Indonesian Media in Brief: Jokowi calls for Indonesian banks to provide student loans

Posted on March 23, 2018 By Ella Nugraha

President Joko Widodo. Credit: ANTARA FOTO/Wahyu Putro A

President Joko Widodo has given Indonesian banks ‘homework’ to come up with an education credit scheme in the form of student loans to help prospective students pay for higher education. While some have welcomed the idea, others have expressed concerns, particularly regarding the possibility of students not being able to repay loans even after they have secured work. The Financial Services Authority (OJK) will work with Bank Indonesia to review the proposal this year.

Kompas – Jokowi calls for banks to provide student loans similar to USA

  • President Joko Widodo has asked banks to issue a new financial product in the form of student loans. This way, loans given to the public are not solely for consumptive goods such as vehicles and property.
  • “I would like to give you all ‘homework’ to provide student loans”, said Jokowi in a meeting with the heads of banks at the State Palace in Jakarta.
  • Jokowi states his surprise that Indonesian banks do not provide education loans. He gives an example on how banks in countries like the United States provided more education loans compared to total credit card loans. According to Jokowi, total credit card loans in the US reached US$800 billion, while the total credit loan for education reaches US$1.3 trillion.
  • According to Jokowi, student loans can potentially shift consumptive behavior to a more productive behavior “and provide added value to intellectuality, our basic vision for the future which is education,” he said.
  • Jokowi asked banking industries to seize the opportunities for innovation. “We must take these innovative potentials seriously. If we don’t (innovate), others will take advantage of it. That is for sure,” he said.

Tirto.id – Jokowi’s student loan: A problem or solution?

  • Jokowi’s idea is not without its risks. In the US, student loans have indebted university graduates, many of whom were unable to pay them off.
  • On February 16, The Wall Street Journal quoted a study from the Brookings Institute that discovered the majority of graduates since 2010 have failed to pay off their debts within four years.
  • President of the Federal Reserve Board of Governors Jerome Powell stated student loans can contribute to the slow rate of economic growth.
  • Minister of Research, Technology and Higher Education M. Nasir acknowledges these risks. He reflected on a similar scheme in 1985 where many students did not repay the loan. He said, “Their diplomas were withheld, but they didn’t need it. All they needed were certified copies.” However, he said the government will discuss with banks to find a solution to this problem.

Student Loan: Problem or Solution?

  • Education observer Jimmy Ph of Universitas Negeri Jakarta is questioning Jokowi’s rationale that suggests students who want to enter university are those from middle-class backgrounds who have access to banking services and able to apply for a loan.
  • According to Jimmy, students do not necessarily get a high-paying job after graduation. He said fresh graduates make between Rp3-5 million per month, and very rarely make over Rp10 million per month. Even the salary of non-permanent staff is only between Rp350-900 thousand per month. It will be difficult for them to repay the loan.
  • Jimmy said Act No. 12 of 2012 on Higher Education mentioned central and local governments, as well as universities are obliged to meet the rights of economically disadvantaged students. This is stipulated in Article 76 paragraph (1). While in paragraph (2) the fulfillment of student rights as regulated in Article 76 paragraph (1) is done by providing scholarships for outstanding students, free of tuition fees, as well as an interest-free loan that must be paid after graduation or have obtained a job.
  • Meanwhile, Muhammad Abduhzen of Universitas Paramadina Jakarta welcomes Jokowi’s idea, suggesting that it can prevent students from dropping out. He said, “75 percent of those who do not continue to higher education is due to costs, which is also true for students who drop out.”
  • With regards to the possibility of students unable to repay the loan, Abduhzen said that this is a risk banks should calculate.
  • He said that Jokowi’s idea does not imply the government is neglecting its responsibility to education, as 20 per cent of state budget remains to be allocated for education. Instead, student loans are a form of civil participation.

Tempo – OJK will review student loans this year

  • Chairman of the Board of Commissioners of Financial Services Authority (OJK) Wimboh Santoso said he would review the provisions of education loans or student loan as requested by President Jokowi. “We will evaluate soon, this year,” said Wimboh.
  • Education loans, Wimboh said, have actually long existed in Indonesia. “It has existed for a long time but we can offer it again so that people have the opportunity to pursue higher education, so that later they can be more professional and support the production of goods,” he said.
  • Wimboh said, so far there is no specific loan for education, however there is the option of a loan without collateral (KTA) which can be used for anything, including education. What distinguishes educational loans and KTAs is the payment method. “KTA can be paid it every month, whereas the student loan will have the option to pay every month, later if a student receives a scholarship, or once they work,” he said.