Banks announce caution over education loans as demand remains strong

12 August 2013 - Which Way To Pay

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Banks issue formal caution over education loans applications

The Lead Bank has issued a formal warning to all the banks after many deficiencies in the processing of education loan applications came to light.

Increase in default on education loans

A year after the finance minister urged banks not to turn down education loan applications from deserving candidates, lenders remain sceptical about the business. "In certain cases, the students who avail loans then disappear from the radar of the bank, making it difficult for us to track them and get repayments," said a senior official at a public sector bank. In addition, there has been an increase in the probability of defaults on these loans due to the weakening economic scenario and decrease of graduate jobs. Banks have stuck to lending to students who go for courses like management and medicine.

Government announce an education credit guarantee fund

"The government had earlier said that it will be coming out with an education credit guarantee fund but we are still waiting for the announcement. It's not that we will lend with only such a fund, but it gives us a little more comfort," said a banker.

Demand for education loans remains strong

Currently, banks give out education loans at interest rates between 11.5% and 13% depending on the specific course chosen by the student. The demand for education loans remains very strong as many middle-class Indian students want to go into higher studies in India and also abroad.

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