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Students blame slow job market for education loan defaults

Published On: 10 Mar 2014 | Last Updated On: 10 Mar 2014

The number of student defaulting on the repayment of education loans has been on the rise in the last few years and all this is thanks to the slow job market if the students are to go by. It was reported that several students have defaulted on educational loans. Defaults have risen to 7%-8% of the total outstanding from nearly 5% a year ago.

It was reported that as per industry estimates, gross NPAs (non performing assets) or bad loans of some nationalized banks and smaller private banks are as high as 7% to 8%. It was mentioned that Indian Bank's portfolio shows that 5% of its educational loans are bad loans. At Indian Overseas Bank (IOB), it stands at around 8%. M Narendra, CMD of IOB was quoted as saying "The economic slowdown has made it difficult for students to find jobs and that too sometimes at low salaries. This has had an impact on repayments."

Not just the job availability but poor salaries have also contributed. It was mentioned that bankers point out that entry level salaries are now stuck around 2 lakh to 2.5 lakh per annum without any increase. This has also hit loan repayment to some extent. Many find it difficult that at current interest rates (12%-13%) in educational loans, the equated monthly installment (EMI) of an average loan of 4 lakh is around 8,900 per month. Rent and transportation adds to living expenses and these force many to default on EMI, according to experts.

Corporation Bank reported bad educational loans to the tune of Rs 130.56 crore during the third quarter of this financial year as against 58.53 crore during the corresponding quarter of the previous year.  The finance minister has said in the vote on account that the centre would allocate 2,600 crore which will benefit about nine lakh students who had borrowed before 2009.

It was also reported that the issue of loan payment seems to be higher in the domestic job market as loans for overseas education appear to be safer for banks. According to bankers, students who take loans for studying abroad almost get some form of assistance, stipend or jobs in the campus while studying abroad.

Source: The Times of India

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