By the end of last year, more than 2.6 crore Indian students were enrolled in higher education programmes. This number is expected to swell to up to 3.5 crore in the next two years as the government embarks on plans to boost literacy. It will mean more young people competing for seats in their preferred universities. But the inability to pay for an expensive education could limit many students from economically weaker backgrounds.
The need for financial assistance for these students cannot be underestimated. Those aspiring to graduate from the top management schools have to pay upwards of Rs 25 lakhs for their education. For engineers, the figure varies from Rs 4 lakhs to Rs 20 lakhs. The cost of education is turning out to be a nightmare for students, some are looking outside the country for cheaper options.
The Delhi government, in keeping with a poll promise, recently announced plans to introduce a collateral-free education loan scheme which would allow students pursuing higher education to approach banks for loans of up to Rs 10 lakhs, without having to offer any security. Still in its nascent stages, the scheme is likely to undergo many changes. But having the government stand guarantor for education loans could make things easier for students.
But will banks lend?
Still, experts point out that it is going to be a difficult task for the government as well as for students to convince banks to lend to them. The public sector banks that are mainly tasked with carrying out government’s priority sector lending objectives are not too happy lending to students: their books already carry irrecoverable student loans, aggregating to Rs 4,000 crore by the end of 2013.
The Reserve Bank of India has already warned banks to be careful about providing education loans, which are seen as high risk. The RBI, however, emphasised that the banks should not shy away from restructuring debt or giving top-up loans so that a student can continue her education and increase her chances of repayment after getting a job.
Wavering Interest
According to figures presented by the Ministry of Finance in Lok Sabha, a little over 24 lakh students had availed education loans through public sector banks in 2014, a fraction of 2.6 million students enrolled in higher education courses.
“The biggest trouble for the students is that banks are unwilling to lend since the loan repayment starts only after completion of studies,” said K Srinivasan, Convenor of the Education Loan Task Force, a non governmental organisation in Chennai working in the area. “The banks don’t convey rejection or acceptance on time and even refuse to provide application forms at some places. RBI has advised all banks not to follow service area concept. Many banks follow this and make the students run pillar to post.”
Missing subsidies
More worrying is the slowing growth of new loan accounts in public sector banks. While education loans grew by over 17% in 2011, the growth was down to just 9% by the end of 2013 even as the outstanding balance in loan accounts increased to over Rs 50,000 crore from Rs 35,000 crore in the same time period.
To help people from economically weaker sections get an education, the government in 2009 started an interest-waiver scheme for students from families whose income is less than Rs 4.5 lakhs a year, during the tenure of their studies. As a result, more than Rs 3,913 crore worth of subsidies have been claimed by public sector banks by the end of 2013.
Srinivasan claimed that this is where the problem needs to be addressed. The government is not paying these subsidies on time, he said, leading to a further bottling up of debts for banks that try to get the money out of students. “If the student is still studying, he can’t be expected to make the interest payment that the government promised to make on his behalf,” he said. “Banks are showing as non-performing assets what is actually the government’s liability. If the education loans are reclassified by banks, the NPAs would come down heavily.”
This was borne out last year when the Indian Banking Association shot off a circular to all public sector banks saying that it could only claim interest subsidies for students belonging to SC/ST category and not for general category for the year 2013-'14 because the Ministry of Human Resources Development had run out of funds.
In a similar admission, the Indian Overseas Bank confirmed to a student borrower through a letter that the government settled only 44% of its claims in the year 2013-'14 while it had promised to settle 100% interest burden for students during their years of study and an extra year until they find a job.
Practical solutions
These lacunae have prompted hordes of students to lodge complaints to the ministry and their respective banks. Between 2011-'14, close to 20,000 complaints had been officially registered, according to the government data.
Srinivasan argued that the Delhi government is better off providing a scholarship scheme instead of brewing a concoction that will only hurt students in the long run. “They are basically claiming that we will pay for you if you can’t and that sends a wrong message to the students who will think they don’t need to pay for it,” he said. “At the end, the student will become a wilful defaulter thinking that the government will pay but the government will default and the banks will trouble and hound students with recovery agents and court cases.”
Others argue that scholarships should not be seen as a replacement for loans. The need of the hour, they argue, is to ensure that once any student is eligible to get admission on the basis of merit, she should not suffer for being unable to pay and should have access to a transparent financial system. The Delhi government definitely needs to spell out its loan policy in detail and explain how it will ensure that these noble intentions will actually end up in deserving students' accounts.
