5) HOW DOES THE STUDENT DEBT EFFECT TO NATIONAL ECONOMY?

Student debt in Higher Education Fund Corporation (PTPTN) have a negative effect on
Malaysia Economy. Student debt will harm Malaysia economy because student are not able to
start their own business due to the debt. As we know, small business contribute to the economics
and help stimulate economic growth by providing employment opportunities to people who may
not be employable by larger corporations. Full employment should be a major macroeconomics
goal of government. In September of 2015, the unemployment rate in Malaysia was recorded at
3.2 percent. (Economics, T. 2015) Therefore, the larger number of unemployment leads to higher
payment from state and national governments for unemployment profits which is Medicaid and
food assistance. For example, high unemployment will cause government unable to collect the
same amount of income tax as before and will harm our country economy. Furthermore, PTPTN
defaulter that fail to pay their debt are unable to start their own businesses without a sufficient
modal. This is because they are not able to loan from the bank and any loan center because of
their student debt. They have to clear their student debt before make a loan for any purpose. It
will cause the lower growth in the formation of small business in our country. Low businesses
growth lead to deterioration in the economy.
Besides, student PTPTN debt effect the slow down the future economic growth. Since
PTPTN established, PTPTN had disbursed loans of more than RM9.5 billion to more than 1.3
million borrowers. Student intake increases year after year. Increases of students will increases
the PTPTN defaulters in one year. For example, from 2012 to 2013, the number of PTPTN
defaulters increases from 60.86% to 78.14%. This will increase the number of PTPTN defaulter
on 2014 and will cause the student debt increase. Therefore, in 22 April 2015, 605,685
defaulters borrowers owe the PTPTN about RM4.7 billion. (Fazaniza, 2015) Those borrowers of
the PTPTN loans who fail to make payments effects the employment opportunities, foreigncaused economic crisis and cause the change in economics policy. PTPTN would not be able to
pay back the higher loan to the Bank Negara and Employees Provident Fund (EPF). The money
that Bank Negara supply will shrink and businesses will find it hard to get financing or loan to
start and expand their business. This will cause the confidence in the whole financial system will
be shaken and give a big effect on future economic growth.

Lastly, students debt in PTPTN will probably dragging down our economy Gross
Domestics Product (GDP) in a short-run. GDP is the sum market value of all final services and
good produced within a given duration by factors of production establish within a country.
Therefore, Malaysia allot 2.7 percent of its GDP to higher education which include the study
loans from PTPTN to Malaysia students. (MS, 2009) The total Government revenue is not
sufficient to cover the expenditure. This is because students are spending years after university
deleveraging rather than investing in the economy. This means that an increase in student debt is
associated with a drop in GDP. This issue supports the findings of the earlier studies that public
debt affects negatively to the growth of economics. When a country such as Malaysia has a large
student debt burden, the investors would be anxious about the ability of that country to pay the
debts of the creditors. This would lead to the crowding out of investments. In addition, the
creditors may also demand higher interest rates, as a safety measure due to increased risk for
them to keep financing the deficits. This is not a very good situation because a quick increase in
interest rate can harm the economic growth and would create a financial crisis. Further, a country
with a high level of student and national debt would have a high probability of experiencing the
debt overhang problem.