Students and Educators Grapple with Online Loan Debt Amidst Financial Literacy Challenges

Students and educators are wrestling with online loan debt amidst financial literacy challenges, highlighting the struggle to manage educational finances effectively in the digital age.

Jakarta - Educators and students bear a significant brunt in the realm of defaulting on online loans, commonly referred to as peer-to-peer lending (P2P lending). Regrettably, this issue stems from the inadequate financial literacy among both groups, which is especially ironic considering Indonesia's endeavor to cultivate its "golden generation" to achieve its Golden Indonesia 2045 vision.

Muhammad Amin, an education consultant, underscored the imperative for the government, in collaboration with the Financial Services Authority (OJK) and financial institutions, to prioritize bolstering financial literacy among teachers and students. This would empower them to make informed decisions and grasp the risks inherent in loans from P2P lending platforms.

"Many teachers find online loans enticing due to their accessibility, speed, simplicity, and confidentiality," noted Amin, as cited in Investor Daily on Wednesday.

Statistics from the OJK reveal that teachers constitute 42 percent of defaulted online loans, emerging as the most heavily impacted group.

Enhancing teacher welfare emerges as a viable solution to this predicament. By fortifying the financial stability of educators, they become less susceptible to the allure of online loans, characterized by swift disbursement processes albeit high-interest rates.

Amin further proposed that augmenting teacher salaries could mitigate this issue. However, he underscored that without a concurrent elevation in financial literacy, instances of succumbing to online loan pitfalls would persist.

"Hence, promoting financial literacy among educators is paramount. They require education on navigating financial hurdles. Simply increasing teacher salaries won't suffice to address the issue of falling into online loan traps," he elaborated.

Starting earlier this year, the OJK has reduced the daily interest rate for online loan services to 0.1 percent to 0.3 percent from the previous 0.4 percent.

As of February 2024, OJK data indicates that outstanding loans from peer-to-peer (P2P) lending companies have surged to Rp 61 trillion ($3.8 billion), rising from Rp 60.1 trillion in January, with 16.6 million loan recipients.

The non-performing loan ratio or the 90-day default rate (TWP90) is reported at 2.95 percent. The majority of defaulted loans, totaling Rp 693 billion, were allocated to young individuals aged 19-34, involving 269,118 loan accounts.

The second-highest age group with defaulted loans comprised individuals aged 35-45 years old, totaling Rp 532 billion, followed by those above 54 years old with Rp 127 billion, and individuals under 19 years old with Rp 1.92 billion.

Additionally, the value of non-performing loans in fintech P2P lending (30-90 days) reached Rp 4.1 trillion. Once again, young people aged 19-34 contributed the most, with Rp 2.1 trillion and 1 million loan accounts, followed by those aged 35-54 with Rp 1.7 trillion, individuals above 54 with Rp 268 billion, and individuals under 19 with Rp 21.5 billion.

Source: jakartaglobe