Can pay-as-you-earn funding fix Southeast Asia’s higher education debt problem?

A Singapore scheme linking tuition to graduate income is testing if private finance can fill the ‘missing middle’ in regional student loans

A Singapore-based education financing programme is testing whether income-linked funding can widen access to higher education without an unmanageable debt burden, a model analysts say could help ease repayment pressure faced by graduates across Southeast Asia.

Global Financing for Education’s (GFE) Pay It Forward scheme, publicly launched in September, provides students with funding for their education in return for 3 to 10 per cent of their subsequent income for one to 10 years.

The income-linked repayments graduates make to GFE are typically capped at twice the original funding amount.

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The arrangement shifts the risk of weak employment or low earnings from students to the financing pool. But economists say its private-sector structure raises questions about selection criteria and whether students pursuing lower-earning careers could ultimately be excluded.

GFE founder Mario Ferro said the programme had already disbursed about US$25,000 among 11 students since May, while the total amount requested by students was more than US$3 million. Eight of the initial recipients are studying abroad, five of them in Thailand.

Ferro cited the case of one student who received US$5,000 for graduate studies in Singapore and agreed to contribute 10 per cent of income for three years, totalling US$3,600 by the end of the period.

“If the agreed term expires before contributions total US$5,000, the graduate does not owe the difference,” Ferro said, noting that the funding pool absorbed any shortfall while higher earners might contribute more up to the capped amount.

Selecting for outcomes

Ferro said GFE considered financial need alongside the field of study, institution and likely employment outcomes, as the objective was to fund “a credible path into work”.

Despite traditionally modest earnings in nursing, GFE was running an outreach drive for nursing training, Ferro said. This aimed “to support the growth of a profession that is in high demand given the current demographics and [offers] a solid career outcome”, he explained.

Bruce Chapman, the Australian economist who designed his country’s income-contingent student loan system, said public and private providers handled earnings risk differently. “The government pools the risk. [The] private sector wants a return on every person.”

Governments could verify earnings through national tax and payroll systems, but student loan providers from the private sector face an incentive to select applicants who are most likely to generate financial returns, according to Chapman.

While private income-linked contracts could help cash-strapped students, they could not finance higher education universally, as applicants pursuing lower-earning professions might be excluded, Chapman said.

“It can never be a general solution to finance the system,” he added.

Ferro said GFE required graduates to document earnings using payslips, employment records or bank statements.

While there was no fixed income threshold that automatically suspended contributions, graduates experiencing hardship could receive a temporary pause, extension or restructuring for repayments.

Chapman expressed reservations about case-by-case verification, saying hardship provisions depended on reliable income checks.

“They’ve got to set up an administrative system which verifies whether people are really in financial trouble,” Chapman said.

Filling the ‘missing middle’

Such trade-offs play out differently in countries where public help targets the poorest students but leaves middle-income households struggling to cover the full cost of higher education.

In Indonesia, economist Elza Elmira said income-linked finance could reach households that were too affluent for the government’s KIP Kuliah help programme but were unable to afford tuition and living expenses.

“An income-contingent model could reach the ‘missing middle’ that KIP Kuliah does not cover,” Elmira said. “Because repayments rise and fall with earnings, it lowers the risk of default.”

Indonesia’s KIP Kuliah provides tuition and living allowances for students with academic potential but limited financial means, with priority given in 2026 to those from the bottom 40 per cent of household incomes.

Elmira said an income-linked model could help incentivise both students and institutions amid ongoing debate over Indonesia’s large number of higher education institutions and their variable quality. Under such a system, students would evaluate course choices based on expected future earnings, while institutions would be forced to compete to attract more students.

However, Elmira warned that this could inadvertently favour stronger applicants, high-earning fields such as medicine and engineering and top public universities in Java.

“That has the risk of reinforcing regional and institutional inequalities in Indonesia,” Elmira said.

To prevent financing from concentrating in top-tier programmes, Elmira suggested that the government should take part as a lender or guarantor, restrict eligibility to accredited programmes and subsidise priority fields with lower expected financial returns.

“Fair terms should also include an earnings threshold, payments below 15 per cent of income, automatic suspension during unemployment, debt cancellation after a fixed period, death or permanent disability and regulatory oversight,” she said.

Public alternatives

In Malaysia, economist Geoffrey Williams said GFE resembled a privately administered graduate tax but was too small to replace a national student financing system.

“It is a nice scheme but is limited to a handful of people,” Williams said. “A private scheme would be difficult to scale up to hundreds of thousands of people burdened with PTPTN in Malaysia,” Williams said, referring to the country’s National Higher Education Fund Corporation.

PTPTN receives about 3 billion ringgit (US$735 million) annually through borrower repayments and government-backed bonds to support around 600,000 continuing and new students – equivalent to roughly 0.9 per cent of Malaysia’s 2026 operating expenditure.

Williams said GFE could serve as a model for reforming PTPTN by replacing traditional loans with government funding recovered through taxation.

Under this proposal, graduates earning more than 5,000 ringgit monthly could pay an additional 1 to 2 per cent in tax, while workers in socially necessary, lower-paid fields could be exempt.

“Those in higher-paid jobs pay more, even under a fixed-rate tax, because they are benefiting more,” Williams said.

He argued the best way would be to end PTPTN’s loan disbursement model entirely and transition to direct state funding.

He added that private education loans in Malaysia had limited take-up because students could draw on PTPTN or their Employees Provident Fund savings, making private financing more relevant for professional courses and overseas studies.

In the Philippines, students rely mainly on direct public support. Its Universal Access to Quality Tertiary Education programme covers tuition and fees at state universities, complemented by the Tertiary Education Subsidy for priority students.

A supplementary government student loan programme offers short-term financing, but generally requires repayment within 12 months alongside a co-signer, who is equally and immediately liable for the debt. Unlike GFE, it does not link payments to subsequent earnings, leaving borrowers to absorb the financial risk if employment or income falls short.

According to Chapman, these models differ in who bears the financial burden when graduates earn too little: the borrower, the provider or the state.

“It’s the ones who don’t get it [financing] that the issues are about,” Chapman said.