Hundreds of students camped outside the offices of the Students' Loan Bureau in this file photo.

The Student's Loan Bureau (SLB) was set up in 1970 out of the realisation that a number of qualified students were unable to access tertiary education because of their inability to pay for the desired areas of study.

Over the years, however, the SLB has been viewed by many as less than a friendly hand but more as a foe seeking to restrain the development of its beneficiaries. As such, many beneficiaries see the policies of the bureau as unfriendly, uncaring and unrealistic, as they do not represent the spirit of the original objectives of the SLB.

It is agreed that those who have accessed the student loan facilities should repay, as it is irresponsible not to honour such obligation. However, the outrageous 12 per cent annual add-on interest rate contravenes the potential for personal and professional growth and development of graduates, as it reduces the spending power of these new entrants to the labour market.

This is so because the SLB's add- on method of calculating interest actually means that each year or month that the loan is not repaid, beginning at the point at which the money is disbursed to the borrower's university/college, interest is being incurred. Each month the interest (one per cent ) is applied to the actual sum borrowed plus the interest of the previous months; this continues for the 10 years SLB allow for complete loan repayment. What this means is that a beneficiary may end up paying up to three times or more of the actual amount of money borrowed if the minimum monthly payments calcu-lated by the bureau is followed for the seven years post-university/college. This may be acceptable if purchasing a car or house. However, this is not supportive of the thrust to educate our Jamaicans to ensure that they are competitive globally.

STUDENT LOAN INTEREST RATE BY COUNTRY

Country, Interest, Rates United States, 5.6 per cent to 8.5 per cent
United Kingdom, Calculated annually based on inflation. (4.8 per cent in 2007)
Canada, 7.25 per cent
Jamaica, 12 per cent

(Information obtained from respective country data)

Furthermore, the six-month grace period granted to begin repayment is also unrealistic and does not take into account the harsh economic climate in which job hunters compete and/or function. The atmosphere of the Jamaican labour market is not conducive to accessing employment in less than a year after exiting university or college. It is not unusual for a graduate to be unemployed for over a year after the completion of tertiary education. The salaries also reflect the harsh realities.

BUDGET OF AN AVERAGE GRADUATE

Average salary after tax (with a first degree) - $63,000
Average rent = 20,000
Monthly bills = 10,000
Monthly food bill = 8,000
Hair grooming = 2,000
Lunch expenses = 6,000
Transportation (generous quotation) = 6,000
Sub-total =($52,000)
Balance = $11,000

(Average salary is based on calculations from the UWI Tracer Study 2009)

Notably, expenses such as grooming for work (shoes, clothes, and stockings/socks) and entertainment are not yet deducted. Also not deducted is the SLB monthly payment; which could be approximately $19,000 monthly (insurance plus principal plus interest) for the first six months for graduates generally; one could only imagine what it is like for the faculties of medical sciences and law. Thereafter, SLB monthly payment could be approximately $12,000 monthly for the remaining six to six and a half years.

Realistically, this does not leave the average salary earners the ability to afford a house or car, and thinking about having and maintaining a family next to impossible. This hinders the growth potential of young professionals as their spending power is severely hampered. The salary of most univer-sity graduates does not reflect their true economic worth. This also came out of the UWI tracer study 2009 showing that 39 per cent of their graduates were earning less than $900,000 per annum; while the economic worth of an individual with degree is no less than $1.5 million.

In the US, economic conditions are more friendly and student loan beneficiaries are given a grace period for loan repayment ranging from six to 12 months. Likewise in the United Kingdom where the economic climate is also friendly, there is no set grace period for loan repayment and completion. In actuality, student loan repayment begins when beneficiaries obtain a job which pays more than £15,000 (approximately J$1.95 million) per annum. Monthly loan repayment is then calculated using the PAYE system, with nine per cent of the graduates' gross salary over £15,000 automatically being deducted to repay the loan.

RECOMMENDATIONS

As such, the Jamaica Association of Young Professionals recommends that the SLB should:

"Reduce interest rate from 12 per cent to 10 per cent. A 10 per cent interest rate is a more realistic benchmark when compared to the average interest rates on the global arena of 6.5 per cent. This would encourage more persons to repay their loans, thus reducing delinquency and taking the burden off those who honour their loans.

"Give beneficiaries a grace period of nine months to begin loan repayment. This would allow graduates the opportunity to transit comfortably from school to work.

"Personalise the monthly repayment amount to reflect individuals' income/salary (PAYE as in the United Kingdom). As shown in the salary breakdown above, not all beneficiaries attain jobs that will allow them to repay their student loans and honour their monthly expenses at the present interest rate of 12 per cent."

Kacia Hanson is director, planning and research for the Jamaica Association of Young Profession. Feedback may be sent to columns@gleanerjm.com.