The Department of Finance has ordered the LandBank of the Philippines and the Government Service Insurance System (GSIS) to work out an easy-to-pay, low-interest refinancing program for public school teachers so they could pay-off debts from private lenders.
Finance Secretary Carlos Dominguez III said that this would enable teachers be free from exorbitant borrowing rates.
“The teachers pay less, [the government financial institutions (GFIs)] earn more than leaving (their money) in government securities, and the funds that teachers earn anyway goes back to them as their retirement fund,” Dominguez said.
This kind of refinancing program or loan restructuring scheme would be beneficial for teachers since they will get to pay lower interest on their existing loans and even save up for their retirement fund.
According to a report from the GSIS, the Department of Education (DepEd) has a default rate of almost 40% on its loans. This is due to the loans incurred by public school teachers who cannot settle their debts to GSIS because of their financial obligations to private lending institutions (PLIs).
Apparently, DepEd prioritizes PLIs over GSIS loans in deducting payments through automatic salary deductions. Thus, DepEd has issued a directive to prioritize GSIS premiums and loan obligations in salary deductions.
GSIS is also drawing up a ‘financial assistance’ package for teachers and other DepEd personnel in order to refinance their loans.
Upon learning of this crisis, Secretary Dominguez proposed that LandBank and GSIS aggressively compete with PLIs by offering lower interest rates to public school teachers and other DepEd personnel.
“We have this demand (for loans) and we are not meeting them even if we can, and others are taking advantage and charging more. Why don’t we maximize what we can lend to them?” Dominguez told GSIS and Landbank officials present at the Execom meeting.
He added that PLI’s would then compete by offering lower borrowing rates than the GSIS and other GFI’s can offer.