Education loan turns debt trap for students

The Banking Ombudsman is flooded with complaints regarding the ‘insensitivity’ shown by certain banks in the state towards education loan borrowers.

Published: 29th December 2016 01:36 AM  |   Last Updated: 29th December 2016 05:19 AM   |  A+A-

Express News Service

THIRUVANANTHAPURAM: The Banking Ombudsman is flooded with complaints regarding the ‘insensitivity’ shown by certain banks in the state towards education loan borrowers.

Ever since the banks in the country offered education loans for the students to avail of better education, there were a lot of complaints against them in connection with the disbursal and recovery mechanism. 
‘Express’ obtained one of the complaints made by a borrower in which he pointed out the manipulation by a scheduled bank in providing education loan to him. 

According to a banking ombudsman of Reserve Bank of India, she receives 300 to 350 complaints per month against the banks. Of these, thirty percent of complaints are related to education loans. 
For Iyppe Peter of Chingavanam in Kottayam district, the loan which was taken for his UG course has become a burden for him as the bank had imposed additional interest in the name of ‘moratorium interest capitalisation’(MIC).

A moratorium period is a loan-term when the borrower is not required to make any repayment. It is a waiting period before which repayment by way of EMIs begin. MIC refers to the addition of unpaid interest on a loan to its principal balance. 

Peter took a loan of Rs 3,70,000 from the Chingavanam branch of Syndicate bank in 2009 as he got admission to BE Marine engineering at a college in Coimbatore. “After completing his course, he started paying the EMI of Rs 10,000 and later added  Rs 12,000 and Rs 12,5000 without any default.

Later, the balance loan amount slipped to Rs 28,2768. However, the bank imposed MIC in 2016  and demanded an additional interest amount of Rs 19,0145 and the balance amount compounded to Rs 47,2913. This was done by the bank without informing the loanee.

In any of the clauses, the bank has not mentioned any such capitalised interest. When Peter approached the bank, the officials said he was not eligible for availing of the model education loan scheme as he had not pursued his degree from a recognised institution”, said Joseph, Peter’s uncle.   

Peter was liable to avail of the model education loan as his loan came under the ambit of the revised guidance notes of Indian Banks Association (IBA). But the bank had allegedly acted against it. 
Meanwhile, when contacted, Mathew, the Chingavanam branch manager of Syndicate Bank, said the loanee had pursued his degree in an off-campus centre that comes under Vinayaka Mission. 

“The course he had pursued in Marine engineering college was off-campus and it was not recognised under a university. Hence it does not come under IBA guidelines which were framed in 2012 even though he had availed of the loan in 2009. So we had to capitalise interest in the moratorium period,” he said. 
However, this is not an isolated case. Several families are suffering after taking education loan. 

Jayakumar, a retired professor, of Thiruvananthapuram, had a similar experience in which a nationalised bank had converted the educational loan into a terminal loan without informing his nephew. His nephew had taken an education loan and pursued BTech in Tamil Nadu.

Speaking to Express, Uma Sankar, Banking Ombudsman, said some banks have certain internal rules and this might be the reason for capitalising the interest in the moratorium period. 

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