Every year thousands of Indian students travel to the US, Australia, UK, New Zealand, Canada, Germany, Italy, Singapore and a clutch of other countries on the trail of a foreign degree. Undoubtedly, the availability of education loans has made their path a little easy!
Since April 2001, when the Reserve Bank of India came out with a detailed Education Loan Scheme (D.O.letter No.6 (9)/2000-CP), waving off interest tax on education loans, funding your dollar dreams through the debt mode has become a far less complicated affair. There have even been talks of establishing an Education Development Finance Company on the lines of HDFC for the real estate sector.
So while, earlier only Mukesh and Anil Ambani or their sons could dream of getting an MBA degree from Stanford or Wharton, these days, if Pappu manages to pass and has a confirmed letter of acceptance from an Indian or foreign university of repute, education loan on competitive rate of interest is not difficult to get.
On the flipside, while you are eligible to apply for a car loan of up to 15 times (and house loan up to 36 times) the net monthly income of the principal borrower (In this case, the parents are the co-guarantors) or Rs 5 lakh (whichever is less), study loans are sanctioned only up to six times the student or parent’s take home income. Also, although the banks may claim differently, in real practice it is easier getting a loan approved for a much-sought after MBA, engineering or a medical degree than for graduation in any other field. Some banks still don’t finance distance-learning programmes, except (in rare cases) those approved by the Distance Learning Council.
The IDBI has a “Generation Y” scheme for financing these programmes, but it is subject to tighter norms. In addition, IDBI demands an insurance cover from all student-borrowers and insists that the parents’ age should not exceed 55 years. All public sector banks have relaxed parameters for SC/ST candidates. Recently, some non-banking financial institutes (NBFIs) have also entered this market and come out with attractively designed products, mainly because the margins on education loans are higher than possible in home and car loan sector, where the market is more competitive.
The presence of multination banks and a shift towards higher pay packages has also increased the financial sector’s confidence in a student borrower’s potential for repayment. In just one year of starting its service, the Allahabad bank, which also has an online loan approval system, has financed MBAs of 54 students of IIM Calcutta and XLRI, Jamshedpur; 30 students of IIM-Ahmedabad, 18 of IIM-Bangalore and 30 each of IIT Kharagpur and IIT, Kanpur.
Closely, following on its heels is HDFC Bank, which tied-up with SP Jain, Mumbai to finance 20 students in its first year of operation. Citibank has a tie-up with NIIT and UTI Bank with Amity, expanding the Rs 38.72 crore in 2003-4 to Rs 119.25 crore in 2004-5. A portion of NIIT’s three-year, iGNNIT programme is in fact funded by the World Bank Group.
From June 2000 with the revision of norms by the Indian Banks Association, banks do not demand security for loans upto Rs 4 lakh. For anything exceeding this amount, collateral in the form of share certificates, government bonds, IVP, KVP and mortgage of property are required. The loan amount covers everything from tuition fee to expenses on hostels, mess, cost of books and stationary, equipment and even the cost of passage for study abroad.
Loans up to Rs 15,000 to Rs 50,000 at 12 per cent (down from 15 per cent in 2003) are also available for certain professional courses in India, but these are reserved for families whose collective income is less than Rs 1 lakh per annum. One definite incentive for Indian parents is a deduction for eight years under Section 80E for repayment of loan up to an amount of Rs 40,000, including both the principal and the interest component per year.
Meanwhile, the Alumni Association of IIT-Delhi has introduced a “loan scholarship” scheme for their B.Tech, dual degree (B.Tech+M.tech) or M.Sc. students, wherein they have to pay no interest, only the principal and that too between two to seven years after securing a job! The institute has worked out this deal in association with the Oriental Bank of Commerce and the Alumni Association pays the interest.