CPF EDUCATION SCHEME

Mrs Yu-Foo Yee Shoon asked the Minister for Labour whether the study on the use of Central Provident Fund for education has been completed; and, if so, what percentage of the CPF contributors will benefit from the scheme.

The Minister for Labour (Mr Lee Yock Suan): Mr Speaker, Sir, I am pleased to inform the House that the study on the use of CPF for local tertiary education has been completed. The new scheme will allow CPF members to invest part of their CPF savings in tertiary education for themselves and their children. It will be called the 'CPF Education Scheme'.

In drawing up the Scheme, my Ministry was guided by one basic principle, namely, that the fundamental objective of the CPF scheme should be safeguarded. CPF savings are to provide for the old-age needs of the CPF members themselves. Any investment of CPF in education must not violate this primary objective.

The CPF Education Scheme is therefore basically a loan scheme. Any CPF withdrawn for education must be fully repaid with interest to the original CPF account. With the long-term CPF contribution rate set at 40%, most CPF members will have just about enough to pay for their housing, Medisave and old-age needs if there is no leakage for other purposes.

As with the Approved Investments Scheme, a CPF member must have at least the minimum sum of $30,900 in his Ordinary Account (inclusive of amounts withdrawn for housing), before he can participate in the CPF Education Scheme. Should the investment fail or if the loan is not fully repaid for whatever reason, he will have at least the minimum sum to survive on at subsistence level. The minimum sum is only enough for subsistence living.

Altogether about 500,000 or half a million members with CPF savings exceeding $30,900 will be eligible to participate in the Scheme. This constitutes 51% of the active CPF members. The number and proportion will increase as members build up their savings.

The Scheme will be confined to full-time degree or diploma courses at the National University of Singapore, the Nanyang Technological Institute, the Singapore Polytechnic and the Ngee Ann Polytechnic. The amount members will be allowed to withdraw will be limited to the full tuition fees for the approved courses, and to 40% of their CPF balances in excess of the minimum sum (as for the Approved Investments Scheme), whichever is the lower.

Sir, the scheme will not cover overseas tertiary institutions. Overseas tertiary education is extremely expensive. A three or four year course will easily cost more than S$100,000. This is far more than the CPF balances of most Singaporeans. Parents who can contemplate sending their children on such courses are likely to have substantial income. If we allow those who do not have such resources to use CPF for overseas tertiary education, we will be placing many of them under great pressure to send their children overseas when they really cannot afford to do so.

Furthermore, overseas institutions and courses vary enormously in type and quality. The Government is in no position to assess, much less pass judgment on, the quality of foreign tertiary institutions, whether individually or by categories. To approve some institutions while excluding others will lead to contention. Yet to allow Singaporeans to use their CPF for all of them, regardless of the character of the institutions, will be irresponsible. The Government has therefore chosen a cautious approach in implementing the CPF Education Scheme, and excluded overseas institutions altogether.

Like the other CPF investment schemes, there will have to be adequate safeguards to ensure repayment to the members' CPF accounts. Besides the loan document, a guarantor will be required as in the case of the NUS or NTI loan scheme. This is similar to the charge on a property bought with CPF funds.

The education loan will carry interest pegged at the CPF rate. Interest will be calculated from the date funds are withdrawn. There will be a charge by the CPF Board to cover the cost of administering the scheme.

The borrower will be allowed up to 10 years to repay the loan plus interest. He will be required to start repaying within one year after graduation or leaving the course for whatever reason. Repayment will be in cash. Otherwise it could lead to his CPF savings being siphoned to his parent's CPF account and thereafter withdrawn prematurely.

Repayment will continue even if the lender has reached the age of 55 years. This is to prevent the scheme from degenerating into an early withdrawal scheme. Under existing CPF rules, money repaid into the member's account after age 55 will be withdrawable when the lender reaches the age of 58 years and every third year thereafter.

The CPF Education Scheme will be implemented after the necessary amendments have been made to the CPF Act. As this will take time, the amendments will be back-dated, if necessary, to enable the scheme to be implemented from the new academic year in July.

Mr Lim Boon Heng (Kebun Baru): Mr Speaker, Sir, I have a series of supplementary questions for the Minister. First, would the CPF member be permitted to use his CPF savings to finance his own tertiary education? We have been talking about financing the education of children but can he use it to finance his own tertiary education? And, if so, could he be permitted to use it for overseas education, say,to pursue a Ph.D, especially if he has already got a house or an apartment worth more than $30,900; and if this sum is considered to be too small, would he be permitted if he already owns a house worth more than half a million dollars?

On the question of default on repayment,is it the CPF Board who will prosecute? If the member does not want the CPF Board to prosecute the son for his default of repayment, then what would be the position of the CPF Board?

