Sometime in 2008, PTPTN announced that there would be a plan to reduce the interest rate for PTPTN loans from 3% to 1% Ujrah. It was not until late last year (2010) that PTPTN finalized the mechanism for this change. What you had to do was declare your interest by submitting your e-mail and IC number to their website and upon approval an email will be sent to you notifying that there will be an offer letter sent at a later date. Once the offer letter is sent, there will be a period of 90 days to consider if you would want to convert to the new loan scheme so before you sign on that dotted line, make sure you read this post to the end!
The Existing PTPTN Study Loan
The PTPTN Study Loan was devised as a way for families to finance their children’s education even if they could not afford it. The idea was that the sponsored child could pay back the loan once they start earning their first paycheck. At a rate of 3% per annum, the reducing sum study loan was a blessing for many gifted children who did not have the means to further their education.
Repayment of the loan was done through automatic deduction from salary, direct debit or even lump sum settlement. Those who defaulted on the loan were sent warning letters and if the defaulting persisted, they were barred from exiting the country.
The New PTPTN 1% Ujrah Loan
The new 1% Ujrah conversion offers to reduce the interest paid for your study loan by converting your existing 3% interest reducing sum balance loan to a 1% Ujrah based loan. The offer letter lists down the amount you are owing since June 2008 and based on that amount, how much ujrah (upah or salary, or in other words interest) you need to pay for the whole payback term using this formula – Outstanding amount as of June 2008 X 1% X Term of Loan in Years.
For monthly payment, take the total of your interest payable and add it to your outstanding amount and divide it by the total months for payment – (Outstanding amount as of June 2008 + Total Ujrah for the Term of A Years) / (Term of Loan in Years X 12 Months).
Here’s an example based on an outstanding amount of RM50k and a term of 10 years.
Total Ujrah for the Term of 10 Years
= Outstanding amount as of June 2008 X 1% X Term of Loan in Years
= RM50,000 X 1% X 10 Years
= RM5,000
Monthly Payment
= (Outstanding amount as of June 2008 + Total Ujrah for the Term of 10 Years) / (10 Years X 12 Months)
= (RM50,000 + RM5,000) / (10 Years X 12 Months)
= RM55,000 / 120 Months
= RM 458.33
Method of Payment
Once you sign up for this conversion and the application is processed, your pay will be deducted automatically according to the said amount by your employer through the Inland Revenue Board a.k.a. LHDN and the funds channeled back to PTPTN. This is the only method of payment available at the moment this article is written and there is a caveat that PTPTN has the right to amend the repayment method at any time with written notice.
For those self-employed, you would have to perform payments directly to LHDN or to any appointed firms.
What About the Outstanding Balance Prior to Jun 2008?
At this moment there were no mention of how the outstanding balance prior to Jun 2008 will be handled. If you have been properly servicing your loan, you should not have any outstanding balances prior to Jun 2008!
In my humble opinion, this sum would either a) need to be cleared prior to commencement of the new 1% Ujrah loan slapped with a certain percentage of interest or b) the sum shall be serviced per the original 3% reducing sum. Anyhow this outstanding balance will definitely need to be paid one way or another.
!! IMPORTANT !! The Terms and Conditions
As with any loan agreement, there will always be terms and conditions to protect the giver of the loan. It seems that there were plenty of clauses to protect PTPTN in case anything goes wrong. Some of the important clauses goes as below.
Disclaimer: I am not a lawyer by profession therefore my interpretation of these clauses may be flawed. Please refer the contents of your loan agreement letter to your legal advisor for better clarification.
PTPTN berhak meminda syarat-syarat dan terma-terma yang ditetapkan pada bila-bila masa berdasarkan keperluan tertentu dan tuan/puan adalah tertakluk kepada pindaan-pindaan tersebut. PTPTN juga berhak menarik balik tawaran ini tanpa perlu memberi sebarang sebab.
PTPTN reserves the right to amend the set terms and conditions at any given time based on need and you will need abide by them. PTPTN also reserves the right to withdraw your offer without given cause.
By signing this agreement, the recipient of the loan agrees to the below clauses.
PENERIMA BIAYA, dengan ini bersetuju:
(a) bahawa Pembiayaan Tersebut dikenakan Upah Pengurusan Pembiayaan sebanyak 1% setahun atau apa-apakadar yang ditetapkan oleh PERBADANAN dari semasa ke semasa ke atas Jumlah Pembiayaan sepanjangtempoh bayaran balik yang ditetapkan mulai Tarikh Kuatkuasa Bayaran Balik Pembiayaan Tersebut;
(a) that the loan shall be applied with a 1% annual management fee or any rate which is set by PTPTN from time to time on the sum of the loan throughout the term of repayment
(b) bahawa penentuan Tarikh Kuatkuasa Bayaran Balik Pembiayaan Tersebut dalam Perjanjian Pembiayaan Pendidikan ini adalah ditentukan oleh PERBADANAN atas budi bicara mutlaknya;
(b) that the enforcement date of the repayment in this loan agreement shall be set by PTPTN at their discretion
(d) bahawa segala maklumat berkaitan dengan Perjanjian Pembiayaan Pendidikan boleh diberikan oleh PERBADANAN kepada mana-mana biro Pinjaman/Pembiayaan atau agensi yang diluluskan oleh Bank Negara Malaysia, mana-mana biro lain yang diluluskan oleh Persatuan Syarikat-Syarikat Kewangan di Malaysia dan pihak-pihak ketiga lain yang berkemungkinan berurusan dengan PENERIMA BIAYA dan, pihak PERBADANAN tidak akan menanggung apa-apa liabiliti jika berlaku sebarang kerugian atau kehilangan sama ada secara langsung atau tidak langsung. PERBADANAN juga berhak pada bila bila masa untuk meminta pihak-pihak di atas menahan apa-apa kemudahan yang dipohon oleh PENERIMA BIAYA;
(d) that any information submitted to PTPTN can be shared with any financial institution or any agency approved by Bank Negara Malaysia or any financial bureaus that may be involved with the recipient of the loan and PTPTN will not be liable if any loss is incurred whether directly or indirectly related to the above. PTPTN also reserves the right to request the aforementioned bodies to withhold any facilities applied by the recipient of the loan (most likely in the event of defaulting)
(e) membenarkan PERBADANAN menyiarkan maklumat PENERIMA BIAYA yang gagal menjelaskan Keseluruhan Pembiayaan Tersebut dalam tempoh yang ditetapkan oleh PERBADANAN di dalam mana-mana siaran media sebaran am termasuk akhbar, televisyen, radio dan laman web. PERBADANAN tidak akan bertanggungjawab terhadap sebarang liabiliti, secara langsung atau tidak langsung, yang diakibatkan oleh pendedahan berkenaan, sama ada kepada PERBADANAN atau mana-mana pihak lain.
(e) to allow PTPTN to publish information regarding the defaulters in the mass media. PTPTN will not be liable for any losses, directly or indirectly caused by the publishing whether by PTPTN or any other parties.
Other important clauses stated in the terms and condition of the agreement are
- PTPTN reserves the right to seek damages for any late payments at 1% per annum on the outstanding amount
- PTPTN reserves the right to cancel the agreement and to demand full payment of the loan inclusive of damages if the recipient of the loan is found to violate any of the terms and conditions.
- PTPTN reserves the right to cancel the agreement without prior notice and the recipient of loan shall be responsible to make full payment if found to be associated with AKPK, declared bankrupt by the court of law or has violated the terms and conditions of agreement.
- PTPTN reserves the right to cancel the agreement if the applicant is found to present inaccurate or falsified information/credentials
- PTPTN reserves the right to amend the terms and conditions in the loan agreement at their discretion
Your duties as the recipient of loan according to the agreement are
- Recipient of loan bear all costs and expenses incurred in the facilitation of collection of funds by PTPTN
- Recipient of loan who has not completed payment shall be responsible to notify PTPTN 3 months in advance in the event of the recipient leaving the country for good.
Is It Worth It To Convert to the 1% Ujrah Loan?
Taking the outstanding sum of RM50,000 as an example, the typical 3% reducing sum loan at 10 years will incur a monthly payment of RM482.80 with a total interest paid of RM7,936.45 at the end of the term.
A 1% Ujrah loan with the sum of RM50,000 at the same term but at 1% Ujrah calculation would incur a monthly payment of RM458.33 with a total interest paid of RM5,000 at the end of the term.
If you were keeping with your repayments, changing to the new 1% Ujrah loan seems like a good idea with attractive savings! The example above saved a total of RM2,936.45 in interest!
However if you were sometimes forgetful with the payments, you would have to take into consideration the outstanding amount prior to Jun 2008 and how PTPTN would reclaim that amount.
Other Considerations
The original PTPTN loan was a 3% per annum reducing sum loan. This meant that the interest for the following year was calculated based on the outstanding amount for the current year. You would have the choice of paying extra to reduce the outstanding balance and save on interest. This loan repayment method is similar to repayment for housing loans where early settlement would see savings on interest. Therefore you will have the choice of paying more each month or even settling the loan early.
The new 1% Ujrah loan is a 1% fixed loan. The interest is calculated up front for the whole term and any extra payments would not reduce the interest calculated. Early settlement was not mentioned in the current agreement letter therefore is assumed that it would not have any savings on interest. This is similar to hire purchase loans for vehicles.
Conclusion
If you are not planning to settle your PTPTN via lump sum in the near future by all means go ahead and apply for the 1% Ujrah conversion as this will give you a more predictable cash flow. You will also save a significant amount of money in the form of interest compared to the 3% loan structure. However, do bear in mind that there are many terms and conditions which favor PTPTN heavily. Things may change and you might end up on the wrong end one day.
Whichever your decision may be I wish you all the best and feel free to speak your mind on this matter in the comments section below!
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