A few days back, for millions of (prospective) students across India, it was a good news to hear on the television when the Finance Minister gave a statement that no student education loan application can be turned down by a banker if the student has a valid loan application. As per BS news:
"Bank account is a right of an individual. It is not a gift of a bank and bank loan is a right of every student. No application from a deserving candidate, if he/she meets the parameters, should be turned down by the (bank) officer receiving it. If a loan is not given, the decision can be taken only at one level higher to the officer receiving the loan application," Chidambaram said.
As an independent individual, I dont think allowing every single student to apply and get a education loan is a good idea. What this means is that everyone who secures admission in any kind of college can be assured and guaranteed a student loan.
Let's momentarily look at the education scenario in India. For a moment, forget about the top notch institutes like IIM, IIT, NIT, AIIMS, quality government colleges, etc. Except for a few top institutes, the education space is majorly occupied by the average (and some even below average) institutes where quality and standards of education provided has always been in question. With the political class getting easy approvals to start colleges and institutes on their own (or through their relatives or friends), there has been a flood of professional institutions mushrooming in all parts of India.
Not just in cities, you can now find MBA colleges, engineering colleges, medical, dental & pharmacy colleges in remote areas and villages and sub-urbs in all parts of the country. Some have affiliations for admission with standard entrance exams, some conduct their own entrace exams, while some offer direct admissions. What quality of students (and teaching staff) is expected at such mushrooming colleges is a debatable question.
Guranteeing the education loan for all is going to send out a very wrong message. The low quality institutes (already charging a high cost) will start charging even more, stating that education loans are available so all high cost of education should be affordable.
By offering easy education loans in such scenario would mean that anyone and everyone who has secured admission and has eligibility is guaranteed of education loan. It sounds good and fair to offer loans to all candidates, but what may come as a pain is the repayment process for the candidate. After the course is over, the repayment needs to start. In case the quality of institute or the the students is not upto the mark, the question comes about their eligibility to employment. Whether they will be able to secure employment after course completion remains a big question.
Time and again Corporate India and several research studies have raised questions about employability of majority of professional course students in India.
Given these constraints, does it really make sense to offer education loans to one and all, just because there has been a secure admission and eligibility criteria fulfilled? In my personal opinion, it will cause a problem to both the student as well as the bank.
The reason is simple - a loan is a loan. However small or however big, however short tenure or long tenure - a loan remains a burden unless it is paid off in full and got rid off completely. When you take a loan, it means that you are spending your future income, something which you dont have now and EXPECT to get in future. There is a big risk of you not getting that expected future income, but your loan liability will continue to haunt you.
What if a student after completing the studies on such education loan is not able to secure a job or cannot start his own business. From where will he get the money to pay back the education loan? Fine to say that parents or others can help or mortgage property with the bank, but will that help practically? Once a student meets the harsh world of employment with high cost of living in cities, it is quite possible that even with his employment his salary may not be sufficient to meet the loan obligation. Job usually means a relocation to bigger city. The student goes there with an existing burden of home loan on his head, where will the student (now employed as a fresher) get the money to settle down in life - marriage, home purchase, vehicle purchase, other family liabilities, etc.)
Worst hit are the ignorant people from the lower rung, who have high hopes from our education system. They send their children to study at one fo these mushrooming not-upto-the-mark institutes by taking education loan, with a hope that he will study, get employed and will enable them to live a happy life. Unfortunately, the liability on the education loan haunts them forever. Even if the education loan is paid off, there are others lined up for life - vehicle loan, home loan, other expenses, etc.
By offering kind of guaranteed loans like this to all students irrespective of the quality of institute (or the student), the banks will end up having a risk of rising NPA's or non-performing assets. There will be a risk of default which will come if the students are not employable or fail to get a suitable salary sufficient to repay their home loans.
Overall, this does not look like a good move to enable all students to take education loan. The current education loan approval system, which is based upon the decision taken by the bank officers, may have some problems but it is still better.
Process of Education Loans in India
1) You approach the bank for education Loan after securing the admission to the respective college2) Bank officer assesses your education loan application
3) After analysis of your education loan application as well as the candidates records and the perceived quality of institution, he/she provides you with the approval
The challenge or problems in the above process is that everything is dependent on the loan officer. If he she denies the loan application, there may not be any mechanism to get it reviewed or even questioned. Probably this is the issue that the finance minister is trying to address, but the suggestion to allow anyone and everyone to take a education loan will cause a bigger and widespread problem. A better option could be to set some guidelines for education loan approvals/denials, allow education loan seeking applicants to file for a review to higher authority if loan application is denied by first officer, and so on. Guranteeing the education loan for all may not be a good solution.
Education Loans in India
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