‘WE’RE COMING FOR OUR MONEY’: $100m student loan debt forces hiring of collection agency

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Education Loan Authority's (ELA) delinquency recovery rate needs to increase seven-fold, a Cabinet Minister admitted yesterday, with Bahamian taxpayers "on the hook for $100m".

Jeffrey Lloyd, minister of education, told Tribune Business that the Authority's Board was about to hire a private collection agency "with the teeth" to pursue deadbeat borrowers after its staff found themselves "overwhelmed" by the sheer magnitude of the task.

With legal action was the ultimate recourse, Mr Lloyd said the delinquency recovery rate needed to increase from the present $60,000-80,000 per month to $400,000-$500,000, or from $1m per year to $6-$7m, if the Authority is to "put a serious dent" in what it is owed.

Warning that his and the Authority's "patience has simply run out", the minister slammed the "stubborn and recalcitrant" defaulters who refused to enter even settlement discussions, adding that they faced having their credit standing "permanently tarnished" when The Bahamas' first-ever Credit Bureau goes live within the next view years.

And Mr Lloyd said Tribune Business had "hit the nail on the head" when this newspaper asked whether too many Bahamians viewed a government loan as a gift, grant or free credit with no obligation to repay "a dime" to the Bahamian taxpayer.

His comments came after the Education Loan Authority's 2017 financial statements, tabled in the House of Assembly yesterday, reinforced the depths of a financial crisis that has suspended its granting of new loans for almost a decade and left Bahamian taxpayers facing another substantial liability they may be called upon to cover.

The accounts, audited by the Grant Thornton accounting firm, were heavily qualified as a result of 88 percent of the Authority's $76.844m gross loan book being in default at June 30, 2017.

Some 84 percent, or $64.578m, had been delinquent for one year, with a 12-month incentive programme designed to encourage borrowers to settle their debts or bring them current netting only $3.035m.

As a result, the Authority sank into a $6.229m total comprehensive loss for its 2017 financial year compared to the $1.757m worth of "red ink" incurred in 2017. Three single expenses - $3.22m in bond interest; $1.861m in bad debt write-offs; and $1.375m in impairment provisions - exceeded its total income of $1.293m.

Mr Lloyd yesterday said too many delinquent borrowers had rejected or ignored the Authority's incentives, including "deep discounts of 40 percent", to come in and settle, get current and/or work out a payment plan.

"The Board of the Education Loan Authority is just in the process of finalising a decision on a collection agency," he told Tribune Business. "We had a Request for Proposal out, quite a few replies and are about to make a decision on who to select to get these delinquent accounts back in order.

"It's been our intention to start that process as quickly as possible. We are very impressed by the efforts of the staff in collecting monies on a monthly basis, but it was overwhelming. This collection effort is a bit overwhelming for staff.

"They're collecting $60,000-$80,000 a month, but if you're touching $100m that's outstanding and getting around $1m a year, that will take a lot of time to settle these outstanding accounts. We need greater recovery."

Mr Lloyd continued: "It's important to have this collection agency with the teeth to get out there and take action if people are not responsive, and that's legal action.

"If you look at how bad the situation is, we need to be collecting at least $400,000-$500,000 a month, $6-$7m a year if not more, to put a serious dent in the outstanding balance, which is about $100m and - more importantly - to get the loan process restarted."

The Education Loan Authority has issued no new credit for almost 10 years, having ceased doing so in August 2009, due to the high level of delinquencies among prior borrowers.

The Authority, which was created in 2002 under the second Ingraham administration, was charged with initiating loans to Bahamian students wishing to study at approved universities and colleges. Some $67m was raised via bond issues, with the remaining $33m coming from Bank of The Bahamas to take the funding pool to the $100m maximum that can be guaranteed by the Government.

Mr Lloyd, though, said the failure of many recipients to repay their debts was depriving "dozens and dozens" of current Bahamian students of the opportunity for a higher education, and the possibility of acquiring improved skills and higher salaries.

While Bahamian taxpayers were "not quite on the hook" for the Authority's operational costs and bond payments, which are being financed from monies it has been able to recover, the outstanding loan balances certainly represent a liability.

"It's regrettable that the Bahamian people loan out $100m or more dollars and we put people out into society, many of whom are working, insistent they're not going to repay despite the best and Herculean efforts made by the Education Loan Authority," Mr Lloyd told Tribune Business.

"We have been aggressive at times, but have laxed in the effort. With this loan collection agency we're about to approve our intentions are to be aggressive in pursuit of those who owe money to the Loan Authority."

Many observers, though, and probably the delinquent borrowers, are likely to adopt a "believe it when we see it" attitude to Mr Lloyd's warning given that he and previous ministers have repeatedly threatened to get tough without any subsequent action being taken.

Mr Lloyd, meanwhile, said too many Bahamians viewed a government loan as free credit - akin to a grant or gift - that does not have to be repaid. He added that this culture extended well beyond the Education Loan Authority, recalling his career at the Sears & Co law firm and what occurred when it was hired to pursue Bahamas Mortgage Corporation debts.

"People took out a loan and paid not a single dime for years," he added. "When contacted by the Mortgage Corporation or ourselves they said the Government gave it to us, notwithstanding they signed a mortgage agreement committing them to repay over a number of years.

"Their attitude was that it was granted by the Government, it's free and there's no obligation to pay. That's prevalent throughout society, and I'm quite sure that attitude has seized a number of our loan holders. No doubt about it.

"Our patience has simply run out. We're going to be aggressive in applying the law in these circumstances, yes."

Mr Lloyd said there had been an increase in delinquent borrowers coming into the Authority in the past six weeks to two weeks to settle, come current or agree payment plans. He suggested one factor driving this was the imminent arrival of the Credit Bureau, and possibility that "there credit profile will be tarnished, probably permanently, by their situation".

Grant Thornton's 2017 audit, meanwhile, said it was impossible to determine whether the $16.337m loan provisions taken by the Authority were adequate, given that no proper assessment of its credit portfolio had been conducted.

It revealed that while the Government guarantee for the defaulted loan had ceased due to legislative changes enacted by the former Christie administration in 2015, the one covering the Authority's $68.428m bond debt remained in effect.

Divided into three tranches, valued at $20m, $20m and $27m respectively, the first one was due to mature last year. It is unclear whether that happened, but the debt is likely to have been rolled over and the repayment term extended.

"Repayments of loans receivables by students have not been sufficient to enable the Authority to meet its obligations," the financials said. "The Authority relies on the Government subsistence to provide funding to meet its obligations.

"Management is of the view, however, that it is the intention of the Government to continue to financially support the Authority as a going concern. The Authority continues to operate at a deficit, and therefore, continued financial support of the Government is essential for its operations."