Where do we go from here? Pt. 2
By Arinthia S. Komolafe:
A major obstacle that youth and our emerging leaders face is the lack of adequate education and/or opportunities to pursue higher education. During 2009-2010, a major topic of discussion was subsidies provided to learning institutions. The government announced that it was decreasing its subsidy to independent schools by 20 percent. Many were outraged by this move; not least the parents themselves who were already faced with rising education costs and would consequently rethink their desire to privately educate their children. In some cases many were forced to enroll their children in the public school system.
Proponents of the subsidy argue that parents who choose to send their children to private school are paying double, as their taxpaying dollars are already used to fund public schools. At the same time, they take additional funds out of their pockets to educate their children privately. It is worth noting, however, that those opposed to such subsidies believe this reduces the amount of funds available to public schools who ultimately suffer among other things the plight of underpaid educators, understaffed schools, inadequate infrastructure or reduced supplies.
The government’s reasoning for subsidy reduction was that certain independent schools received higher subsidies in comparison to public schools. However, this argument was perceived by some as skewed, as the government itself operates approximately 160 institutions and is responsible for operating expenses, wages and other costs.
Nevertheless, the most alarming revelation was the statement that all but three of the independent schools were in contravention of the education (grants in aid) regulations by not submitting the requisite returns of income and expenditure. It is necessary to ascertain upon which basis the government decides the level of subsidy it disburses – bearing in mind that independent schools also receive grants from private donors and/or the denominations that they are affiliated with.
Although there is a strong case for maintaining these subsidies, increased accountability should be demanded from recipients of tax-payers’ funds. It was recently stated that many of the independent schools have become compliant. However, the public has not been advised of how many of the independent schools remain non-compliant. Ironically, it’s difficult to imagine that the government would aggressively ensure compliance with these regulations, when the government itself appears to be acting ultra vires of the same by exceeding the limits apportioned to various classes of schools. It is therefore incumbent upon the government to make the necessary amendments to adjust for the increases and/or new recipients of grants.
Nevertheless, subsidies provided to independent schools, (which generally produce better national results compared to the public system) can provide a good foundation in primary and secondary education to afford more Bahamians an opportunity to pursue tertiary level education. Statistics reveal that only 20 percent of The Bahamian labor force attain a university degree. It should also be noted that these statistics include expatriates, therefore decreasing the ultimate rate for Bahamians. The statistics are not unconnected to the lack of opportunities to obtain higher education in a broad range of fields locally. The inability to receive diverse higher education outside of a few concentrated areas in The Bahamas has led several Bahamian students to pursue education abroad. In 2010, the government questioned the wisdom of maintaining current subsidies of approximately $4 million for 197 Bahamian students attending University of the West Indies (UWI). The real question should have been the potential downside of removing the aforesaid subsidies. Removal of subsidies of this nature at this time will decrease the opportunities for Bahamians to become qualified in fields such as medicine at a reduced cost until such time as they can do so locally. It is sad to say that in 21st century Bahamas, Bahamians are still not able to qualify as doctors and engineers locally. Until such time as The College of The Bahamas has been converted to a university and provides science and technological services, the discussion should remain a moot point.
Debt and education
Flowing from this inability of Bahamians to be educated locally is the burden of debt acquired in pursuance of tertiary education abroad and hence the student debt loan crisis. The government Guaranteed Loan Fund Program (GGLFP) was suspended by the current administration in 2009 at a time when many parents cannot afford tertiary education for their children in the absence of awarded scholarships. As a result, persons unable to take advantage of the GGLFP are often left with no option but to obtain consumer loans from banks and other financial institutions where rates tend to be unfavorable. Some aspiring students who cannot obtain loans are forced to depend on their parents who in turn resort to remortgaging their homes in order to give their offspring a chance to achieve the Bahamian Dream.
This week, Bloomberg reported a significant increase in student loan debts over the past three to four years. The report was compiled from a survey of about 860 bankruptcy lawyers under the umbrella of the National Association of Consumer Bankruptcy Attorneys in the United States. It was reported that student loan debt (both federal and private) in the United States is approaching $1 trillion and surpassed credit card debt for the first time in 2010.
In The Bahamas, it is estimated that some 5,000 applicants have benefited from the GGLFP since its inception in 2001. At its debut, the program had nearly exhausted its $100 million statutory budget in less than two years, placing the sustainability of the fund at risk. It is estimated that approximately $70 million of funds were in default before suspension of the program. It was further stated at that time that the continuance of the program depended upon the defaulters repaying their outstanding debts.
The importance of planning for our children’s future via investments in educational funds and college funds cannot be overemphasized. The program was plagued by multiple challenges that seemed to disadvantage the recipient of these loans. The rate of interest, which had originally been subsidized at 50 percent by the government, was exorbitant and on the same level as that of mortgage loans.
It is worth noting that the subsidy has been reinstated in certain circumstances. The payment terms were unfavorable and required recipients to pay large monthly payments in a short period of time, at times not taking into consideration other payment obligations of the recipient like additional student loans or car loans. The lending institutions driven by profits, failed to take into consideration the proposed monthly payments in comparison to the earning capacity of the recipient. As a result, the high monthly payments provided more of a burden for the recipient and/or guarantor who was accustomed to paying low interest payments that were presumably based upon their credit risk at the time the loan was approved.
The overall management of these student loans including the payment schedules, terms of payment, notification of past due payments and structuring of payments by financial institutions leaves much to be desired. It could be argued that the poor management and minimal attention paid to this program by these institutions is because payment from the government is guaranteed in the event of defaults. How much attention is given to the management of this program and other student loan programs to ensure that the interests of the students/borrowers are protected?
Huge monthly payments have in many cases exhausted a recipient’s debt-service ratio and have prevented many young professionals from qualifying for mortgage loans or funding for their entrepreneurial pursuits. Consequently, many individuals are delayed from moving toward ownership in the Bahamian economy. The extent of the challenges faced by young and up-and-coming professionals will more than likely be further exposed once the proposed credit bureau is fully implemented and operational.
Govt decision questionable
The Obama administration is proposing an overhaul of the student loan program in America by removing the current subsidies to private lending institutions. The proposed term to forgive loans will be reduced from 25 to 20 years and the proposed monthly payments will be capped at 10 percent of the recipient’s discretionary income, representing a reduction from 15 percent. Further, students with multiple loans will be given the option to consolidate and take advantage of lower interest rates.
A similar approach ought to be considered for existing defaulters and future reinstatement of the program in The Bahamas. The government’s decision to suspend the program indefinitely and not address the student loan debt crisis is a flawed one. This decision does not send a good message on government’s commitment to higher education of the youth in The Bahamas. Further, the lending institutions must be engaged to re-evaluate their requirements and terms for student loans. A universal amnesty period should be looked at for all outstanding recipients to pay a one-off minimal amount and restructure their loans, extend payment terms and effectively reduce monthly payments.
The government must be dedicated to ongoing funding of education at all levels. Further, a corresponding factor is the need for our leaders to actively pursue the diversification of our economy. The lack of diversity within our economic model and the depressed economic environment in The Bahamas does not favor young and up-and-coming professionals, entrepreneurs and investors. These realities make the Bahamian Dream seem so unreachable, unattainable and at best a mirage. A brain drain is certain to be a surety in our future, unless we place more emphasis upon education. The question as to where we go from here is one that only the government and our leaders can answer through their policies, decisions and actions.
•Arinthia S. Komolafe is an attorney-at-law. Comments can be directed at: arinthia.komolafe@Komolafelaw.com
Feb 09, 2012