Four years after receiving his bachelor of technology degree in electronics and communication, B Jeyachandiran was forced to concede defeat. He had graduated in 2011 from the private Periyar Maniammai Institute of Science and Technology in Thanjavur, Tamil Nadu. He applied for engineering jobs but with no success. Between 2012 and 2013, he sold insurance in Chennai. The following year, he became a data-entry operator with a construction company in Thanjavur. But this job did not satisfy him and his salary was not enough to repay his education loan. So, he abandoned that job too in 2015 and started preparing for bank recruitment examinations.
Jeyachandiran had taken a Rs 1.5 lakh education loan in his second year in the engineering college. The 28-year-old now owes Rs 3 lakhs. His father, a retired Tamil Nadu government employee, paid the bank Rs 45,000 two years ago and is now paying the monthly instalments from his pension.
There are thousands of engineering graduates like Jeyachandiran in India who are struggling to find employment, even as engineering colleges multiply and education standards decline. In addition to the disappointment they face, there is also the worry of their mounting debt. With banks and recovery agents building pressure on them, it has fallen on their parents to repay the loans by dipping into their retirement funds, pawning jewellery and selling land.
Bad loans in education
The proliferation in engineering colleges in India coincided with the expansion of education finance. A government scheme for education loans was introduced in 2001, revised in 2006 and then again in 2009. The Central Scheme for Interest Subsidy made education loans interest-free for the duration of the course and for an extra year. The scheme is available for applicants whose annual family income is under Rs 4.5 lakhs. In 2015, the Central government introduced the Credit Guarantee Fund Scheme for Education Loans, allowing applicants to borrow a maximum of Rs 7.5 lakhs without collateral.
Over the same period, the number of institutions offering technical education in India ballooned – from under 1,600 programmes in 2006-2007 to 3,391 in 2016-2017. This despite the fears of the All India Council of Technical Education, expressed at the regulator’s executive meetings, that such a proliferation would “ultimately result in deterioration of standards”.
In July, The Indian Express reported that according to the Reserve Bank of India, the total value of non-performing assets – loans on which borrowers have defaulted on payments for more than 90 days – in education grew 142% between March 2013 and December 2016 to Rs 6,336 crores.
In August, the Ministry of Finance, citing the Indian Banking Association, told Parliament that the total value of non-performing assets in education had grown from Rs 3,536 crores in March 2015 to Rs 5,191.7 crores in March 2017.
Loans taken for engineering courses account for a chunk of the defaults, said CH Venkatachalam, general secretary of the All India Bank Employees Association. Venkatachalam added that banks have now started outsourcing the debt-recovery process to other firms.
M Raj Kumar, a former banker in Namakkal who set up the Educational Loan Awareness Movement in 2013, said, “Over 90% cases that come to me are from engineering.”
He added, “Engineering colleges have mushroomed all over the state [there are over 500 in Tamil Nadu alone as per data from the All India Council for Technical Education] but the education standard is very low because of poor infrastructure.”
An official from the Ministry of Human Resource Development said, “The problem is mainly with engineering because the institutions were not properly regulated for long.”
The official was till recently part of the team that ran vidyalakshmi.co.in – a website set up by the ministry to facilitate the application process for loans and for claiming the interest subsidy. “The total amount taken together is a pittance compared to what the corporations owe but there are a large number of defaulters,” the official said.
In 2013, Praveen Panda (name changed on request) graduated in mechanical engineering from the College of Engineering and Technology, a public institution in Bhubaneswar, Odisha, affiliated to Berhampur University. He took a loan of Rs 1.5 lakhs to cover all four years of his course. At the end of the programme, companies came to the campus to hire, but only 17 out of 61 students in his class were recruited. “The rest of us went to Delhi, Gurgaon, Pune and elsewhere with jobs that paid Rs 8,000-Rs 10,000 and made us work 12 hours a day,” he said. He added that these were jobs that “a tenth-pass can do”.
After working for a company that manufactured automobile parts in Gurgaon in Haryana and with a mining company in Barmer in Rajasthan, Panda returned to Bhubaneswar in 2015 to teach a diploma engineering course in a private college. Like Jeyachandiran, he too is preparing for the banking exams.
In the meanwhile, the moratorium period for his loan ended and the bank “called four-five times” to inquire. His retired school teacher father finally dipped into his savings to repay the loan, which came up to Rs 1.7 lakhs in all.
“This is what usually happens,” said Panda. “The families end up paying. A friend’s father had to sell land to repay the loan.” Panda’s friend declined to speak to Scroll.in.
