Job crunch driving defaults in education loans
NEW DELHI: Ramesh Singh borrowed more than Rs 7 lakh as an education loan to study in a private engineering college in the NCR area. However, he could not get a job during the campus placement, and even after more than a year, remains unemployed and unable to pay the instalments. Vimal Tyagi, who belongs to a lower-middle class family, took an education loan to fulfil his academic aspirations, and hoped to repay the loan after getting a job.
But, he failed during the campus placement and is now a defaulter. These are not isolated cases of students turning education loan defaulters. According to data with the Indian Banks Association (IBA), there are currently over 3.44 lakh students who have not been able to pay instalments of education loans they took to complete their higher education. These students either did not get campus placement, or even if they did manage to find a job after finishing their course, could not command a salary sufficient to repay the loan. Each year, about seven lakh students avail education loans worth about Rs 13,000 crore.
For instance, in 2015-16, 7,86,279 students took loans amounting to Rs 13,435 crore, according to data provided by the IBA and the Reserve Bank of India (RBI). In 2016-17 and 2017-18, the corresponding figures were 6,80,286 students and Rs 12,227 crore worth of loans, and 8,98,545 students and loans worth Rs 14,734 crore. So while the number of loans taken in the past three years has been more or less uniform, IBA and RBI data point to an increasing number of students defaulting in loan repayment, or in other words, rising bad loans. In 2015-16, Rs 4,777 crore of the total loans taken turned into non-performing assets (NPAs). In 2016-17 and 2017-18, the corresponding figures were Rs 5,191 crore and Rs 6,434 crore.
Experts blamed poor placement and insufficient job creation for the increase in bad loans. Government data disclosed that in the last three years, the number of students who could not get placements crossed 40 lakh. AICTE records show that the placement percentage of students was only 33-34 per cent in the last few years.
“Over 25 lakh students take admissions in private colleges for technical education and out of them barely 5 lakh get campus placement. This is the main reason behind students turning loan defaulters,” said Dharmendra Kumar, president of the Technical Universities Teachers’ Association. All-India Private College Employees Union founder KM Karthik claimed higher education has become a business and corporates were running these institutes in the name of trusts. Banks do not ask for any collateral or third-party guarantee for loan up to Rs 4 lakh. For loan of Rs 4-7.5 lakh a thirdparty guarantee is required.
A collateral is asked only for loan exceeding Rs 7.5 lakh. A student becomes a defaulter if he is not able to pay the loan for three months. A public sector bank official said while banks hire recovery agents to get back the loan, the Government has advised them to adopt non-coercive strategies. The government had earlier modified the IBA Model Education Loan Scheme in order to reduce non-performing assets (NPAs). The changes made in the scheme include extension of repayment period to 15 years.