Easy access to higher education, courtesy bank loans

Updated on: Tuesday, January 05, 2010

Finance plays an indispensable role in higher education, especially for students belonging to economically backward families. But with access to education loans becoming easier over the last four years, higher education has come within the reach of several students, according to experts.

Despite being faced with the question of prompt repayment by students, bank officials say they are liberal in giving loans to eligible candidates. At the same time, they insist that students and parents should exercise caution in selecting recognised institutions and courses and ensure prompt repayment of loans after students gain employment.

The Government of India is not spending adequately on higher education due to resource crunch, says M. Ramadass, Head of Department, Economics, Pondicherry University. “The government is spending less than one per cent of the GDP on higher education. So, the challenges are enormous. As an alternative source of financing, the government has permitted commercial banks to provide education loans to deserving students,” he says.

The government's move asking banks to provide liberal finance for education purposes especially at the higher education level has worked to the advantage of many students.

“In the last four to five years, education loans have been provided without much difficulty. The procedure for receiving loans has been simplified. So, education loans provided by banks have become a major source of financing in higher education,” he says.

However, a repayment pattern is yet to emerge, as students who have received the loans in the last four years are yet to complete their courses, experts say.

ATM Philip Joseph, Deputy General Manager and Circle Head of Indian Bank, Circle Office, Puducherry, said the Indian Banks Association (IBA) had formulated a common scheme for education loans as different banks were adopting different guidelines. There is a checklist for students. “The purpose of education loans is that no student should be denied opportunities due to financial inability,” he insisted. The bank offered an online facility to download and submit loan applications.

Loans were granted for graduation courses including B.A., B.Com. and B.Sc, postgraduation courses, professional courses such as engineering, medicine, agriculture, veterinary, law, management, courses conducted by IITs and IIMs, and regular degree/diploma courses such as aeronautical, pilot training, shipping, approved by Director General of Civil Aviation/Shipping. For studying abroad, courses such as MCA, MBA, M.S. were included in the scheme.

According to the ‘Modified IBA Model Education Loan Scheme', a loan of up to Rs. 4 lakh could be availed with co-obligation of parents. Loans above Rs. 4 lakh and up to Rs. 7.5 lakh necessitate co-obligation of parents and collateral in the form of a suitable third party guarantee, and those above Rs. 7.5 lakh require co-obligation of parents together with tangible collateral security, the market value of which is not less than the loan value along with the assignment of future income of student for payment of instalments.

“Education loans provide opportunities for more number of poor students to join colleges and pursue their career successfully. When we are liberal in sanctioning loans, we expect the students to repay the loans promptly so that the banks could extend the facility for the future generation,” said B. Baskaran, Chief Regional Manager, Indian Overseas Bank.

The bank offers a 0.50 per cent concession for girl students in the interest rate.

About 90 per cent of students pursuing engineering studies sought education loans, and multiple loans for children of the same family were also granted, he said.

Mr. Baskaran said students should be cautious while selecting courses especially diploma courses and check for the proper approval. “Many institutions are coming up which are not directly affiliated to the universities. It is important to see if the colleges and courses are recognised by the University Grants Commission,” Mr. Philip said.

“UGC has written to all universities in India not to encourage these kinds of institutions as well as advised universities not to have any affiliation other than their State of operation. We cannot give loans to students who enrol in such institutions. Students and parents should ensure the credibility of institutions and whether they are affiliated to recognised universities,” he said. In addition, banks cannot follow the fees charged by different institutions due to the varying fee structures. An education development bank to take care of all issues concerning financing of students in higher education should be set up, suggests Professor Ramadass.

Easy access to higher education, courtesy bank loans

More Education news