Mr Lee Yock Suan: Mr Speaker, Sir, as I have said, the CPF scheme will allow CPF members to withdraw CPF savings not only for their children's education but also for their own education. As to whether it can be allowed for, Ph.D courses overseas, the answer is "yes" for Ph.D courses but "no" to overseas for the reasons I have already stated.

In case of default, the CPF Board will have to try and recover the money from the child or from the borrower. One way could be to have it in the law that the CPF Board can request the employer to deduct the repayment instalments from the borrower's salary. We are still in the process of drafting the amendments. The point is if we allow a member, say, the parent, to waive the repayment we could be placing the parents in a difficult position when they are pressurized by their children. We want to be careful not to allow this scheme to degenerate into an early withdrawal scheme. Therefore, we must insist on repayment.

Mr Chiam See Tong: Sir, will the Minister be willing to put this amendment to the Select Committee? I am sure there are many other suggestions which could be very fruitful. The second one is: why the need for a guarantor when there is already a minimum sum of $30,000 as a requirement first?

Mr Lee Yock Suan: Sir, I do not see the need for referring this to a Select Committee. I think the amendments will be straightforward. The problems are more of the philosophy and the attitudes - whether people feel that the scheme should be more liberal, for example, to allow for overseas education. We have good reasons, as I have said, why the scheme has to be this way. From the point of view of the CPF Board, we have to safeguard the basic objective of the scheme which is to ensure that a member has enough savings for his old age and that is why we have requested for a guarantor. We expect that the guarantor would most likely be a friend or a relative. So at the very least there will be additional moral pressure on the borrower to repay the amount. This is the same way as in the case of the NUS and NTI scheme and also for other CPF schemes where we try to make sure that the safeguards are there to protect the funds for the member's old age.

The $30,900, as I have said, is just enough to live on after age 60 at almost $300 ( I think the new figure is $245) per month. This is only enough to cover subsistence living. To live at a reasonable standard and to maintain the standard of living after leaving his job, a member needs much more than this. In fact, he needs the full 40% CPF.

Dr S. Vasoo (Tiong Bahru GRC): Sir, firstly, would a member be allowed to use the scheme if he is an external student studying in Singapore? Secondly, would the scheme cover students who are studying in polytechnics? Thirdly, would the Minister consider allowing the same amount of fees payable in the Singapore context to apply to studies overseas?

Mr Lee Yock Suan: Sir, for foreign or external students studying in Singapore, the question is whether they or their parents have CPF in Singapore. If they do, then I think we should allow them, if they are CPF members. As for polytechnics in Singapore, the answer is yes. He may not have heard it clearly but polytechnics qualify polytechnics qualify as tertiary institutions. So we should allow them.

In the case of overseas education, if we allow CPF members to withdraw up to the limit of the local fees, I think the sums that can be withdrawn will be very small in relation to the cost of the overseas training. On the other hand, once we allow that, then we are conceding the principle that we can allow for overseas education. Therefore, the Government has considered all the pros and cons and decided "no" for overseas education.

Dr Aline K. Wong (Tampines GRC): Would the Minister not agree that with this kind of restriction on the use of CPF funds, limiting it mainly to local studies, the scheme is more of a concession in principle than of any material assistance to families, since local students can apply for university loan schemes which are granted roughly on the same kind of principle and to cover the whole cost of the local tuition?

Mr Lee Yock Suan: Sir, the NUS and NTI schemes can only cover half the fees, not the full fees. So there is already a doubling of the amount that can be borrowed. And if you look at the cost of studying Medicine, for example, at the new fees of $7,200 per year, if it is a five-year course, it would be $36,000. So the amount that can be withdrawn is fairly substantial. In fact, the scheme will benefit a big number of borrowers. Most of the members can only afford to send their children to local universities, either the NUS, NTI, or the polytechnics. Therefore, by so allowing, and I mentioned that half a million members can qualify, the majority will already benefit. The ones who can send their children overseas are, in fact, the minority.

Dr Aline Wong: Just a point of clarification. Students can apply for half of the tuition fees from the revolving loan fund. They can also get the other half from the university loans.

Mr Lee Yock Suan: Sir, I believe the other half can only be granted to hardship cases, whereas this CPF education scheme is applicable to everybody. Another difference with the NUS scheme is that the NUS loan scheme is interest-free until graduation. Once the child graduates, he pays interest, I believe, at the prime rate, whereas the CPF scheme will be at CPF rate all the way through. CPF members will have a choice - they can have either the full CPF loan or CPF-half NUS, or whatever. It is a further liberalization of the CPF scheme.