With majority financial institutions including banks tightening their purse strings, education loan is becoming a tough proposition to avail. On the other hand, increasing cost of attending colleges is adding to the funding woes for higher education.
As Non-Performing Assets (NPA) is affecting almost the entire banking system in India, the stricter norms have started to hit higher education funding options through education loans, especially for low-income households.
- Education loan default has grown as high as 142% since 2015.
- 85% NPAs of the total NPAs in all education loan categories, falls under 4 Lakh.
- High Loan default ratio (8.1% on loans below ₹4 Lakh & 11% on loans below ₹2 Lakh.)
- Lowest Loan default ratio (below 1%) on loans of over ₹15 Lakhs
- Public sector banks market share of education loan shrunk to 83% from 90% of previous year
A golden era of Education Loan:
The Government took initiative in 2001 with Model Educational Loan Scheme (MELS) to provide financial assistance (upto ₹4 Lakh) to the poor or meritorious students without any margin or collateral security. In subsequent years, there were many other initiatives to enrich this scheme and make it viable for students.
The Result: In between 2005 to 2014, 26 lakh students received with a total education loan of ₹70,000 crores. This is a six-times growth in number of students availing loan facility and 12 times the amount disbursed to students as compared to the previous period.
Till 2014, loans were driving force and helping students in fulfilling their higher education dreams. Students were completing their education, getting job and repaying their loan EMIs.
A widening gap:
But the high default ratio, NPAs and mounting outstanding loans have pushed banks into a tricky situation, where they are re-working on their Education loan strategy. To optimize their loan portfolio and mitigate default risks, they have curtailed education loans especially for category of up to 4 Lakh strategically, where there is no margin & collateral security from student and which has come to show highest NPA & default ratio in previous years.
This has resulted into low fund availability for students coming from under-privileged section of society. According to an RBI report, growth rate of education has declined to 2 per cent in 2017 from 17 per cent in 2015.
At one side, fresh education loan options have been shrinking, on the other side number for student’s enrolment in higher education (25.8% growth) is expanding. There is a mismatch. This demands alternate/supplement funding sources for students to fund their education.
Scholarship system as a supplement to education loan:
An effective alternative to bridge the gap between demand and supply of education fund, is a vibrant scholarship system where corporations, foundations, universities, individuals etc have a crucial role to play. They can provide ₹ 40,000 to 2 Lakh per student funding as their CSR, social initiative in the form of scholarships.
There are already a number of scholarships as below:
- L’Oreal India provides scholarship worth ₹2.5 Lakhs each to 50 girls every year
- Marubeni India provides scholarship of ₹ 40 K per year to 100 students.
- Fair & Lovely Foundation provides scholarship worth upto 1 Lakh to girls in graduation and post-graduation
There are many others in the league including Wipro’s Santoor Girl Scholarships, Capital First Scholarship, Ugam Legrand Scholarship, Abhilasha-EROS Scholarship, Merck India Scholarships, Asian paints Scholarship, DLF foundation Scholarships, Indian oil Academic Scholarships, Inspire Scholarship, AICTE Saksham & Pragati Scholarships etc.
With mandatory CSR funds, more and more corporations are coming at forefront to support meritorious students with scholarships to build a brighter future. However, the scholarship eco-system is just taking baby steps. A robust scholarship cycle which is sustainable is the need of the day.
Scholarship system can play as supplement to education loan system where ‘Merit &Need’is the only currency a student has to depend upon to get the education fund.
Students can find their matching scholarships at buddy4study.com.
-Ashutosh Kumar Burnwal
Co-Founder and Director