No easy access to education loans yet
The M V Nair Committee has recommended that the limit of education loans be considered as priority sector and be raised from Rs 10 lakh to Rs 15 lakh for study in India and from Rs 20 lakh to Rs 25 lakh for study abroad.
As far as education loans are concerned, this recommendation is unlikely to have any big impact on students seeking such loans. As it is, education loans are considered priority. These are not easy to secure and the proposed increase in the limit is unlikely to ease the process.
The more significant recommendation will be to issue a clarification that education loans granted to individuals for vocational and skill development courses from government-recognised institutes, availed either singly or jointly with their parents, are also under the ambit of such loans.
The two main issues that impact education loans are:
Inherent risks: Education loans by their very nature are risky because repayment is generally dependent on sufficient increase in income generation after the course.
Collateral security: Many people are not able to provide for collateral security, therefore exposing the lender to a higher risk quotient. Globally, education loans are supported by governments because they create qualified human capital.
In India, the government has been contemplating setting up a guarantee fund for the past four-five years but that seems to be stuck in red tape. An education guarantee fund set up on the lines of Credit Guarantee Fund Scheme for micro and small enterprises managed by Small Industries Development Bank of India would really energise the market for education loans. Similarly, the Education Guarantee Fund can enable banks to distribute loans where a significant portion of the risk can be underwritten by the guarantee fund.
Though the increase in limit for the priority sector is welcome, it is unlikely to have any major impact on the segment. The same holds true for the increase in priority sector advances to foreign banks from 32% to 40%, which again is unlikely to have any huge impact on the education loans.
Questions to ask yourself
Before applying for an education loan...
* Is the course offered by college/institute/university recognised by UGC/AICTE/ the government etc?
* What expenses does the loan cover?
* How much loan can I get
* Do I have to provide collateral or guarantor Desirable qualities
* Low interest rate
* No prepayment penalty
* Minimum or no collateral required
* Flexible repayment option
The author is CEO, Apnapaisa.com. He can be reached at www.facebook.com/apnapaisa