Students’ attitude to educational loan repayments: A structual modelling approach

Abstract

Educational loan defaulting is a problem increasing on a worldwide scale. In Malaysia, the default rate is almost 50% in the case of loans advanced to students in higher education. With this in mind, for the first time, this study analyses this chronic problem in-depth with consideration to primary data collected from a cross-section of students currently studying in public universities in Malaysia. With help from the Theory of Planned Behaviour, the empirical analysis establishes that loan defaults are influenced by a complex interaction of personal-, social- and psychology-related variables: students’ attitude, intention to repay loan, parental influence, perceptions that loan repayment will affect quality of life after graduation, perceptions towards loan agreement, and an awareness of loan repayment issues created by the media. This study succeeds in disentangling the precise impact of such variables in regard to loan defaults. The findings are of great relevance to government-funding agencies, which can better plan the loan advancement and recovery process once they understand the true reasons behind defaults. The novel method utilised for the first time with the objective to study the default issue should also be useful to academic researchers seeking to conduct similar studies in the context of other countries. This study should also assist policy makers in planning long-term strategies in terms of assessing, designing and evaluating new loan schemes. Developing countries, such as Malaysia, face competing demands on their limited financial resources. An increase in the recovery rate will bring in funds that can be lent to additional students or used for strengthening educational infrastructure. These measures add useful value to the social and economic set-up of the country.