For example, a monthly payment of RM500 would only reduce the principal amount by RM300 with RM200 used to pay off the monthly interest. A whole year’s payment, RM6,000 will only reduce the principal amount by RM3,600 with RM2,400 gone towards servicing the interest. This of course is just an example but let us just use this for now. The actual amount would of course be determined by how much you borrowed from PTPTN in the first place.

Those with cash to spare would consider settling the whole amount upfront and reap a rebate from PTPTN itself but for those who cannot do so, what CAN you do?

Study Loans: An Asset Or Liability?

Now in order for us to determine if you should clear off your PTPTN loan ASAP, we must first check if your loan is an asset or a liability. A loan by itself is a liability. A loan which facilitates positive cash flow however, is an asset.

Case #1: Tom graduated from Engineering school and managed to secure a job as an engineer with the monthly pay of RM3000. After his commitments and expenses, he still has RM1000 extra every month. Tom services his study loan instalment of RM500 and still has RM500 at the end of each month. Tom’s study loan is an asset because he still has positive cash flow at the end of every month.

Case #2: Dick graduated from Business school but makes a living as an IT support technician. Dick’s take-home-pay is RM2000 every month and services his study loan for RM500 a month. Dick has RM1500 at the end of each month. Dick’s study loan is a liability because his study loan paid for a business degree which does not contribute to his job as an IT support technician.

Case #3: Harry graduated from IT and lives off his pay as a network specialist. His nett pay after deducting commitments and expenses is only RM200 but his study loan instalment is RM500. He does not have sufficient funds to pay for his study loan each month. Harry’s study loan is a liability because it is not helping him generate a positive cash-flow every month.

Which case study most accurately describes you?

It should be quite clear that Dick in Case #2 should pay off the loan ASAP because the study loan itself is just another added liability to Dick’s account.

Harry in Case #3 is in a more challenging situation. In reality, Harry should find ways to pay off the study loan sooner or convert it into an asset by finding a job which pays him more.

Tom is in a very comfortable situation but if he wanted to, he too can choose to pay off his study loan earlier. But what are the advantages for him to do so?

So What’s In It For Me?

There is only one major benefit from paying off any type of loan earlier which is  reducing the amount of interest incurred. In the case of PTPTN, this can be achieved via two methods.

The first is of course paying up the total sum of the loan and getting a rebate off the interest. Many who do not have this option available would have to do it the other way which is putting in a larger payment each month. This serves to offset the principal loan amount quicker thereby reducing the time taken to payback the loan. When the payback period is shortened, naturally the total interest borne would have been reduced as well.

Here’s a simple calculation.

A loan amount of RM100,000 with an interest of 3% per annum reducing sum for the period of 20 years will have a monthly payment of RM554. Total cash paid at the end of 20 years will be RM132,960. Total interest paid would be RM33,103.

If you paid RM1,000 monthly instead of RM554, the total cash paid would be RM115,216 with the interest paid at only RM15,216, saving you a neat sum of Rm17,887!

If you paid RM2,000 monthly, the total cash paid would be RM106,959 with the interest paid only at RM6,959 with savings up to a whopping Rm26,144!!

Unbelievable? Go ahead and make you own calculations here!

Other Considerations

It would be great if everyone could pay more than the monthly repayment but in reality many of us do not have the extra cash to do so. There are many other factors one must consider before dumping a whole lot of cash to clear off your study loan.

How much cash are you willing to part with each month without affecting your current lifestyle and commitments? Will that amount have  a significant savings on the interest incurred? What would be the opportunity cost by putting all your cash into repaying your study loan? Will there be an investment that can give you a return good enough to offset the interest incurred? These are questions that you will have to ask yourself.

Conclusion

Clearing off your study loan as soon as possible will always be beneficial regardless if you are holding a liability-class or an asset-class study loan. The question is are you able to suffer a reduction in your monthly cash-flow?

If you are holding a study loan which classifies as a liability, clearing it off as soon as possible should be your main priority. There is no point paying for it slowly since it does not contribute to your earning power.

As for those holding an asset-class study loan, you still have the luxury to perform minimum payment but do keep in mind that a big chunk of your payments go towards servicing the interest!

You start to vent your anger as you discover the current system is collapsing and all that you have worked for will be in vain. All those years of building and constructing sums to zero as the walls begin to crumble under the very foundation you sold your soul to.

Looking for alternatives, you begin to check for any possible opportunities in the new future.You start to look for ways to preserve your status, your value in the current system but yet you cannot find any.

All hope is lost, you tell yourself. Everyone around you has started to embrace the truth. You begin to lose hope but yet you cannot bring yourself to follow your heart. You start to not care about what happens, falling into a state of depression.

The tides turn and you know you have lost. The walls have come down and all that remains are reminisce of a twisted future. The corrupt system you defended so boldly is no longer there. You curse yourself for not being an early adopter and now you don’t have a choice but to be a laggard.

