A Sustainable & Equitable Future: Exploring the Income-Contingent Student Loan Repayment Scheme in Malaysia
- UM Research
- Oct 24
- 5 min read
It is a universally non-contested fact that education bridges one towards growth in all aspects– personally, socioeconomically, and for the country. According to Ministry of Finance Malaysia (2025)[1], in Malaysia’s National Budget 2025, a total of RM82.1 billion was allocated for national education funding under the Ministry of Education and Higher Education, highlighting the imperative significance of educational investments. Nevertheless, financing for higher education remains one of society’s most pressing challenges as it struggles to balance the aspirations of students with the sustainability of national funding systems. The rising rate of student loan defaults has cast a shadow on current loan repayment frameworks, threatening both affordability for graduates and the long-term viability of education financing.
Addressing this, lead researcher Dr Syaza Nawwarah Zein Isma, a senior lecturer from the Institute of Mathematical Sciences, Faculty of Science at Universiti Malaya, along with her research assistant, Nur Dalili Batrisyia Zamri, a second-year Master’s student in Mathematics and Statistics, strive to embark on a pioneering research to reimagine how student loan repayment schemes can be refined and made equitable through the adoption of Income-Contingent Loan Repayment (ICLR) schemes.
The Status Quo
Currently, Malaysia implements a Time-Based Repayment Loan (TBRL) scheme, which requires graduates to pay fixed monthly instalments, irrespective of their income level. Though straightforward in design, this approach places a disproportionate burden on the lowest-income graduates, with some committing over 40% of their annual income towards repayment. In the first year of the repayment period, repayment rates range from 3.38 % to 40.83%, depending on income level. Over the fixed repayment periods, low-income graduates continue to face a higher repayment burden, as evidenced by the survey conducted in this study. Such strain not only erodes financial independence but also increases the risk of loan defaults, creating a vicious cycle that undermines a system reliant on consistent repayment and long-term sustainability.
Inspired by successful international models in countries such as Australia and the United Kingdom, Dr Syaza’s research explores the prospects of introducing an ICLR scheme in Malaysia. Unlike TBRL, the ICLR adjusts repayments to the actual income of graduates, ensuring greater affordability, reducing repayment hardships, and fostering better compliance.
While her study is anchored around three central themes: identifying the socio-demographic and financial factors influencing graduates’ willingness to repay, assessing the challenges of the current TBRL system and how ICLR offers some solutions, and conducting cost simulations of ICLR designs—this feature article primarily highlights the first objective, focusing on the socio-demographic and financial determinants of repayment willingness.
At the heart of this research lies a simple but profound question: what makes a graduate willing, or unwilling, to repay? Understanding the factors influencing repayment behaviour is crucial for informing the design of an equitable and effective student loan system. These insights are particularly relevant in Malaysia, where the current fixed repayment model (TBRL) places a disproportionate burden on lower-income graduates. They provide a foundation for reforming the system toward an income-contingent loan model that aligns repayment obligations with graduates’ actual earning capacity, thereby promoting fairness, improving compliance, and ensuring long-term sustainability.
From Numbers to Real Lives: Insights into Willingness
Drawing on a national survey of 493 Malaysian graduates, Dr Syaza’s team revealed that repayment behaviour is shaped less by static figures and more by the lived realities of individuals.
Perceived financial standing matters more than income itself
The study shows that a graduate’s willingness to pay depends on their perceived financial situation, each coupled with unique financial responsibilities, commitments, and overall financial pressure. This consideration is significant as these subjective experiences shape the graduates’ perceived affordability proportionate to overall motivation and prioritisation of loan repayments. Spotlighting the graduates’ financial experiences rather than solely on fixed income thresholds would thus be a more inclusive infrastructure, as it accounts for factors that pose a financial strain in one’s repayment plans.
Early-stage higher education shows more willingness to pay
The study found that diploma graduates were significantly more inclined to repay compared to those with degrees or postgraduate qualifications. This may reflect a stronger sense of accountability or appreciation, especially when education pathways lead directly to employment opportunities. Such insights highlight the importance of career-oriented incentives in encouraging repayment compliance – for example, initiatives that enhance human capital development, such as structured career guidance, employer–graduate partnerships, or industry-linked training programs that help diploma graduates transition smoothly into stable employment.
Household responsibilities shape repayment behaviour
Undeniably, graduates with more dependents within their household reflect increased financial commitments targeted towards familial responsibilities, which reduces repayment capacity. The study suggests repayment plans tailored to higher-dependents-borrowers that integrate family size into ICLR schemes to enhance fairness and reduce financial strain for borrowers with dependents.
Employment type and geographical location matter less
The study found that neither geographic location (urban vs. rural) nor employment type (paid employee versus self-employed/employer) significantly influenced repayment willingness. Instead, repayment attitudes were more strongly shaped by individual financial strain and day-to-day obligations. This finding suggests that policies should move away from broad generalisations about geography or employability type, and instead address the financial realities experienced by graduates at the individual level.
Study Limitations
Overall, this study offers a solid foundational framework for student loan policy reforms in Malaysia. However, like many empirical studies, it is not without limitations—most notably, the reliance on self-reported data on repayment willingness, which may not fully reflect actual repayment behaviour in the face of unforeseen events such as financial crises or shifts in financial circumstances.
Future Outlook
The implications of this research extend beyond financial models. By centring repayment policies on financial realities rather than abstract income thresholds, such reforms would not only reduce the risk of default but also empower graduates to thrive without exorbitant debt.
Dr Syaza’s project involved stakeholder engagement with Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN). A meeting was recently held with PTPTN officials to provide feedback on the research findings. Moving forward, the research team aims to establish partnerships with other stakeholders, policymakers, and industry experts to expand this research
A Human Lens on Policy
The study’s greatest takeaway is that loan repayment is not merely a financial transaction, but a lived experience shaped by perception, obligation, and opportunity. By embedding policy within the broader realities of everyday life, policymakers can introduce reforms that foster trust, reduce hardship, and strengthen education for generations to come.
Ultimately, the ICLR framework researched by Dr Syaza and her team endeavours to incorporate humanities into objective modelling and policymaking, ensuring a sustainable economy and development for both future borrowers and graduates.
#economics #research #income-contingentloan #education #studentloan #finance #mathematics
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[1] Ministry of Finance Malaysia. (2025). Belanjawan 2025: Malaysia Madani – Budget Speech 2025. https://www.investmalaysia.gov.my/media/wxabsmjs/budget-speech-2025.pdf
Researchers featured:
Dr Syaza Nawwarah Binti Zein Isma
Institute of Mathematical Sciences, Faculty of Science
T: 03-79674102
ORCID ID: https://orcid.org/0009-0000-5318-0189
Research Assistant:
Nur Dalili Batrisyia Zamri, a second-year Master’s student in Mathematics and Statistics,
Institute of Mathematical Sciences, Faculty of Science
Author:
Eng Pink Huey
Pink Huey is currently a fourth-year medical student at the Universiti Malaya. Outside clinical wards, her enthusiasm for writing and classical music drives her appreciation for the harmonious union of art and life. For a tinge of adrenaline, she enjoys hiking and chasing sunsets!
Copyedit:
Siti Farhana Bajunid Shakeeb Arsalaan Bajunid, Assistant Registrar, UM
Nurhazrin Zanzabir, Assistant Administrative Officer, UM
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