It was just a month back when Reserve Bank Governor Raghuram Rajan while answering queries about higher studies loans explained the role of central bank in improving the quality of student loans. Despite high level of defaults in repayment of higher studies 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 disbursement of a typical higher studies loan. Cases of students defaulting on loan payments prompted Indian Bankers Association to review the education loan scheme. We explore what this means for students.

Higher studies 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 higher studies 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 higher studies loan. 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,

“The non-performing assets level is certainly on the higher side in case of education loan advanced collateral free. Only the meritorious rather than the deserving candidates should be considered for granting education loan.”

An IBA document on the scheme throws light on the thinking in government circles on funding for higher education when it observes that

“Public funding of higher education is not considered feasible. This model education loan scheme is an attempt to bring out a viable and sustainable bank loan scheme to meet the aspirations of our society.”

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.

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The RBI has included higher studies loan 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 the job.

Arun Jaitley in 2015, Budget session announced:
"We will ensure no student misses on higher education due to lack of funds."

As we think over the whole scenario, It is never the question of giving higher studies 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 into payback 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 principal 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 the 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.

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Everything you need to know about Educational loans in India

Education Loan Eligibility:

Loans to Indian nationals for pursuing approved courses leading to graduate/postgraduate degree and PG diplomas conducted by colleges/ universities recognized by  UGC/Govt./AICTE/AIBMS/ICMR etc. Reputed professional and technical courses are also considered.

Approval can be checked on www.ugc.ac.in, www.education.nic.in, www.aicte.org.in. Loans for courses in reputed foreign universities are also granted. Indicative list is available at www.webometrics.info 

Eligible Expenses for education loan:

Fees payable, accommodation charges, exam and library fees, reasonable expenses for books and equipment including computer, travelling expenses abroad and other reasonable expenses required to complete course.

Quantum of finance:

Rs. 10 lakh for study in India and Rs. 20 lakh for study abroad. Banks may consider lending higher amount in special cases at their discretion.

Security :

  1. Upto Rs. 4 lakh - No security, but in this case parents needs to be a joint borrower
  2. Between 4-7.5 lakhs- along with parents collateral security in form of third party guarantee
  3. Above 7.5 lakhs- Parents to be joint borrowers + tangible collateral security of suitable value required.

Moratorium period for repayment:

Course period + 1 year or 6 months after getting job, whichever is earlier

Margin money:

Nil for loan up to Rs. 4 lakh. 5 percent and 15 percent respectively for study in India and abroad on loan above Rs. 4 lakhs. Also in cases where your loan amount is higher than 20 Lakhs to study abroad the percentage is calculated in a margin of the required amount where the bank sets a ratio.

Tenure of the Higher Studies loan:

10 and 15 years for loan up to Rs 7.5 lakhs and above respectively.

Under section 80(e) of the Indian income tax act, a person can exempt the amount paid against the interest of thehigher studies loan - either for self or for his/her spouse or children - for eight years from the year(s) he starts to repay the loan or for the duration the loan is in effect, whichever is more.

If you find this Article interesting and share the same concerns regarding the scenario of educational sector and its reliance over funding via Bank Loans or been a student facing the same issues report your story via the comment section below: