Dr Manasvi M Kamat
The issue of educational loans is at the forefront in recent times. The Central Government in the last week has made it clear that there was no proposal for waiver of educational loans in India, despite the growing demands for doing so. Secondly, banks discriminating in lending based on caste is petrifying. The fact that education loans certainly don’t seem to be a priority for banks is equally disturbing.
The priority sector education loans disbursed by banks registered a year-on-year declined by 5.6 per cent in November 2019, following a 4.7 per cent drop in 2018 and a 3.3 per cent dip in 2017. As per government data, only about 44,000 students availed loans in the current financial year, even though the Union HRD Ministry has set a target of offering it to nearly 3.3 lakh students per year. The net effect is that in the past four years the number of education loans disbursed in India has reduced by 25 per cent, also decreasing the average amount of loan disbursed.
The education loan scheme launched in 2009 and meant to help students up to Rs 7.50 lakh without banks seeking any collateral security as the government is the guarantor. The students with a family income of less than Rs 4.5 lakh per annum are also eligible for loans under the 2009 scheme and as of now around Rs 6,600 crore has been allocated under this scheme.
Higher education loans in India are categorised into two -- the traditional mortgage-style loans and the income-contingent ones. The former has a fixed tenure and interest to ensure minimum loan defaulting. The latter one requires payments only when a student starts earning above a certain income level to reduce the burden. The future of such loans rests on the probability that students get better-paying jobs to ensure loan repayment. However, given the precarious situation in the economy that unemployment rate in the country is at 7.5 per cent (as per CMIE) and the GDP growth is the slowest a 4.5 per cent indicating no new job growth and more job losses, the entire assumption of the loan-structures falls flat.
Thus banks have been found to sanction big-ticket loans and only to students of only top-ranked institutions who may at least be assured of getting well-paid jobs. Secondly, banks are wary of high non-performing asset levels due to higher loan defaults. The NPA on education loans has nearly doubled to 12.5 per cent in the past four years compared to home loan default rates at around 2-3 per cent, for two-wheelers around 4 per cent and commercial vehicle loans up to 6 per cent.
It is found that the highest defaults exist in the sub-Rs 4 lakh segment while higher-ticket size loans of between Rs 7-10 lakh normally have a lower rate of default. Banks have gradually shifted from lending to poorer students, where they consider risk in their ability to land a job or parents unable to put up collateral. Students from lower-income families are more likely to take smaller loans either due to a lack of collateral or because of the psychological and financial burden of a loan on their families, and thus stick to courses which earn them less income. The same students when encountered with difficulty in getting jobs default on loan payments.
With banks adopting an over-cautious approach the number of smaller loans granted fell drastically. This is because recipients of smaller loans are usually correlated with lower incomes forcing our public sector banks to follow lengthy documentation for Rs 4 lakh loans without collateral. The private banks, on the other hand, have a tie-up with elite educational institutions and they lend only to their students creating a dismal scene for less-privileged students.
It’s not only quantity alone, but the quality of educational loans which is deteriorating as well, raising questions from the social equality and social justice perspective. MHRD data indicates variation in size of loans disbursed, with OBCs, SCs and STs receiving lower amounts on average indicating a social problem.
It is found that around 60 per cent of the education loans disbursed in the country go to upper-caste students and in all gross almost 70 per cent of the total loans dispersed as per the data furnished by MHRD in the Lok Sabha. The data provided was on the Credit Guarantee Fund Scheme for Education Loans (CGFSEL), through which banks can avail surety from the National Credit Guarantee Trustee Company Limited (NCGTC) for loans sanctioned up to Rs 7.5 lakh without any collateral.
The data available from the financial year 2016-17 till now shows that of the Rs 4.1 lakh students benefited under the scheme, a whopping 67 per cent belonged to General Category and they availed 70 per cent of the total of Rs13,797 crore loan amounts covered under CGFSEL. On the other hand, only 23 per cent of the loan beneficiaries were from the OBCs, 7 per cent from SCs and only 3 per cent from STs. The average loan amount guaranteed under the scheme for a general category student was around Rs 3.54 lakh. In contrast for students from other categories the size respectively for the students of OBC, the SC and the ST was Rs 2.91 lakh, Rs 3.24 lakh, and Rs 3.17 lakh. The Government must, therefore, ensure that reserved category students are not discriminated against by the banks.
In this context, there was an out-of-the-box suggestion at the Savitribai Phule University in Pune. Some senate members at the University have proposed that the students who wish to pursue higher education at private institutions but who can’t afford a loan with minimal interest by the University. The members observed that students shy away from unaided courses as they can’t afford them and leading to many seats at unaided institutions going vacant.
Observing the space for business left open by our banks, numerous fintech start-ups have embarked on offering education loans. There is an increased preference for education loan schemes of fintech start-ups because the application process is smooth and the loan gets sanctioned within five working days which is speedy compared to banks. Companies like Avanse Financial Services, SlicePay, Krazybee and DiFin offer loans for funding vocational and short-term courses, to pay for school fees, besides for funding graduation and higher studies. This, however, comes at a cost of higher per cent interest than banks and no tax benefit.
Given the glaring realities of educational loans in India, it is imperative that we understand the relevance of education loans and do the needful to plug the loopholes.