Examining the pieces of your shattered resolve, you find that deep down inside, the very reason you fought so hard in the first place was for the exact same reason the new adopters are fighting for now.

You remember now that somewhere along the journey you have lost your way, misguided by the very trolls of greed and corruption. All the complications of the system has made you someone you never wanted to be.

Your vision now is clear. You know what you are fighting for.

You always have.

The Existing PTPTN Study Loan

The PTPTN Study Loan was devised as a way for families to finance their children’s education even if they could not afford it. The idea was that the sponsored child could pay back the loan once they start earning their first paycheck. At a rate of 3% per annum, the reducing sum study loan was a blessing for many gifted children who did not have the means to further their education.

Repayment of the loan was done through automatic deduction from salary, direct debit or even lump sum settlement. Those who defaulted on the loan were sent warning letters and if the defaulting persisted, they were barred from exiting the country.

The New PTPTN 1% Ujrah Loan

The new 1% Ujrah conversion offers to reduce the interest paid for your study loan by converting your existing 3% interest reducing sum balance loan to a 1% Ujrah based loan. The offer letter lists down the amount you are owing since June 2008 and based on that amount, how much ujrah (upah or salary, or in other words interest) you need to pay for the whole payback term using this formula – Outstanding amount as of June 2008 X 1% X Term of Loan in Years.

For monthly payment, take the total of your interest payable and add it to your outstanding amount and divide it by the total months for payment – (Outstanding amount as of June 2008 + Total Ujrah for the Term of A Years) / (Term of Loan in Years X 12 Months).

Here’s an example based on an outstanding amount of RM50k and a term of 10 years.

Total Ujrah for the Term of 10 Years
= Outstanding amount as of June 2008 X 1% X Term of Loan in Years
= RM50,000 X 1% X 10 Years
= RM5,000

Monthly Payment
= (Outstanding amount as of June 2008 + Total Ujrah for the Term of 10 Years) / (10 Years X 12 Months)
= (RM50,000 + RM5,000) / (10 Years X 12 Months)
= RM55,000 / 120 Months
= RM 458.33

Method of Payment

Once you sign up for this conversion and the application is processed, your pay will be deducted automatically according to the said amount by your employer through the Inland Revenue Board a.k.a. LHDN and the funds channeled back to PTPTN. This is the only method of payment available at the moment this article is written and there is a caveat that PTPTN has the right to amend the repayment method at any time with written notice.

For those self-employed, you would have to perform payments directly to LHDN or to any appointed firms.

What About the Outstanding Balance Prior to Jun 2008?

At this moment there were no mention of how the outstanding balance prior to Jun 2008 will be handled. If you have been properly servicing your loan, you should not have any outstanding balances prior to Jun 2008!

In my humble opinion, this sum would either a) need to be cleared prior to commencement of the new 1% Ujrah loan slapped with a certain percentage of interest or b) the sum shall be serviced per the original 3% reducing sum. Anyhow this outstanding balance will definitely need to be paid one way or another.

!! IMPORTANT !! The Terms and Conditions

As with any loan agreement, there will always be terms and conditions to protect the giver of the loan. It seems that there were plenty of clauses to protect PTPTN in case anything goes wrong. Some of the important clauses goes as below.

Disclaimer: I am not a lawyer by profession therefore my interpretation of these clauses may be flawed. Please refer the contents of your loan agreement letter to your legal advisor for better clarification.

PTPTN berhak meminda syarat-syarat dan terma-terma yang ditetapkan pada bila-bila masa berdasarkan keperluan tertentu dan tuan/puan adalah tertakluk kepada pindaan-pindaan tersebut. PTPTN juga berhak menarik balik tawaran ini tanpa perlu memberi sebarang sebab.

PTPTN reserves the right to amend the set terms and conditions at any given time based on need and you will need abide by them. PTPTN also reserves the right to withdraw your offer without given cause.

By signing this agreement, the recipient of the loan agrees to the below clauses.

PENERIMA BIAYA, dengan ini bersetuju:
(a) bahawa Pembiayaan Tersebut dikenakan Upah Pengurusan Pembiayaan sebanyak 1% setahun atau apa-apakadar yang ditetapkan oleh PERBADANAN dari semasa ke semasa ke atas Jumlah Pembiayaan sepanjangtempoh bayaran balik yang ditetapkan mulai Tarikh Kuatkuasa Bayaran Balik Pembiayaan Tersebut;

(a) that the loan shall be applied with a 1% annual management fee or any rate which is set by PTPTN from time to time on the sum of the loan throughout the term of repayment

(b) bahawa penentuan Tarikh Kuatkuasa Bayaran Balik Pembiayaan Tersebut dalam Perjanjian Pembiayaan Pendidikan ini adalah ditentukan oleh PERBADANAN atas budi bicara mutlaknya;

(b) that the enforcement date of the repayment in this loan agreement shall be set by PTPTN at their discretion

