENT IN HIGHER EDUCATION AND THE INCREASING TUITION FEES
Higher education is an integral part of a nation’s dream (Johnson et al., 2012a). It is also essential to building a stable and rewarding career and achieving economic security in any country. There is a need for post-secondary credential or degree to compete in the modern economy; however, it has also become a luxury that only few are able to afford (Boggs, 2019 and Johnson et al., 2012b). The rapid increase in the tuition fees in the past decades have been attributed to Disinvestment in Higher Education; the government’s inability and failure in financing higher education institutions. Investing in institutions has helped colleges keep tuition affordable (Johnson et al., 2012c). The PNG government with DHERST are to blame for the hike in tuition fees as they have failed to invest in higher education institutions. For example, in 2018, the fees for the health programs in Divine Word University (DWU) were increased from (a) MBBS from K9,000 to K15,000, (b) Health Extension from K9,000 to K15,000, (c) Rehabilitation Sciences from K9,000 to K12,000. DWU in the press release stated, that the rational for the hike in fees was because of “The current economic climate has been challenging for the university. The government’s inability to meet its commitment on both the operational grant and TESAS funding has negatively impacted the university”. (DWU, 2018). The government recognizing its failure agreed with the increase in tuition fees even though they knew it would affect the students and parents badly.
Higher education was affordable in the past decades, it has now however, become unaffordable for many; middle-income students are faced with more troubles in paying university fees than the students coming from first class working families (Houle, 2014). Wanting to achieve the dream, many students do not want to miss out on the privileges of higher education; therefore are now opting to student loans to finance their post-secondary education.
The Government’s failure in investing in higher education has led to increased tuition fees in higher education institutions, the government now looks to ‘easing the school fee burdens from parents’ by providing student loans.
THE HELP LOAN SCHOLARSHIP SCHEME: STUDENT LOAN AND DEBT ACQUISITION
With the Government’s failure in the investment in higher education leading to increased tuition fees in higher education institutions, the government now looks to ‘easing the school fee burdens from parents’. This saw the government going from providing financial aid grants like TESAS to providing student loans. Students and parents alike have welcomed the HELP Loan Scholarship Scheme, which has seen many students applying for the HELP loan.
The newly introduced HELP is a studentship award administered by the DHERST to provide financial assistance on behalf of the Government of Papua New Guinea to its’ eligible students of tertiary education programs. HELP is an income-contingent loan and is therefore repayable once students graduate and commence a paid employment (DHESRT, 2020a). Like the federal student loans in the US, HELP Loan is a pay and you earn loan meaning students will have to repay the loans once they have secured a formal employment and have met the threshold. According to DHERST, the Student loans are often necessary to make it possible for a young person to fulfill their university or college dreams, especially those from middle-income and low-income families. (DHERST 2020b). The loan program was rolled out to assist as many students as possible to gain entry to universities or colleges (DHERST 2020c, (Dynarski, 2014).). The objective is to see an increase in enrolment and to relieve the heavy up-front debt burden on students and their families to cover the increasing costs of higher education. (DHERST, 2020c). The HELP loan is a good affordable loan with zero interest rate and a longer window of repayment.
However, judging from the tuition fees of institutions in PNG, and the amount most students are likely to borrow, calculating that with the duration of study, students when they finish from university will have acquired almost K30-K40, 000.00 in total student debt tied to their degrees.
STUDENT DEBT AND REPAYMENT, AND ITS TOLL ON BORROWERS
Regardless of which kind of loan students take out (federal or private), all student borrowers face the challenge of repaying their loans (Johnson et al., 2012d). In an income-based repayment, system payments are a fixed percentage of income (Dynarski, 2014b). This meaning borrowers will repay their debt according to their income. But before we talk about income, let us look at employment opportunities and job availability for graduates. Studies conducted have underlined the existing issue of high unemployment rate in the country of study, United States of America (US). Papua New Guinea like US has the same problem. Employment opportunities for university graduates in PNG is at an all-time low (Weingarten, 2015b). There are risks especially high in the current economy, where young adults with postsecondary education struggling to find high-wage jobs and full-time employment (Godofsky, Zukin, and Van Horn 2011). PNG has been facing serious economic problems in the recent years and the problem is likely to get worse forecasting the economic health of the nation, which will affect employment rates negatively. Concerns that have risen are that many students may be taking on too much debt while in school. Growing levels of debt, coupled with rising labor market uncertainty, make it increasingly likely that some students are unable to repay their debts. PNG’s economy is small compared to the US but the fact that US is facing employment problem is something for our government to think about and provide realistic solutions instead of Band-Aid solutions that are likely to create more problems.
The economic impacts on borrowers in the long run will be that borrowers who keep up with their student loan payments will be unable to save for the future and are also forced to delay major economic decisions such as buying a car or home. It alsoundermines their own economic security and places a serious obstacle in the way of a struggling economic recovery as they will focus on repaying the loans and less focus will be placed on starting their own lives or contributing to the economic growth of the country (Johnson et al., 2012., Ivanchev 2014).
