No more guarantors needed for student loans
The Government has abolished the requirement of guarantors for student loans, describing the prerequisite as “a regressive policy that discriminates against low-income families”.
Finance Minister Dr Nigel Clarke announced the new policy as he opened the budget debate in Parliament on Tuesday, stating that it will become effective April 1 this year.
Noting that the policy has been in place for several decades, Clarke said the Administration was happy to abolish it as it has had an inhibiting effect on students who “cannot as easily, if at all, find someone with the means and willingness to stand guarantee for them”.
He said that very rarely are payments actually made by guarantors to the Students’ Loan Bureau (SLB).
“In all but a few instances, guarantors have served the purpose of locating students,” he said.
“We anticipate that by the time the first batch of students who benefit from this policy graduate from university, the National Identification System, or NIDS, will be a reality. We will not need guarantors for that purpose as NIDS will suffice,” added Clarke.
He reminded the House that the Administration had signalled that the policy change was under consideration when it removed the guarantor requirements for wards of the State and households on the Government’s Programme of Advancement Through Health and Education (PATH) last year.
“It was useful to have the test cases on small sample sizes of the impact it would have in broadening access,” the finance minister said, adding that since the requirement was lifted for applicants from PATH households the number of PATH beneficiaries accessing the SLB jumped from 192 in the previous year to 547, an increase of 185 per cent.
“We are not doing this blind. Since inception, the SLB uses a tiny portion of loan repayments, 0.0005 per cent of each payment, to make provision for loss of life of the borrower. That fund was actuarially assessed and found to be $1 billion in excess of the provision required for the risk it was set up to insure against. So with this new no-guarantor policy we will move this $1-billion excess from the life insurance reserve into a new Guarantor Reserve Fund as backing for this new policy,” Clarke said.
