Everything you need to know about education loan

by Anil Surma Banking

It was just a month back when Reserve Bank Governor Raghuram Rajan while answering queries about educational loans explained the role of central bank in improving the quality of student loans. Despite high level of defaults in repayment of loans taken by students to pursue higher education the governor empathises with the students while informing the media about the various issues and loops in the system of student loans disbursed. Cases of students defaulting on loan payments prompted Indian Bankers Association to review the education loan scheme. We explore what this means for students.

Education loan is becoming popular day by day because of rising fee structure of higher education. It came into existence in 1995 started by SBI Bank and after that many banks started offering student loan. The Indian banking sector began giving education loan from 2001 onwards. But recently, in the wake of increasing Non Performing Assets (NPA) on educational loans, the Indian Bankers Association (IBA) has revised the educational loan scheme, framed in 2001. Though the situation is far from worrying, banks have been advised to be prudent and cautious while granting educational loans. For instance, State Level Bankers’ Committee (SLBC) Chairperson Usha Ananthasubramanian sent a strong message to banks in Punjab and Haryana when she told in a committee meeting that, An IBA document on the scheme throws light on the thinking in government circles on funding for higher education when it observes that The public expenditure of less than 1 percent of GDP on higher education is lower than even many developing countries. And with low tax-GDP ratio there is ample scope to fund higher education by raising resources from tax.

The RBI has included education loans as part of the priority sector lending of banks. It aims to provide need-based finance to meritorious students. But students should bear in mind that educational loan is like any other commercial credit, and it is at the bank’s discretion to sanction a loan after assessing ‘credit worthiness’ of the borrower. This entails that students should be well prepared for commercial negotiations by doing their homework well on how to repay the credit through earnings from job.

Arun Jaitley in the 2015, Budget session announced:

As we think over the whole scenario, it is never the question of giving education loan that raises concerns but to take crucial steps like reducing the interest rates, increase the moratorium period, making the repayment of student loans easy, assure job prospects with progression and extended terms to be taken in high priority. As of now thousands of students and parents of students who have taken loans are reeling under the pressure of very high rates of interest and tight term periods for return, with practically no jobs post completion of studies for such education where the student can chip in to pay back the loan amount. Crores of rupees are stuck in Non Performing Accounts (NPAs) with banks and the student and parent not knowing how to pay back and close the accounts, since the amount keeps adding to the principle amount, if the payments are not made regularly. The govt needs to review all such old cases and help them get out of the situation before we start hearing of parents and students committing suicide due to this reason. Never to forget that India is a youth based country where majority of its workforce is built by youngsters in action. It’s a demoralizing effect in the prime part of their careers to undergo such situation and moreover many students land up in career options outside their fields of interest just to satisfy the loan giants.

Source: https://www.evernote.com/shard/s611/sh/404185f6-610d-446e-b339-7915142b1dde/5d52a1b12804f5b5934fd9d0d8d3732d