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Moneylife » Personal Finance » Loans » IBA recommends extension of repayment period for student loans to 10-15 years, to reduce defaults

IBA recommends extension of repayment period for student loans to 10-15 years, to reduce defaults

Moneylife Digital Team | 20/07/2011 03:41 PM | 

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It has been found that students find it difficult to repay loans in five-seven years as some of them are unable to get good jobs immediately. There are some dropouts too that worsen the default rate

The education loan scheme is set to get more 'student-friendly' if the key recommendation by the Indian Banks' Association (IBA) to extend the repayment period, from the current five-seven years to 10-15 years, is accepted.

IBA has submitted this recommendation to the Ministry of Finance and has also suggested the creation of a credit guarantee fund to address rising cases of default of education loans.

K Unnikrishnan, deputy chief executive of IBA told Moneylife, "We have recommended extension of the repayment period to 10-15 years. There are some students who are unable to get a good job immediately, and there are some dropouts in the midterm. For them, repaying becomes difficult and there are cases of default. With the extension of the repayment period, there would be less stress on the students to repay."

The IBA's education loan scheme was launched in 2001-02 under the leadership of TM Bhasin, chairman and managing director of Indian Bank.  

Mr Bhasin has been quoted by The Hindu as saying, "The cumulative outstanding under education loans for all banks stands at about Rs45, 000 crore as on date and the defaults are in the range of 3%-5%. The defaults are higher on loans below Rs4 lakh, which are collateral free."

According to the guidelines, banks lend up to Rs4 lakh without any security. But for loans between Rs4 lakh and Rs7.5 lakh, they can ask for only personal guarantees, and for a loan above Rs7.5 lakh collateral is required.

Experts say that these will be helpful for students, as extended repayment period will also lessen the EMIs (Equated Monthly Instalments) as the period will be stretched.

To overcome the problem of rising defaults, IBA has also recommended the creation of a credit guarantee fund. "To tackle the problem of non-performing assets and encourage banks to lend more, we have recommended the creation of a credit guarantee fund of around Rs4, 000 crore-Rs5, 000 crore," Mr Unnikrishnan said.  

He explained that "other recommendations, such as clarity on the eligibility issue and clarification on operational issues has also been recommended to make the process easier for banks as well as students."

Recently, Moneylife reported that 28 states and union territories have not yet designated the income certificate issuing authority required for students to avail of interest subsidy. This benefit is provided during the period of the moratorium on education loans for students from families with an annual income of less than Rs4.5 lakh.

Asked about this issue, Mr Unnikrishnan said, "We have asked our SLBCs (State Level Bankers' Committees) to speed up the process of setting up income-issuing authorities."


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1 Comment
paramjeet singh

paramjeet singh 3 years ago

IBA should also work for reduction in interest rates for education loans. at present the interest rate is a whopping 15.5%! whereas one can get a Car loan for as less as 5.99%! it is shameful. in our country barely 9% children can reach the higher portals of Education and we cant even provide some relief for them to go for Higher studies. all sots of concessional rates are given for exports and even for luxuries but none for this basic and fundamental right of education.

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