Loans are the ticket to higher studies
S.C. Dhall

Banks are lending more of a helping hand to students to pursue higher studies for gaining a competitive edge in their careers. Since education is becoming costlier by the day and footing the huge school, college or university fee is a strain on lower and middle -class pockets, banks are becoming more supportive in extending loans at attractive rates of interest with simple formalities.

The number of educational loans sanctioned to students by nationalised banks has increased sharply over the past three years. The amount of outstanding sum under these schemes increased from Rs 4,550 crore in 2003-04 to Rs 10.100 crore in 2005-06. A proposed scheme provides for greater involvement of the educational institutions. Students have to apply through their institutions. The scheme provides that no student shall be denied loans, if the eligible educational institution is satisfied that there is a demonstrated financial need to assist the applicant. The institution shall be responsible for accepting and screening the applications and forwarding them in bulk to the bank for sanction of loans.

Nationalised banks are extending loans more and more to those students going abroad for higher studies. The main banks which are involved in extending educational loans are the State Bank of India, Bank of Baroda, Bank of India, Union Bank of India, State Bank of Patiala, and other associate banks of SBI and Canara Bank and Punjab National Bank etc.

Regarding the volume of education loans, every year has seen a jump. As education is gradually becoming more and more expensive, banks are aggressively pushing retail finance. Moreover, giving loans to students helps banks build up a long-term relationship with them.

At the behest of the Centre and the RBI, the banks agreed in 2000 to provide loans up to Rs 7.5 lakh for studies in India and Rs 15 lakh for studies abroad.

Now this limit has been revised and it has increased to Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad. Public sector banks follow the guidelines of the RBI with regard to rate of interest and security norms and other formalities. The popularity of educational loans is on the rise ever since the scheme was introduced in 2000.

Banks are not supposed to ask for collateral and margin money for loans up to Rs 4 lakh. However, banks do insist on guarantee and surety in most of the cases. For loans above Rs 4 lakh the margin money is 5 per cent which has to be contributed by the parents of the student, taking loans.

Earlier, banks were giving priority to traditional and professional courses like MBA, engineering, medicine, research and computer courses etc. Now banks have also been extending loans for careers like pilot, airhostess, nursing and tourism-related jobs.

However, few banks are offering loans for CA, ICWA and Company Secretaryship.

Banks also offer a 1 per cent point rebate on interest if it is paid regularly during the moratorium period.

Students can also take a tax rebate on an education loan. In the current Budget, the government has also allowed parents to take this benefit. Banks are expected to increase their thrust in this segment as part of retail credit. The government is taking all steps to ensure that poor students get loans on easy terms.

The primary deterrent in sanctioning of loans by private and foreign banks is the high interference by government authorities. Public sector banks have 90 per cent market share under this segment and are becoming more and more active as they are also organising camps in educational institutions themselves to market their schemes.

The biggest investment that one makes nowadays, after investing in residential property is invariably in educating one’s child. And loans go a long way in facilitating this investment in human capital.