BORROWERS of the Students’ Loan Bureau (SLB) should soon get a reprieve from high interest charges as the bureau is moving to adopt the reducing balance mechanism of calculating interest, rather than the add-on mechanism, as now obtains.

“All loans attract interest and are calculated now on an add-on basis, but plans are to move to reducing balance very soon,” SLB Executive Director Monica Brown told editors and reporters at the Jamaica Observer Monday Exchange.

Unlike the add-on method, the reducing balance is based on the principal balance, not the original loan amount, which means the amount due is reduced with the repayment of each loan instalment.

Loans from the SLB, which are unsecured, attract a nine per cent interest rate and have repayment periods of between 10 and 14 years, depending on the duration of the course of study. Students are, however, not required to start repayment until the January following graduation, as there is a moratorium during the period they are in school.

The plan to adjust the interest calculations, Brown explained, was part of a thrust to encourage repayment to ultimately improve the bureau’s operations and have it become self-sufficient.

Among the other plans the bureau has to that end are to update its computer system — including its loans management software which Brown described as outdated — to increase its collections portfolio, since that is its primary source of funding, to rely less on borrowed funds, and to revise the legislation under which it operates so that student loan repayment will be made mandatory.

“It will enable us to garnish wages without going through the court system,” Brown said of the proposed changes to the legislation. “…And once we are able to be assured of payment through salary the income contingent approach can be fully implemented so, whatever you’re required to pay will be within a certain threshold relative to your income.”

Until the legislation comes into force, however, Public Relations Officer Analisa Allen said the bureau is looking twards the credit bureau to assist with reducing delinquency.

The jump in the bureau’s collections from $75 million per month in January 2011 to $104 million for the current financial year is a sign that things are changing, albeit slowly, but the government body is not satisfied and recognises that “even if we were to collect every single cent owed to us we still would not be self-sufficient because of the sheer growth in demand for loans”, according to board Chairman Tony Lewars.

That, perhaps, is the driving force behind the entity’s move to tighten things up, but Brown acknowledges that turning things around will be a tall order.

On the subject of borrowing funds to finance its operations, the SLB head said the entity was previously seeking to close a funding gap of $1 billion but the education tax inflows were able to close the gap.

“We do not want to rely too heavily on borrowing,” she said, pointing out that it comes with attendant issues which would affect the SLB’s own cash flow.

The bureau’s interest rate moved from 12 per cent to nine per cent in 2012. The reduction won wide approval from various sectors of society which for years had lamented the high payback rates. But even with the interest rate cut, students still find themselves saddled with ballooning payments, ostensibly as a result of the add-on mechanism of interest calculation.