New Hope for Education Loans

A proposal in the Union Budget 2015-16 to establish a Student Financial Aid Authority to administer and monitor scholarships and education loans, offers the prospect of revitalising the country™s malfunctioning high-interest education loans system    Summiya Yasmeen Gurgaon-based Meghana Sathyanarayan, communications officer of CottonConnect, a UK-based NGO, is grateful to two public sector banks for fulfilling her higher education dreams. In 2010, the nationalised State Bank of Mysore loaned her Rs.3 lakh to help fund her undergraduate media degree at Jain University, Bangalore and later in 2013, the public sector Corporation Bank advanced her an education term loan of Rs.15 lakh repayable over 10 years to finance her Masters in corporate social responsibility at Nottingham University, UK. œThough the paperwork was cumbersome, without these bank loans, I wouldn™t have been able to finance my higher education, she says. Meghana is one of the fortunate 2.6 million students in higher education who met the stringent eligibility criteria stipulated by the country™s 26 public sector and 23 private banks for advancing education loans. Over the past 15 years, following a sympathetic-to-education Union Budget 2001 which directed the Reserve Bank of India (RBI) to issue guidelines to the country™s public sector banks to disburse education loans, the number of student loanees has increased significantly. Education loans disbursed by the country™s banks rose from Rs.15,000 crore in 2007 to Rs.70,000 crore in 2014. Yet despite the steady growth of education advances over the past decade, given the onerous terms and conditions under which study loans are sanctioned, less than 10 percent of the 30 million youth enrolled in institutions of higher education in India avail of them. Against this, 79 percent of students in higher education in the UK and 71 percent in the US fund their education by way of long-term loans. Moreover, according to Union ministry of finance data, there™s a decline in the growth rate of education loans disbursed by public sector banks (PSBs), which advance over 90 percent of all credit in India. While education loans sanctioned grew by over 17 percent in 2011, the growth rate fell to 13.6 percent in 2012 and 9 percent in 2013, even as the outstanding balance in study loans advanced increased to over Rs.50,000 crore from Rs.35,000 crore in the same time period. As of February 2015, banks had a total outstanding of Rs.63,500 crore due as education loans, according to the RBI. Non-Performing Assets (NPAs) in the education loans portfolios of public and private banks range between 5-9 percent, against the average NPA rate of 4.5 percent of all loans advanced. With dissatisfaction over tardy disbursement of education loans becoming increasingly vocal, in the Union Budget 2015-16 presented to Parliament on February 28, finance minister Arun Jaitley announced an apex-level authority to administer and monitor education loans and scholarship schemes. œWith a view to enabling all poor and middle class students to pursue higher education of their choice without any constraint of funds, I propose to set up a fully IT-based Student Financial…