Several students who had taken student loans had heaved a sigh of relief after finance minister P Chidambaram announced a moratorium period for all education loans. The loans taken up to March 31, 2009, and outstanding as of March 31, 2013 were eligible for the moratorium and nearly nine lakh borrowers stand to benefit from the decision.
It was reported that higher education courses, especially those for professional training or in foreign colleges tend to come with a heavy expenditure on fees and travel. In such cases, taking an education loan may be a good option. Education loan portfolio of banks have been rising steadily given that it is one of the priority sectors under which banks are mandated to lend by the Reserve Bank of India. The finance ministry also keeps a tight watch on lending by public sector banks under the scheme.
According to reports, reflecting their popularity, official data reveals that public sector banks have disbursed Rs 57,700 crore as education loans and 25,70, 254 such accounts were opened by December 31 last year. Of these, the largest number of accounts were opened by State Bank of India (6,14,957), followed by Canara Bank (2,45,155) and Indian Overseas Bank (2,17,045).
The Model Education Loan Scheme was prepared in 2001, which was then circulated to banks for implementation by the Reserve Bank of India (RBI) in April 2001. The scheme, since then has seen some changes and a massive overhaul was done in September 2001 based on needs of students and suggestions of stakeholders. The size of the Indian education industry is pegged at Rs 3,833.1 billion in 2012-13 by CARE Ratings, of which higher education is estimated to contribute nearly 60 per cent.
The education loan scheme got a further fillip in the Interim Budget 2014-15 when finance minister P Chidambaram announced a moratorium period for all education loans taken up to March 31, 2009, and outstanding as of March 31, 2013. Nearly 9,00,000 student-borrowers would benefit to the tune of around Rs 2,600 crore. According to finance ministry calculations, there were 8.94 lakh such pending accounts of which the total interest was Rs 6,000 crore.
It was reported that while banks do prefer timely repayment of education loans, under IBA guidelines, if a student chooses to leave the course mid-way or has to extend the course up to a maximum period of two years, the bank can work out a new repayment schedule. Meanwhile, the government is also working on a credit guarantee fund for education loans that would provide guarantee for such loans up to Rs 7.5 lakh. The objective is to spur banks to lend more to students without concerns over repayment or defaults.
Source: The Indian Express