|
| Homework neglect |
| Harsh Roongta / Mumbai Jul 12, 2009, 00:53 IST |
|
The education ministry headed by Kapil Sibal is in the limelight, following the realisation that higher education and vocational training, are the best poverty alleviation tools in the long run.
We have already seen the difference that easier availability of loans can make in the housing and consumer durables sector. Today, education loans in India lack any institutional backing and suffer from the disease of ‘good intentions’. At the best of times, these loans are a risky business for banks in any country.
The typical higher education or vocation education student will take around two to five years to complete his education. He will need a fairly large loan to do so.
In most cases, his parents (or other close relatives) may be willing to guarantee due repayment but their own income may not be sufficient to repay if the student is unable to complete the course for any reason, or is unable to find a job after completing the course. This requires that the interest amount also be accumulated and the repayment (of both principal and interest) begin only after the course is over and the student gets a job.
THE US MODEL
In most countries, government-funded specialised institutions (such as the older version of Sallie Mae in the US or their FFSAP - Federally Funded Student Aid Program) step in to ensure loans are available for all students who are good enough to get into any accredited educational institutions that provides higher or vocational education. The loans are not cheap, but the important thing is that they are available. The institution normally does not lend directly, but provides back-to-back refinance (loans to lenders to enable them to on-lend to students) and share in the risk (write-off a part of such loans if the student defaults and is unable to repay) to make sure this vital tool to make education accessible to everybody (and not just the middle and rich classes, as is the case in India).
INDIAN CONTRAST
In India, the total incremental education loan disbursements by the entire banking sector for last year was around Rs 8,500 crore, negligible considering the banks' total deposit base. The estimated home loan disbursements in excess of Rs 100,000 crore for the same period.The finance minister had promised an Education Refinance Corporation from the 'education cess' – a promise is languishing for three years in the bureaucratic bylanes of Delhi.
Also, education loans are a part of the priority sector but have no separate allocation. Such loans cannot be priced higher than 1 per cent above a particular bank's PLR. Thus, banks like to give loans to small transport operators, professionals, etc, considered less risky. In fact, the private sector banks and foreign banks have completely kept away – some have ‘education loan programmes’ that require collateral and/or guarantee from a well-earning relative and interest servicing during the course. PSU banks are forced to show disbursements and naturally have restrictive rules on the type of courses, as well as requirement of collateral/income-based guarantee for loans above Rs 4 lakh. All this means that there is restricted finance available for potential students, even as the education sector itself is becoming diversified and vibrant.
BUDGET CHIMERA
In the Union Budget, the finance minister (FM)has promised to subsidise the interest expenses incurred during the course of students from poorer sections who manage to get the loan sanctioned. He said that five lakh students could benefit from this scheme. But it is very doubtful that PSU banks will give loans to so many students from the poorer sections.
If a poor student is bright enough to get admission in, say, Harvard, but does not qualify for student aid from the university, he will probably have to do the rounds of charitable institutions for grants or probably some politician will take up his cause. If he is not willing to do that he will loose the chance of remaking his future.
While FMs routinely exhort PSU banks to lend more towards education loans, but they routinely ignore it. There is only some lip service in the form of advertisements in the media. The government has puts its money where its mouth is. A state-funded institution has to be created that was promised long ago. After that, more education loans will actually get disbursed.
To that day - Amen.
The writer is CEO, ApnaPaisa.com
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