(d) bahawa segala maklumat berkaitan dengan Perjanjian Pembiayaan Pendidikan boleh diberikan oleh PERBADANAN kepada mana-mana biro Pinjaman/Pembiayaan atau agensi yang diluluskan oleh Bank Negara Malaysia, mana-mana biro lain yang diluluskan oleh Persatuan Syarikat-Syarikat Kewangan di Malaysia dan pihak-pihak ketiga lain yang berkemungkinan berurusan dengan PENERIMA BIAYA dan, pihak PERBADANAN tidak akan menanggung apa-apa liabiliti jika berlaku sebarang kerugian atau kehilangan sama ada secara langsung atau tidak langsung. PERBADANAN juga berhak pada bila bila masa untuk meminta pihak-pihak di atas menahan apa-apa kemudahan yang dipohon oleh PENERIMA BIAYA;

(d) that any information submitted to PTPTN can be shared with any financial institution or any agency approved by Bank Negara Malaysia or any financial bureaus that may be involved with the recipient of the loan and PTPTN will not be liable if any loss is incurred whether directly or indirectly related to the above. PTPTN also reserves the right to request the aforementioned bodies to withhold any facilities applied by the recipient of the loan (most likely in the event of defaulting)

(e) membenarkan PERBADANAN menyiarkan maklumat PENERIMA BIAYA yang gagal menjelaskan Keseluruhan Pembiayaan Tersebut dalam tempoh yang ditetapkan oleh PERBADANAN di dalam mana-mana siaran media sebaran am termasuk akhbar, televisyen, radio dan laman web. PERBADANAN tidak akan bertanggungjawab terhadap sebarang liabiliti, secara langsung atau tidak langsung, yang diakibatkan oleh pendedahan berkenaan, sama ada kepada PERBADANAN atau mana-mana pihak lain.

(e) to allow PTPTN to publish information regarding the defaulters in the mass media. PTPTN will not be liable for any losses, directly or indirectly caused by the publishing whether by PTPTN or any other parties.

Other  important clauses stated in the terms and condition of the agreement are

• PTPTN reserves the right to seek damages for any late payments at 1% per annum on the outstanding amount
• PTPTN reserves the right to cancel the agreement and to demand full payment of the loan inclusive of damages if the recipient of the loan is found to violate any of the terms and conditions.
• PTPTN reserves the right to cancel the agreement without prior notice and the recipient of loan shall be responsible to make full payment if found to be associated with AKPK, declared bankrupt by the court of law or has violated the terms and conditions of agreement.
• PTPTN reserves the right to cancel the agreement if the applicant is found to present inaccurate or falsified information/credentials
• PTPTN reserves the right to amend the terms and conditions in the loan agreement at their discretion

Your duties as the recipient of loan according to the agreement are

• Recipient of loan bear all costs and expenses incurred in the facilitation of collection of funds by PTPTN
• Recipient of loan who has not completed payment shall be responsible to notify PTPTN 3 months in advance in the event of the recipient leaving the country for good.

Is It Worth It To Convert to the 1% Ujrah Loan?

Taking the outstanding sum of RM50,000 as an example, the typical 3% reducing sum loan at 10 years will incur a monthly payment of RM482.80 with a total interest paid of RM7,936.45 at the end of the term.

A 1% Ujrah loan with the sum of RM50,000 at the same term but at 1% Ujrah calculation would incur a monthly payment of RM458.33 with a total interest paid of RM5,000 at the end of the term.

If you were keeping with your repayments, changing to the new 1% Ujrah loan seems like a good idea with attractive savings! The example above saved a total of RM2,936.45 in interest!

However if you were sometimes forgetful with the payments, you would have to take into consideration the outstanding amount prior to Jun 2008 and how PTPTN would reclaim that amount.

Other Considerations

The original PTPTN loan was a 3% per annum reducing sum loan. This meant that the interest for the following year was calculated based on the outstanding amount for the current year. You would have the choice of paying extra to reduce the outstanding balance and save on interest. This loan repayment method is similar to repayment for housing loans where early settlement would see savings on interest. Therefore you will have the choice of paying more each month or even settling the loan early.

The new 1% Ujrah loan is a 1% fixed loan. The interest is calculated up front for the whole term and any extra payments would not reduce the interest calculated. Early settlement was not mentioned in the current agreement letter therefore is assumed that it would not have any savings on interest. This is similar to hire purchase loans for vehicles.

Conclusion

If you are not planning to settle your PTPTN via lump sum in the near future by all means go ahead and apply for the 1% Ujrah conversion as this will give you a more predictable cash flow. You will also save a significant amount of money in the form of interest compared to the 3% loan structure. However, do bear in mind that there are many terms and conditions which favor PTPTN heavily. Things may change and you might end up on the wrong end one day.

Whichever your decision may be I wish you all the best and feel free to speak your mind on this matter in the comments section below!

Links

• PTPTN Homepage
• Application for PTPTN 1% Ujrah Loan Conversion
• PTPTN Feedback Page