FLEXIBILITY IN EDUCATION LOANS


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Education is a nation’s asset that has proved to be crucial, however, of late, it comes with exuberant costs, disempowering the asset little by little. By Yugansha Malhotra

Higher education courses, especially those for professional training or in foreign colleges tend to come with a heavy expenditure on fees and travel. In such cases, taking an education loan may be a good option. Such loans are an attractive option not only for students from economically weaker sections of the society but even for those from middle or higher middle class due to the easy repayment options and availability of funds. Education loan portfolio of banks have been rising steadily given that it is, one of the priority sectors under which banks are mandated to lend, by the Reserve Bank of India. Despite all this, there has been constant reluctance by students to actually go forth with the idea, due to various issues that prove as an inhibitor.

There has been a rise in nonperforming assets (NPAs), which have led several public sector banks to go slow on educational loans, as per the latest data compiled by the Finance Ministry. Banks have just managed to achieve 50 percent of the disbursal target of the year 2105-2016, according to the Finance Minister Arun Jaitley. This concern was raised by him while meeting the chief executives of the public sector banks. Reserve Bank of India Governor, Raghuram Rajan, had raised concerns over the increase in non-performing assets ineducation education loans and said such loans should be devised in a flexible manner. It is the largest investment sector, which would reap great benefits and strengthen the human resource of the country.

There are lots of NPAs in the education sector, which have been on a steady rise since last few years. A student, under the educational loan scheme, can borrow up to Rs.10 lakh for domestic education and Rs.20 lakh for studying in foreign colleges, for which they don’t have to pay during the tenure of their education and for an additional year. The repayment period is five to seven years.

However, for loans ranging above Rs.4 lakhs, there is collateral need, which is not a luxury afforded by all those who apply for it. The demand for collateral acts as an obstacle down the educative road students are willing to take. Thus, the maximum number of bad loans lies in this segment.

Expressing worry over rising defaults in education loans, Raghuram Rajan said they should be devised in a flexible manner, providing options like automatic moratorium if borrowers are unemployed. He mentioned that more flexible loans can be created by using unique identification number or Aadhaar information. If one were under the period of unemployment, one can get an automatic moratorium, which need not be negotiated with the bank, as it is already stated in the contract. He also mentioned the possibility of tailoring the loans, as per the repayment is concerned. If one earns lavishly, one can pay more than the standardized amount, and if one is earning just sufficient, they can pay less. Such tailoring won’t scare the students to ask for help, and adjustments in the standardized amount of loan payments might come as a relief.

“Raghuram Rajan has stressed the need to introduce flexibility in
education loans, so as to encourage the students to apply for it, shredding the obstacle of time-induced loans into pieces.”

He also stressed on making knowyour- customer (KYC) norms simpler, also making it more accessible to people, who are naïve regarding the details, and don’t possess all the deemed documents. He contemplated on the access to KYC, which might get triggered with biometric or with Aadhar card. He also emphasized upon the need to raise awareness regarding the financial systems. Being on the verge of a paradigm shift on how to do financial inclusion, there is an utmost need to bring out policies that would greatly uplift the community of students as a whole. Getting loan shouldn’t be a luxury, rather establishing oneself as luxurious should be the aim. Financial literacy should be stressed upon, as the majority of the population of the country is youth, there should be awareness when the provision of educational aid is being concerned. The efforts of Raghuram Rajan to change the policies of educational loan couldn’t come at more opportune time, and would definitely be helpful to the students’ body at large.

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