Bad student loans

Bad student loans.

Let’s deliberate upon the most critical issue confronting students’ community who are laden with debt after failing to repay their education loans. Basically there are two difficult situations which have arisen after a student raised education loan to pursue his/her studies. One, after completing their course and enjoying moratorium period (repayment holiday) majority of the student borrowers have remained unemployed. Thus, with no income earnings to deposit monthly equated installments (EMIs) they have turned defaulters. Two, there’s a section of student borrowers who have landed in some job after completing their studies, but find it difficult to pay the EMI fully as their earning doesn’t match the repayment liability and their personal day to day needs.

Needless to mention that there has been tremendous escalation in the cost of education especially after private educational institutions, unfortunately in an unorganized and weakly regulated environment, have been dotting every nook and corner. The costs are sky rocketing when it comes to aim for a premium institution or a foreign degree. It’s here education loans were put in place to help the students to negotiate such escalation and pursue their studies without any financial constraints. Notably, it was in 2004 when in a first student loans were introduced in the Union Budget.

Today, there are thousands of students who have completed their studies after taking route of education loan scheme, but are in dilemma as how to find appropriate means to carve out their living and repay loans. Even as education loans helped the defaulting students to pursue higher studies by bridging the gap between the financial resources of their parents and the cost of education, the resulting debt has left them in acute mental stress. Not only this, the defaulting students are now facing the risk of facing credit constraints from banks and financial institutions in their future endeavours.

We should also not overlook that fact that with the burden of loans on their shoulders, majority of the students could face severe psychological pressures, affecting their performance both during studies and while on job. This burden adversely impacts the attitude of students and of society as a whole with dangerous implications not only for the development of education, but also for the very social fabric and nation development.

Remarkably, in normal times, a student with an elite medical, engineering or business degree would land a job easily with enough remuneration to start repaying the loan almost immediately. In today’s economic environment, there’s huge dearth of jobs. Even big corporate houses are very conservative in hiring people. So, this scenario has made it even more difficult for students to meet their loan repayment commitments.

One more thing, the easy access to education loans saw emergence of a large number of sub-standard educational institutions run with poor infrastructure and under-qualified faculty. This too has direct bearing on the job market.

Now let me borrow some comparative figures from a report. Banks had an education loan portfolio of about Rs 300 crore in 2000. Within a span of 16 years, it grew to Rs 72,000 crore at the end of December 2016. There is an interesting but worrisome statistic which reveal that banks saw a 142% increase in non performing education loans just in three years.

Non performing education loans are the loans where repayment dues, in common parlance known as EMI, are not paid by the student borrower and banks as per regulatory guidelines declare such accounts as non performing assets (NPAs). The statistics reveal that the total non-performing assets (NPAs) in the education sector registered an increase from Rs 2,615 crores in March 2013 to Rs 6,336 crores in December 2016.

In order to get rid of bad education loans, banks have started to sell this non performing asset portfolio to Asset Reconstruction Companies (ARCs). Such loan reconstruction means transfer of all the rights of ownership and collection of the loans to the ARC concerned.

According to an information available, the State Bank of India, in 2015-16, sold bad education loans to the tune of Rs. 847 crore in three tranches to Reliance ARC. The NPAs were sold for 45 per cent of the outstanding amount. ‘The education loan defaulters are getting letters and calls from Reliance ARC to pay back their debt or face legal action’, reveals the information. This kind of situation is worst kind of trauma for a student loan defaulter.

This problem of growing education loan defaults needs serious attention. It’s as good as a shameful blot on the higher education system, which unfortunately produces degreed liabilities more than employable young force. It’s of utmost importance to peep into the affairs which act as the drivers in increasing education loan defaults. Otherwise, it’s going to be a tsunami which has capacity to ruin the potential of our talented educated youth.