Why do education loans attract the highest interest rates when the government stresses on the impetus of education?
I distinctly remember the union budget speeches of our Finance Minister and now the President of India Pranab Mukherjee and the current finance minister P Chidambaram. They both outlined the government’s focus of elementary education through theSarva Shiksha Abhiyan and theRight to Education Act. Speech after speech they stressed on the government’s commitment towards the education sector.
In P Chidambaram’s last budget speech, the word ‘education’ was used 15 times whereas ‘economy’ was uttered 13 times. However, in the 2010 budget speech of Pranab Mukherjee, he said the word ‘economy’ 19 times and ‘education’ 8 times. Inclusive growth? As part of Mukherjee’s inclusive development agenda, he proposed to increase the plan allocation for school education from Rs.26,800 crore in 2009-10 to Rs.31,036 crore in 2010-11.
“The Right to Education (RTE) Act is being implemented with effect from April 1, 2010 through the Sarva Shiksha Abhiyan (SSA). For 2012-13, I have provided Rs 25,555 crore for RTE-SSA. This is an increase of 21.7 per cent over 2011-12,” Mukherjee in 2012-13 budget speech said.
Chidambaram, in 2013-14, said, “Education is the other high priority. I propose to allocate Rs 65,867 crore to the Ministry of Human Resource Development, which is an increase of 17 percent over the RE of the previous year. The Sarva Shiksha Abhiyan (SSA) and the Right to Education Act are firmly in place. I propose to provide Rs 27,258 crore for SSA in 2013-14.”
One might argue that with the above mentioned allocations the government is dispensing its social duties. Education for all.
But is this education for all? Is this inclusive? What happens to higher education? What happens to students who dream to study more?
Of course I am not suggesting that the government should subsidise education at every level. But is it too much to expect realism in terms of affording higher education?
Now let’s look at the latest data available with the Reserve Bank of India. It says that during March 2012 to June 2013 period, the lending rates for education loans saw the sharpest decline of 63 basis points. Kudos! Now the bad part: the median lending rates of scheduled commercial banks for the education sector was 13.12 per cent in June 2013. In simpler terms, if you approached any private bank for an education loan, the interest rate it will charge you is 13.12 per cent. Even after the sharpest decline amongst all sectors, the lending rates for education were only second to credit card interest rates. Necessity versus luxury?
A home loan in June 2013 was available for 10.93 per cent, vehicle loan for 12.85 per cent and agriculture loan for 11.67 per cent versus an education loan, at 13.12 per cent. Credit card interest rates were at 26.67 per cent.
Turns out, socialist, democratic republic of India cares more about capitalism. What else could be the reason that a home loan and vehicle loan is cheaper than education loan?
The banks will tell you that the problem is with the students. They do not repay the loans and the bad debts that banks have to write off in the education loan segment are high. Therefore, as the risk is greater, the interest rates are higher. Instead of finding a solution as to why students are not able to repay their student loans, this is the solution the banks have found.
Now imagine such a situation with a big corporation? Banks would have bent over backwards to offer them a corporate debt restructuring (CDR) plan. No questions asked, interest rates lower, time period increased, more money pumped in, moratorium, etc. Kingfisher Airlines?
This story shows how CDR has increased from Rs 86,535 crore in March 2009 to a whopping Rs 2, 50,279 crore in June 2013.
Now let’s look at the RBI data on the deployment of gross bank credit by major sectors. In July 2012 and 2013,outstanding education loans grew to Rs 49,800 crore and Rs 54,500 crore, respectively The education loans, which are mentioned under the priority sector, as on July 2011 were at Rs 45,300 crore. Lowest after micro-credit at Rs 16,200 crore and export credit at Rs 33,100 crore out of the list of 10.
What does this show? The government’s impetus on education is not necessarily finding space with commercial banks?
The priority sectors or the areas important for the economic and social growth of India are identified to be agriculture, micro and small enterprises, education and housing. Interest rates for all of which are in double digits with education being the highest. Education loan, although described as the harbinger of India’s future and economic stability and growth, classified as a priority sector by the government and the RBI, is still mentioned under the ‘personal loan’ sections.
If education is supposed to uplift the people and with them their families and the economy on the whole, is it still a personal loan?
If the government’s allocation for education goes up year on year, if a student wishes to study more it becomes his personal ambition rather than an ambition for the nation?
A student who wishes to pursue his higher education abroad cannot do so because he doesn’t belong to a rich family and the interest rates that the bank charges on such loans is back breaking. Most banks offer education loan for higher studies abroad of upto Rs 20 lakh with a few public sector banks even offering Rs 25 lakh. But these loans are not without a collateral and understandably so.
But what happens to a student whose family doesn’t have a house to mortgage to the bank to secure the loan? Isn’t it the duty of the government to underwrite the loan for the underprivileged? Is the flight of one’s dream based on the money his parents or their forefathers earned?
If education is such a top priority for the government then the interest rates, the method of lending and government’s role should reflect that.
(Shubhashish is a journalist who is now pursuing Masters in International Studies and Diplomacy in London. Email: firstname.lastname@example.org)
This column originally appeared in DNA on October 16, 2013.