Investment Banking Education

Canara Bank Education Loan Eligibility

Cases of students defaulting on loan payments prompted Indian Bankers Association to review the education loan scheme. We explore what this means for students. The Indian banking sector began giving education loan from 2001 onwards. But recently, in the wake of increasing Non Performing Assets (NPA) on educational loans, the Indian Bankers Association (IBA) has revised the educational loan scheme, framed in 2001. Though the situation is far from worrying, banks have been advised to be prudent and cautious while granting educational loans. For instance, State Level Bankers’ Committee (SLBC) Chairperson Usha Ananthasubramanian sent a strong message to banks in Punjab and Haryana when she told a committee meeting that, “The non-performing assets level is certainly on the higher side in case of education loan advanced collateral free. Only the meritorious rather than the deserving candidates should be considered for granting education loan.”

High fees, low funding

An IBA document on the scheme throws light on the thinking in government circles on funding for higher education when it observes that “Public funding of higher education is not considered feasible. This model education loan scheme is an attempt to bring out a viable and sustainable bank loan scheme to meet the aspirations of our society.”

The rationale for this way of funding higher education has not gone uncontested; critics point out that it is not in the students’ interest to be burdened with debt early in their careers. Also, that public expenditure of less than 1 percent of GDP on higher education is lower than even many developing countries. And with low tax-GDP ratio there is ample scope to fund higher education by raising resources from tax.

Top priority for education loans

The RBI has included education loans as part of the priority sector lending of banks. It aims to provide need-based finance to meritorious students. But students should bear in mind that educational loan is like any other commercial credit, and it is at the bank’s discretion to sanction a loan after assessing ‘credit worthiness’ of the borrower. This entails that students should be well prepared for commercial negotiations by doing their homework well on how to repay the credit through earnings from job.

Your “credit worthiness”

Students generally don’t have any credit history and their credit worthiness is presumed for granting education loans. But banks insist that parents who are joint borrowers should also have a clear credit history. In case parents have an adverse credit history, the bank may insist on having joint borrowers, other than parents, on which they can rely.