Student loan-backed securitization (SLBS) has been applied worldwide, in developed countries as well as recently in some developing countries. The function of educational loans is to reduce the government expenditure on higher education. However, there is a variety of challenges to the financing of HE worldwide, and to the administration of loans to students. Student loans are loans offered to students to assist payment of the costs of education. They usually carry lower interests and are usually issued by the government.
Malaysia formed the National Higher Education Fund Corporation (NHEFC) in 1997 to organize and provide loans for HE students. NHEFC offers loans representing the federal government to enable selected students pursue their studies in the Malaysian universities and colleges. Most countries, however, have realized that they cannot rely on the government budget. To resolve the funding problem for the HE system, N HEFC has no choice but to borrow money from the Employees Provident Fund (EPF) under the Ministry of Finance.
Student loan-backed securities market in the US has been used successfully to help provide funding for the costs of education. Student loans have been identified as one of the four core asset classes financed through ABS. Student loan securities have been implemented in other countries; however, it is a new concept for Malaysian HE. We will analyze and consider possible effects of introducing student loan securities as a type of asset-backed securitization.
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