The renewed hostilities in the Middle East have altered the global economic algorithm, reversing cautious optimism and causing severe supply-driven inflation shocks that translate directly into a cost-of-living squeeze as the prices of goods rise.

In the context of our daily lives, this geopolitical turmoil is shaking things up and further reducing our already diminishing purchasing power.

In light of this tight economic environment, the Bangko Sentral ng Pilipinas (BSP) took a positive step in June to lighten the financial load of teachers by stretching the tenor of their borrowings from private lending institutions (PLIs) from five to seven years.

Yes Virginia, for our beloved mentors, it is indeed a welcome financial relief, since the extension lowers their monthly amortization and the extra money can be used to absorb spikes in the prices of basic commodities and services.

On the other side of the equation, though, the policy pronouncement this nosy parker heard circulating around the banking community earned divergent views, with some equating the extension to an “effective temporary band-aid.”

It could also be parallel to a virtual “reset button” and/or portfolio restructuring. Latest statistics place the banking system’s outstanding loan portfolio for teachers under the five-year term at ₱850 to ₱900 billion.

Preliminary guesstimates indicate that this loan exposure under the seven-year repayment period could breach well above the ₱1 trillion mark.

Now, I fully subscribe to the overarching objective of the policy decision, which by design is to ease the repayment schedule of the teacher-borrower under the prevailing economic conditions. As the BSP puts it: “The longer period makes the loan easier to repay.”

The narrative is altogether different from the perspective of PLIs. A senior bank executive, whose institution has a good number of loan exposures to teachers, opines that the extension “requires careful handling.”

In contrast to the belief that it will “still” encourage “responsible borrowing,” the longer period could serve as an incentive to incur new loans, potentially dragging teachers into a never-ending borrowing predicament. This situation will ultimately cost them significantly more in total interest.

From what I’ve gathered, a teacher with a ₱1 million borrowing, on average, seeks a new loan after paying off the original facility for close to two years. Under the seven-year term, however, the re-availment amount goes down to a range of ₱60,000 to ₱100,000, compared to the previous range of ₱120,000 to ₱200,000.

From my exchanges with bank executives, I sensed apprehension regarding the term extension. Their concern is anchored on the assumption that if interest rates go up to quell speculative attacks on the peso and to tame inflationary pressures, the teacher-borrower will face never-ending financial tightness.

It brings to mind the GFAL (GSIS Financial Assistance Loan) instituted eight years ago, which was primarily designed to ease the payment structure of teachers and other Department of Education (DepEd) personnel to the state-pension fund.

Prior to GFAL, teachers and other DepEd personnel were in a tight financial standing due to their relatively huge loan payables from private lenders, which resulted in their monthly GSIS premiums and contributions taking a back seat.

Like the baseline framework of the seven-year term loan extension, GFAL—a refinancing tool—takes into consideration the mentors’ capacity to settle their outstanding obligations, including compliance with the ₱5,000 net take-home pay requirement.

Although the default ratio remains manageable for now at around three to five percent, all things considered, the policy may not foster financial emancipation. Instead, teachers may become over-leveraged.

Let’s see how the wheels churn and how the situation develops from the meeting between the DepEd secretary and PLI executives scheduled in the coming days.