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The need for financial assistance for these students cannot be underestimated. Those aspiring to graduate from the top management schools have to pay upwards of Rs 25 lakhs for their education. For engineers, the figure varies from Rs 4 lakhs to Rs 20 lakhs. The cost of education is turning out to be a nightmare for students, some are looking outside the country for cheaper options.
The Delhi government, in keeping with a poll promise, recently announced plans to introduce a collateral-free education loan scheme which would allow students pursuing higher education to approach banks for loans of up to Rs 10 lakhs, without having to offer any security. Still in its nascent stages, the scheme is likely to undergo many changes. But having the government stand guarantor for education loans could make things easier for students.
But will banks lend?
Still, experts point out that it is going to be a difficult task for the government as well as for students to convince banks to lend to them. The public sector banks that are mainly tasked with carrying out government’s priority sector lending objectives are not too happy lending to students: their books already carry irrecoverable student loans, aggregating to Rs 4,000 crore by the end of 2013.
The Reserve Bank of India has already warned banks to be careful about providing education loans, which are seen as high risk. The RBI, however, emphasised that the banks should not shy away from restructuring debt or giving top-up loans so that a student can continue her education and increase her chances of repayment after getting a job.
Wavering Interest
According to figures presented by the Ministry of Finance in Lok Sabha, a little over 24 lakh students had availed education loans through public sector banks in 2014, a fraction of 2.6 million students enrolled in higher education courses.
“The biggest trouble for the students is that banks are unwilling to lend since the loan repayment starts only after completion of studies,” said K Srinivasan, Convenor of the Education Loan Task Force, a non governmental organisation in Chennai working in the area. “The banks don’t convey rejection or acceptance on time and even refuse to provide application forms at some places. RBI has advised all banks not to follow service area concept. Many banks follow this and make the students run pillar to post.”
Missing subsidies
More worrying is the slowing growth of new loan accounts in public sector banks. While education loans grew by over 17% in 2011, the growth was down to just 9% by the end of 2013 even as the outstanding balance in loan accounts increased to over Rs 50,000 crore from Rs 35,000 crore in the same time period.
To help people from economically weaker sections get an education, the government in 2009 started an interest-waiver scheme for students from families whose income is less than Rs 4.5 lakhs a year, during the tenure of their studies. As a result, more than Rs 3,913 crore worth of subsidies have been claimed by public sector banks by the end of 2013.
Srinivasan claimed that this is where the problem needs to be addressed. The government is not paying these subsidies on time, he said, leading to a further bottling up of debts for banks that try to get the money out of students. “If the student is still studying, he can’t be expected to make the interest payment that the government promised to make on his behalf,” he said. “Banks are showing as non-performing assets what is actually the government’s liability. If the education loans are reclassified by banks, the NPAs would come down heavily.”
This was borne out last year when the Indian Banking Association shot off a circular to all public sector banks saying that it could only claim interest subsidies for students belonging to SC/ST category and not for general category for the year 2013-'14 because the Ministry of Human Resources Development had run out of funds.
In a similar admission, the Indian Overseas Bank confirmed to a student borrower through a letter that the government settled only 44% of its claims in the year 2013-'14 while it had promised to settle 100% interest burden for students during their years of study and an extra year until they find a job.
Practical solutions
These lacunae have prompted hordes of students to lodge complaints to the ministry and their respective banks. Between 2011-'14, close to 20,000 complaints had been officially registered, according to the government data.
Srinivasan argued that the Delhi government is better off providing a scholarship scheme instead of brewing a concoction that will only hurt students in the long run. “They are basically claiming that we will pay for you if you can’t and that sends a wrong message to the students who will think they don’t need to pay for it,” he said. “At the end, the student will become a wilful defaulter thinking that the government will pay but the government will default and the banks will trouble and hound students with recovery agents and court cases.”
Others argue that scholarships should not be seen as a replacement for loans. The need of the hour, they argue, is to ensure that once any student is eligible to get admission on the basis of merit, she should not suffer for being unable to pay and should have access to a transparent financial system. The Delhi government definitely needs to spell out its loan policy in detail and explain how it will ensure that these noble intentions will actually end up in deserving students' accounts.