KUALA LUMPUR: Graduate employability and decade-long stagnant wages have led Malaysian youths to get more into debt once they get into the job market, according to findings of a study by the Khazanah Research Institute (KRI).
A KRI study entitled " Higher education loan repayment:Between borrowers' moral responsibility and labour market Realities" on career progression of graduates from previous decades, show that the reality of the job market for university graduates in Malaysia remains bleak.
Graduate starting salaries have barely moved over the past decade.
In 2021, 60 per cent of new graduates received salaries below RM2,000 for their first job, compared to 61 per cent in 2010.
While the number of individuals with higher education continues to rise, the growth of skilled jobs has stagnated since 2002.
The same study found that one-third of experienced graduates remain in situations of qualification mismatch, while a quarter are still earning low wages since their first job, due to starting their careers in positions below their qualifications and with low pay.
KRI said almost half of the graduates hold jobs that do not match their qualifications, even after over a decade in the job market, with some experiencing a decline in status to mismatched jobs.
More worrying, nearly one-fifth of graduates are still earning low wages below RM2,000, even after more than a decade in the job market.
"This signals a major challenge that needs to be addressed, as it affects graduates' ability to cover their living costs in the future," KRI said in its report.
It said a key cause of the issue is he creation of jobs that do not match graduates' qualifications is a key cause of this issue.
KRI found that while the number of jobs in the labour market has increased, the composition of job skill levels has remained largely unchanged, with about 25 per cent of jobs being high-skilled, 62 per cent semi-skilled, and 13 per cent low-skilled.
Currently, around 80 per cent of graduates from local universities come from B40 families, and 40 per cent of these students rely on PTPTN loans.
While PTPTN plays a crucial role in easing the financial burden of students, especially those from low-income families, it also brings the risk of debt burden after graduation.
KRI gathered that more than half of PTPTN borrowers came from household incomes less than RM3,000 in 2022.
The problem escalated further when PTPTN borrowers chose to take on more loans such as those for cars and housing after being employed.
The Credit Counselling and Debt Management Agency (AKPK) head of research development department Mohammad Mafrukhin Mokhtar said the spending pattern among graduates showed that their top priority after getting a job is to get a car.
"Repayment of education loan comes second. What we have noticed is that these graduates have preference for their cars and the price range differs. We realised that high wages do not always translate into better financial wellbeing.
"From AKPK's perspective, it is vital for these graduates to understand a proper financial calculation before they sign on agreements to take more loans," he said in a webinar held by KRI entitled""Individual vs. Collective Interests: The Student Loan Conundrum".
The study also found that youths opt for loans due to insufficient savings and higher cost of living.
Youths also struggle to save due to high expenses, debt, and living costs, with education loans being their second-largest debt.
KRI said for borrowers from low-income backgrounds, the impact of student debt is more pronounced due to the repayment gap compared to higher-income earners.
Since its establishment in 1997, PTPTN, which has provided loans to over 3.6 million borrowers, has seen a default rate of nearly 10 per cent.
Borrowers from the B40 group not only bear a debt burden disproportionate to their income but also face a significantly higher risk of default.
In fact, 97 per cent of defaulters belong to this group, highlighting the important role socio-economic background plays in their ability to repay loans, even with relaxed repayment terms starting at just RM50 per month.
"As a lender, PTPTN needs to analyse the profiles of the 430,000 defaulters to understand why they are still unable to meet their repayment obligations," KRI said.