Aditya Rath still has a few months to go before it is time for him to start repaying the Rs 4 lakhs he borrowed plus interest. But the 22-year-old is worried because he is yet to find a job. His father, a government employee, retired a year before he started his bachelor of technology programme in electrical engineering at the private Institute of Technical Education and Research in Bhubaneswar in 2013. Rath graduated this April. If he does not started earning soon, his father may have to sell his land in Cuttack. “My options are limited,” he said. “I was hoping for a job in the software industry and am trying to improve my coding skills now. But the longer we wait, the interest will increase.” Rath said he did not know about the subsidy scheme at the time he applied for his loan.
Unlike Rath, 26-year-old V Siva from Namakkal district and 23-year-old Arun Kumar from Chennai are employed but are finding it extremely difficult to pay back their loans.
Siva borrowed Rs 1.6 lakhs from the State Bank of India in 2010 when he dropped the diploma programme he was pursuing and joined the second year of a BTech programme in software engineering at the PSG College of Technology, Coimbatore. He now owes the bank Rs 2.8 lakhs. But the Rs 7,000 he makes every month checking fabric quality and stitching for a textile company in the Tirupur region just about covers rent and meals.
His father, an automobile mechanic and the only other earning member in his family, cannot help him out. “I did not get the interest subsidy for the years I was studying [even though I had applied for the scheme] and am seeking help from M Raj Kumar for it,” Siva said.
Arun Kumar earns Rs 11,000 a month working in a car-rental agency. He graduated in mechanical engineering in April 2016 and had taken a loan of Rs 40,000. When he last checked in January, the amount he owed had gone up to Rs 70,000, and is certain to keep rising. “I should be able to start paying in two years,” he said, but sounded uncertain. His father, a farmer, cannot help him repay the loan unless he sells his land – an option Kumar’s family is reluctant to even consider. There was no provision for placements at his college, a private institution affiliated to Anna University.
Big problem in Tamil Nadu, Kerala
While the problem of education loan defaulters is national, it is not uniformly spread across the country. Two states, Tamil Nadu and Kerala, have the maximum number of loan-takers and defaulters.
In August, the Kerala government launched an “Education Loan Repayment Support Scheme”, stating explicitly that it is “not a debt relief scheme” but “loan repayment support” for defaulters. Under it, the state government pays a part of the amount for borrowers from families earning less than Rs 6 lakhs annually.
There is no such scheme in Tamil Nadu, even after a 23 year-old civil engineering graduate in Madurai committed suicide in July 2016 allegedly because he was being hounded by debt recovery agents over his Rs 1.9-lakh loan.
In the last four-five years, Chennai lawyer B Jagannath has represented close to 50 students who were unable to pay back their bank loans in consumer and civil courts in the state as well as in the High Court. Half the cases are still pending. “About 45%-50% of my clients [new graduates] have some sort of an income, the rest do not,” he said. Their families are “retired government servants, but not senior officers, or farmers”. In most cases, his clients and the banks reach a compromise – a fixed sum both parties can agree on as a one-time settlement – and most often, the parents pay.
CH Venkatachalam of the All India Bank Employees Association added that banks are increasingly accepting such “one-time settlements” instead of holding out for full payments. He also said “banks have been instructed to not harass”.
In the case of loans drawn under the subsidy scheme, it is the responsibility of the banks that have disbursed the loans to apply for the interest subsidy from the nodal agency – Canara Bank.
Both Raj Kumar of the Educational Loan Awareness Movement and lawyer Jagannath work with students who were charged interest because their banks did not claim the subsidy – reportedly a common problem.
Placements, tall promises
Raj Kumar said that very few students in Tamil Nadu took loans before 2009. “But after that, a very large number of students started taking loans, fees increased and the number of [engineering] colleges rose dramatically too,” he said. But jobs became harder to come by.
Union Human Resource Development Minister Prakash Javadekar said in March that only about 40% of engineering students managed to secure employment.
Students are now realising the promises of fat pay cheques and 100% placements their institutions made were exaggerated. Aditya Rath regrets trusting the advertisements his college put out. He said that only around 300 students from a batch of about 1,500 got jobs through placements while another 414, including himself, were cheated. “An agency claiming to represent a number of big companies came, interviewed us and gave us offer letters,” he elaborated. “When we went to the offices of these companies to join, we were told they had not hired from our campus at all. They did not name small companies either but major multinational corporations and no one checked.”
Panda’s college did not hold placements. He was recruited to the Gurgaon auto parts firm by middlemen, who placed him there at a much lower salary than an engineer who is directly hired would be paid. “There are colleges here that pay firms to recruit students for some months and let them go,” he alleged. He also said these institutions have connections with banks, which makes it easier for students to secure loans.