You have just passed out of a good educational institution but haven’t found a job. This thought, by itself, is quite scary. Add to that the burden of servicing an education loan that will start soon, which is quite numbing.
On the one hand, expensive specialised courses and even international education has been accessible to many due to education loans. But on the other, it means that even before the student has started earning, he/she is under debt. And, default would mean starting your life with a bad credit score which will reduce the ability to garner loans in the future.
From a banker’s perspective too, it is not an easy situation. As a public sector banker says, if a borrower defaults 90 days from the time the repayment should have started, the loan has to be classified as a non-performing asset. “Even if the loan is rescheduled, necessary provisions have to be made,” says the banker.
So, what happens if you haven’t found a job after passing out of an institution and have an education loan as well. Says Ajay Bohora, co-founder & chief executive officer, Credila Financial Services (a HDFC company): “With the regulatory framework, typically up to 12 months of grace period after completion of course or six months after getting employment, whichever is earlier, is provided as the grace period. Credila has been providing up to 12 months grace period after students graduate, so that they can get jobs and settle down before their EMI starts.”
However, after that things might get difficult. Usually, banks and financial institutions expect parents to step in because they are the guarantors and may have also given collateral, in terms of property or fixed deposits and so on. Typically banks give loans of Rs 4 to 4.5 lakh without any collateral – this makes the loans seem like personal loans because they are unsecured. However, for sums beyond that, banks seek a collateral and guarantor. “This is primarily because education loans are not backed by an asset like a home or car loan,” says the banker.
However, Harsh Roongta, certified financial planner says banks and financial institutions are more sympathetic towards borrowers in the education loan segment because more often than not, the problem is genuine. “Talk to the bank or financial institution and if you make some part payment, they will be more interested in rescheduling the loan,” advises Roongta.
According to Bohora, Credila has customised products, where the term of the loan, principal moratorium, and grace period get well defined at the start of the loan. Credila offers repayment term up to 10 to 12 years. While structuring the loan itself, Credila ensures that students get appropriate grace period, while deciding the repayment terms, assuming some delays in getting jobs etc.
Roongta believes that to make education loans more secure and for banks to participate more aggressively, the government needs to come with a guarantee fund – something that was promised by the United Progressive Alliance government almost a decade ago. However, it still hasn’t materialised.