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Sri Mulyani proposes student loan program modeled on US system

Jakarta Globe - January 30, 2024

Alfida Rizky Febrianna, Jakarta – Finance Minister Sri Mulyani is planning to introduce a student loan program funded by the Indonesia Endowment Fund for Education (LPDP), modeled after a similar program in the United States.

The plan is a response to the controversy surrounding the online loan system implemented by the Bandung Institute of Technology (ITB) in collaboration with the peer-to-peer lending company Inclusive Finance Group (Danacita) for tuition fee payments.

"To students who still need loan assistance, we are currently discussing with the LPDP Supervisory Board, requesting LPDP to develop a student loan program," she said during a press conference in Jakarta on Tuesday.

According to Sri Mulyani, the student loan program will adopt the concept of the program implemented in the United States. In this model, students can take out loans for tuition fees, with repayments to be made after graduation and securing employment.

"However, we are also cautious. In advanced countries like the United States, this has been done and has caused long-term issues," she concluded.

The government has already entered discussions with banks to minimize the risk of payment defaults.

"We will formulate how the affordability of the loan can be, so it does not burden students but also prevents moral hazards. We want to provide relief, especially to those who cannot afford it," she said.

Sri Mulyani said the student loans would be sourced from the LPDP. The present budget allocation for LPDP scholarships has reached Rp 139 trillion ($8.94 billion), a significant rise compared to the initial endowment of just Rp 1 trillion when LPDP was initially established in 2013.

"Looking at the endowment fund, various avenues can be established, including endowments for research, endowments for universities, endowments for Islamic boarding schools, and others," she added.

On Monday, hundreds of ITB students gathered in front of the rectorate building to protest the implementation of a single tuition fee (UKT) for financially challenged students, facilitated through Danacita's online loan scheme. Out of 137 students, 93 still have outstanding tuition payments.

"Today's action is a response to ITB students who are at risk of not being able to attend lectures or taking leave. The rectorate itself proposed that students pay the tuition fee through an online loan scheme," said Yogi Syahputra, the Chairman of the ITB Student Family (KM).

The Financial Services Authority (OJK) has declared the interest rates imposed by Danacita for ITB students align with its regulations. Danacita establishes an annual interest rate of 24 percent, or 0.065 percent per day, below the maximum interest rate of 0.1 percent per day set by the OJK.

"The key point here is that, when it comes to financing tuition fees, the decision to use peer-to-peer lending facilities is up to each student," Mahendra Siregar, Chairman of the OJK Board of Commissioners, said on Tuesday.

The surge in online loans, particularly among millennials and Gen Zs, has raised national concerns as an increasing number of young individuals grapple with mounting debts. Around 1.23 million individuals from this age group are facing non-performing loans for 30-90 days, with outstanding amounts totaling Rp 2.27 trillion. The number of non-performing loans exceeding 90 days (TWP 90) is at 331,000 users, with outstanding loans amounting to Rp 675.14 billion as of September 2023.

Source: https://jakartaglobe.id/news/sri-mulyani-proposes-student-loan-program-modeled-on-us-syste