Lawmaker urges passage of college loan plan
A SENIOR member of Congress has called for sweeping legislation to enable Filipino families to fulfill their hopes and dreams of sending their children to college, amid forecasts a four-year university education could cost some P1.6 million by the time today’s newborns turn 18.
“With tuition going up 10 to 15 percent annually, the cost of tertiary schooling is doubling every five to seven years, making it increasingly hard for more families to support their children through college,” said House Deputy Majority Leader Roman Romulo.
“We are pushing for new financial incentives so that banks and other lenders may be encouraged to grant educational loans to post-secondary students,” Romulo said.
Romulo’s proposal is contained in the proposed Act Establishing a Student Assistance Program by Banks and Government Financial Institutions, or House Bill 1876.
Under the program, an eligible student may obtain a low-cost bank loan to pay for the tuition of the college where the borrower has been accepted. The money may also be used to pay for miscellaneous school fees, books, food, transportation, and other requirements.
The loan would have an effective interest rate pegged to the 91-day Treasury bill rate, which stood at 0.745 percent per annum as of last week.
The bank may apply an add-on 3.0 to 5.0 percent annual interest rate. But instead of the borrower paying for the extra interest expense, the lender may claim the corresponding amount as tax credits. The bank may then use the credits to pay for, or offset, its tax obligations.
The Philippine American Life and General Insurance Co. (Philam Life) estimates that annual college tuitions now ranging from “more than P50,000 to more than P100,000” will likely hit P282,000 to P400,000 by 2030.
The figures imply that a four-year college tuition could reach P1.1 million to P1.6 million.
A leading pre-need financial provider for future college schooling, Philam Life used as base figures prevailing tuitions at the University of Santo Tomas and the University of the East.
Romulo’s bill provides that the educational loan may be disbursed in tranches every semester. Subsequent releases may be withheld and automatically credited as loan prepayment once the borrower has ceased to be enrolled.
The borrower would repay the loan periodically, starting two years after graduation, but not later than eight years after leaving college.
The bill favors lending to “priority students,” or those from families that have yet to produce a single college graduate, or those with no other immediate member enrolled in college.
Loans to “priority students” may have an add-on interest rate of up to 5.0 percent. Those to other students may carry an extra rate of only up to 3.0 percent. In both cases, however, the lender may convert into tax credits the sum equivalent to the additional interest charges.
To facilitate loan repayments, the bill enlists the help of the Social Security System (SSS) and the Government Service Insurance System (GSIS).
Borrowers would be issued either SSS or GSIS numbers, depending on their preferred future employment in the private sector or in government.
Banks may then enlist the SSS or GSIS to collect loan repayments via their systems of salary deduction or withholding.
Lenders may also ask the Philippine Overseas Employment Administration to help collect from borrowers with job contracts abroad.