Of all things that 25-year-old Shradha Kapur had imagined about her life post B-school, unemployment and the burden of debt never crossed her mind. She is about to finish her MBA from the Paris-based HEC School of Management and she has yet to see a good job offer come her way. Making it worse, she has Rs 26 lakh of education loan to repay.
There are tens of thousands of students like Kapur, who took large loans in recent years to pursue expensive courses abroad, hoping to pay these off with dollar salaries they would eventually land. Suddenly, they find their back against the wall, with a fast deteriorating global economy forcing companies worldwide to freeze hiring or cut jobs.
“Whichever bank and company I’ve approached so far has claimed a hiring freeze,” said Kapur, who has mortgaged her parent’s house in New Delhi as a collateral for the loan she took from the State Bank of India. “I’ll continue doing internships till I find a desirable job but things will get really tough once I have to start repaying the loan next year.”
Last year more than 1.2 lakh Indian students went abroad for further studies — 83,000 to the US alone. Barring less than 5 per cent of them, the rest either took loans or borrowed from family and relatives.
“The lure of foreign education and high salary prompts thousands to take huge loans,” said career counsellor Usha Albuquerque. “The shrinking job market, however, has put a big question mark on the future of these students.”
There has been a surge in education loans in recent years, despite rising interest rates.
According to the Reserve Bank of India, education loans from commercial banks totalled Rs 23,795 crore in 2007-08, up 143 per cent from a year ago.
Since cases of default are not uncommon, banks insist on parents being co-borrowers.
Employment opportunities after the course and the income of parents were factors that banks weighed while giving the loans, said KC Chakravarty, chairman and director, Punjab National Bank.
The former has taken a beating in recent months, forcing lenders such as ICICI Bank to discontinue loans for students going abroad. “One of the reasons why we discontinued the loan was because the process was complicated and chances of defaults seemed high,” said an official at the bank, who didn’t want to be named.
Also, the loans are not cheap.
Interest rates range between 10 per cent and 14 per cent, depending on when and from whom it was taken.
At SBI, said spokesman Anil Jain, the borrower had five to seven years to repay and the EMI for a Rs 10 lakh loan -- the minimum one needs for an MBA course -- could work out to about Rs 20,000 at an interest rate of 13 per cent.
That is not a huge payout in normal times, when reputed B-school graduates rarely have to worry about jobs with fancy salaries. These days, they do.
Like Kapur, many students are settling for internships that “pay as little as $1,500 to $2,000 per month,” said Amiya Setu who just finished his MBA from Michigan.
“Unless one drastically cuts down on living expenses, one is bound to default on the loan,” said Setu, who took a $130,000 loan for his two-year MBA course.
But he was lucky to get a big loan at much lower rates from CitiAssist, which has tie-ups with several universities in the US and gives loans without a co-signer or a collateral. But in the past couple of months, CitiAssist has cancelled its loan program at several top US universities such as Harvard, MIT, Michigan and Cornell.
“Students borrowing from CitiAssist in these colleges will now require a creditworthy US citizen as a co-signer. This will make it more difficult for international students to get loans,” said Mark Kantrowitz, publisher, FinAid and EduPASS, websites assisting students who want to take loans.
Meanwhile, some students with cash-rich parents are borrowing from them to square off. Homagni Choudhury, a 25-year-old student of economics in the UK, did just that.