WITH a funding gap of $1.3 billion being projected for the upcoming academic year 2014/15, cash-strapped lending agency the Students’ Loan Bureau has found itself in a tight spot with private sector entities refusing to loan it any money.

“Students’ Loan Bureau has approached the private sector for funds to assist in closing the funding gap, but is so far without success as institutions are unwilling to lend to SLB without a Government of Jamaica guarantee,” executive director of the Students’ Loan Bureau Monica Brown told a meeting of the Parliamentary Committee on Human Resources and Social Development at Gordon House in downtown Kingston last week.

She said in response to SLB’s proposal to borrow funds using the lower risk loans in the portfolio as collateral, a request has been made for the SLB to provide credit insurance in place of the Government guarantee.

“Incentives are required for the private sector to provide more support for tertiary education. The SLB has had to borrow, and especially in recent years, in US$ which has created some foreign exchange risks on our part and this has resulted from the depreciation in the value of the Jamaican dollar and this has significantly increased repayment amounts,” the Bureau’s executive director told the meeting.

Noting that “loan delinquency has always been a challenge for the SLB” she said “the delinquency level continues to be a difficult challenge as collections become challenging during this environment where jobs are difficult to come by”.

The SLB executive director said research by the Bureau indicates that approximately 50 per cent of new graduates are unemployed or underemployed. She said the SLB has identified that the primary contributory factor to the delinquency problem include the current model of lending to students — where it lends in year one and does not start collecting until year five and when it begins to collect, it only collects a fraction of what was lent. This she said was in addition to the absence of supporting laws to mandate payments of students’ loan at source of income, the challenging economic environment and the lack of adequate employment opportunities as well as the culture of entitlement.

At present Brown said the delinquency rate is over 30 per cent of the total loans portfolio but said the SLB has escalated efforts to collect.

In the meantime, the SLB executive director said the growth in the number of student loan applications over the years coupled with the annual increase in tuition costs levied on students are the primary drivers of the increased demand and disbursement being experienced by SLB.

“The expansion in the programme offerings especially by the major universities and the increase in incidence of full-cost programmes (non-subsidised), these are attributed directly to the increased demand being seen by the Students’ Loan,” she explained.

As it stands loan demands on the SLB have moved from 6,600 applications in 2007 to 15,300 applications this year, while disbursements have moved from $840 million to $3.9 billion with average tuition fees increasing from $130,000 in 2007 to $305,000. Of the 15,000 applications received for 2013/14, 60 per cent were returning students and 40 per cent new applicants.

“The SLB has recognised that its capacity to satisfy the growing demand will need to be supported by periodic capital injection to bridge the funding gap that arise from the increase in funding requirements and future commitments as well as the high delinquency. The significant increase in demand for loans over the past seven years increased the need for additional funding to satisfy demand as well as additional staff and other resources to support SLB’s growing operations,” Brown told the meeting.

She said the primary source of funding for the SLB is collections from repayment flows supplemented by borrowing. The executive director said while loan funds were sourced through international lending agencies such as the Inter-American Development Bank (IDB) and the World Bank in the early years of the Bureau, since 2006 it has borrowed from local and regional private and public sector entities to finance the growing demand.

“The recent increase in Education Tax has contributed significantly to SLB’s capacity to lend, however a funding gap remains. There is heavy reliance on repayments from students. However, the amounts collected in any year is well below the disbursement amount,” she said.

The SLB head said the current portion of loans for 2013/14 is $2.36 billion, of which the SLB projects to collect 50 per cent.