“I could have retired a couple years ago,” he says, “but with these loans, I can’t afford to stop.” (The Parent Loan Trap, 2012)
STUDENT LOAN DEBT TRAP: ON THE BACKS OF GUARANTORS (FAMILIES)
Galen Walter, a pharmacist, has put three sons through college. All told, the family racked up roughly $150,000 in loans. … Mr. Walter is 65. His wife is already collecting Social Security. “I could have retired a couple years ago,” he says, “but with these loans, I can’t afford to stop.”(The Parent Loan Trap, 2012).The Marape Government made it clear in the Department of Higher Education, Research, Science, and Technology (DHERST) press release that one HELP Loan’s objective is to ease the heavy laden tuition fee burden from the parents. The government however will not achieve this objective. In the circumstance that the borrower becomes a defaulter, meaning the borrower fails to repay the loan, the loan repayment falls back on the guarantors, who in this case are the parents. The easing of the school fee burden from the parents is temporary, the parents will have to carry the yoke that is the school fee burden again and repay the loans which by now have accumulated to K30-40,000, depending on how much has been borrowed by their children to pay for school fees during the duration of study at university.
Caught in heavy debt, parents will look for means to repay the loans. Working middle class parent may take out loans from financial institutions to repay the student debt their child acquired, this will trap them in the debt, where they take one loan to repay another. The parents who are not employed will have it hard. Though they may be lucky because of the longer window of repayment. It is my fear that the government and DHERST may make changes in policies in regards to loan repayment. While the loan is in its first phase, we can only make predictions that the government might add a low interest rate, or at time when the country is in recession or facing economic crisis, the government might recall the loans. It is uncertain, but from the way the Government and DHERST have conducted themselves in the rolling out of the Loan programs and the press releases, I have seen changes being made to the loan in every press release, I therefore believe the government and DHERST may still make changes along the way. At the time when the government is forced to recall the loans, the parents will be the ones that will be hit hard.
The HELP Loan is a good affordable student loan for students who are unable to afford tuition fees. It is interest free with a longer window of repayment and is easy to repay. However, there is a fear that the Papua New Guinea might one day face the student loan debt problem that is currently affecting America. The government needs to come up with strategic solutions to solve some of the problems that lead to student loan debt that have been identified in the body of this literature review.
Overall, I do not like the loan program; it is my strongest belief that it is not healthy for students to start a life after graduation with high debt tied to their university degrees. Marape said “You have the rest of your life to pay for it”, in other words, it is a lifetime debt trap. Student loans did not work for Americans, and it is killing the borrowers and their families, democrats are calling on US President elect Joe Biden to cancel student debts. What makes Marape think he can make it work in this struggling economy?
Boggs, B.G. (2019). U.S. Student Loans and Debt Levels Set Record: What’s a Legislature to Do? National Conference of State Legislatures (NCSL).
Dynarski, S. (2014). An Economist’s Perspective on Student Loans in the United States. Is there supposed to be a URL link for this?
Houle, J,N. (2014). Disparities in Debt: Parents’ Socioeconomic Resources and Young Adult Student Loan Debt. Sociology of Education, Vol. 87, No. 1 (JANUARY 2014), pp. 53-69. American Sociological Association
Ivanchev, Y. (2014). Student loan debt: a deeper look. Is there supposed to be a URL link for this?
Johnson, A, Ostern, T, V., and White, A. (2012). The Student Debt Crisis. Center for American Progress
Weingarten, R., Johnson, L., and Lawrence, F. (2013). On the Backs of Students and Families: Disinvestment in Higher Education and the Student Loan Debt Crisis. American Federation of Teachers
Department of Higher Education, Research, Science, and Technology press release, (2020). HELP Studentships: What Are the Benefits? DHERST. https://web.dherst.gov.pg/help
Department of Higher Education, Research, Science, and Technology press release, (2020). Press Release No. 01/2020. DHERST. https://web.dherst.gov.pg/help
Department of Higher Education, Research, Science, and Technology press release, (2020). HELP Student User Guide. DHERST. https://web.dherst.gov.pg/help
Divine Word University press release, (2018). Fee Increase for 2018 Academic Year for the Madang Campus. Divine Word University. https://intranet.dwu.ac.pg/index.php?option=com_attachments&task=download&id=1654
Abrahamson, M. (2012). The Parent Loan Trap. Chronicle of Higher Education. https://www.chronicle.com/article/the-parent-loan-trap/
Godofsky, J., Zukin, C., and Horn, C,V. (2011). Unfulfilled Expectations: Recent College Graduates Struggle in a Troubled Economy. Edward J. Bloustein School of Planning and Public Policy, Rutgers University.