Education loans have always been a delicate issue for students and banks alike. The government's recent proposals to ease and simplify the norms to facilitate easy education loans for higher education seem to bring cheer to all. The Credit Guarantee Fund Scheme for Education Loans (CGFSEL) and the Vidya Lakshmi scheme are two education loan policies that the Indian government launched recently.
While the first scheme allays the banks’ bad debt fears associated with student loans, the second one provides a platform to facilitate hassle-free loans for higher studies. These initiatives are part of the government’s effort to ensure proper credit flow to meritorious students pursuing higher education.
Credit Guarantee Fund Scheme for Education Loans The government notification issued on September 16, 2015, on Credit Guarantee Fund Scheme for Education Loans (CGFSEL) has opened a world of assurance for the bankers. Banks have traditionally viewed education loans with a certain degree of scepticism, as they have regularly faced bad loans in this sector. It has been created with the aim of giving surety for the banks against education loans sanctioned to the students.
How it works The fund, with a corpus of nearly Rs 3,000 crore, will provide guarantee for loans up to a maximum limit of Rs 7.5 lakh without any collateral or third-party guarantee. With rising outstanding education loans, which stands at Rs 59,256 crore as on February 2015 — a jump of Rs 2,127 crore in the last one year — this move will definitely keep banks’ concerns at bay.
The interest on education loans under the scheme can go up to two per cent per annum over the base rate. Moreover, the banks will have to park one per cent of each student’s loan amount with the fund.
What about default Currently, student borrowers are given a moratorium period of one year after the completion of the course of study or six months after getting a job, whichever is earlier, to start repaying the loan. After this, the bank extends another 15-18 months to the borrower to begin the repayments. If the student fails to start repaying the loan after the lock-in period, the bank will be paid 50 per cent of the loan amount under the scheme. Another 25 per cent will also be paid after a certain period and, at the same time, the bank can initiate legal proceedings against the borrower.
The ripple effect The education loan portfolio is bound to make a big leap as the scheme provides banks with the requisite backing and risk mitigation framework. With the scheme loaded in favour of the students, the meritorious students will not have to forgo their higher studies due to lack of funds. Any student can avail the loan under the scheme subject to their family’s earning capacity.
The ‘Vidya Lakshmi’ Scheme The Vidya Lakshmi portal is a single-window facility that provides all information relating to education loans and government scholarships. Five banks including SBI, IDBI, and Bank of India, have integrated their service with the portal to provide education loan. Moreover, 13 prominent banks have registered for 22 education loans schemes on the portal. The banks having links with the portal include Punjab National Bank, Union Bank of India, Central Bank of India, Corporation Bank, and Vijaya Bank.
What are the benefits The government launched the portal with the message that no student should miss out on higher education due to lack of funds. Using the portal, students can get information on education loan schemes of various banks and can apply to multiple banks for education loans.
Instead of filling up separate loan applications from different banks, students have the option of using a common education loan application form from the portal. The applicant can also check the status of the application and e-mail their grievances to the banks through the portal.
With banks having had many bitter experiences regarding the repayment of the education loans in the past, their concerns may have been justified. However, with the launch of the Credit Guarantee Fund Scheme for Education Loans, the banks’ perspective on educational loans is bound to change. With the CGFSEL scheme taking care of the risk factor for the banks and the Vidya Lakshmi portal to simplify the application process, the students will be able to avail education loans with less hassle.
(The writer is the CEO of BankBazaar.com)
