COMPARITIVE STUDY BETWEEN EDUCATIONAL LOANS

PROVIDED BY PRIVATE & PUBLIC SECTOR BANKS

INTRODUCTION:-

Education is central to the Human Resources Development and

empowerment in any country. National and State level policies are
framed to ensure that this basic need of the population is met through
appropriate public and private sector initiatives. While government
endeavours to provide primary education to all on a universal basis,
higher education is progressively moving into the domain of private
sector. With a gradual reduction in government subsidies higher
education is getting more and more costly and hence the need for
institutional funding in this area.

An education loan is a loan taken to help pay for an education, usually at

a college or trade school, but may also be used to pay for private schools
or prep schools as well Students prefer education loan for pursing higher
education. Also education loan is free from tax. The education loan is
available in several different types. These are student loans, parent loans
and private loans. Loans are also either guaranteed or unguaranteed.
Student and parent loans are most likely to be guaranteed by the
government, though many agencies work for the government in this
respect. Unguaranteed or unsubsidized loans are usually from

1
private lenders only, and usually can only be obtained if one has a good
credit score or significant equity.

The scope of education has widened both in India and abroad covering
new courses in diversified areas. Development of human capital is a
national priority and it should be the endeavour of all that no deserving
student is denied opportunity to pursue higher education for want of
financial support. Loans for education should be seen as an investment
for economic development and prosperity. Knowledge and information
would be the driving force for economic growth in the coming years.

Based on recommendations made by a Study Group, IBA had prepared a

Model Educational Loan Scheme in the year 2001 which was advised to
banks for implementation by Reserve Bank of India vide circular
No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001
along with certain modifications suggested by the Government of India.
In line with the announcement made by the Hon'ble Finance Minister in
his Budget Speech for the year 2004-05, IBA had communicated certain
changes in the security norms applicable to educational loans with limits
above Rs.4 lakhs and up to Rs. 7.5 lakhs.

Higher Education is essential to have a sustainable social, economic and

political development of a society. Investment in Higher education
makes a vital contribution to accelerate the process and the rate of
economic growth through human productivity. During the last five
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decades there has been a sharp increase in the number of Universities
and Colleges offering general and technical education in India. The
strong wave of globalization and internationalization of higher education
has led to reinforce and develop a strong and vibrant education system in
the country. India is transforming into a Knowledge Super Power
country. Hence, higher education is one of the priority sectors and thus
funding of the same is necessary. The total expenditure on higher
education increased remarkably during the post independence period.
However, gradually there was a decrease in the same. On the contrary,
India has emerged as one of the largest system of higher education
providers in the world. Higher education in India is already a global
business. It has become in many ways a commercialized affair and the
funding support from the Government has been diminishing. This has
therefore compelled the Universities and Institutions of Higher
education to make significant increase in the fee levels in the recent
years, with subsequent introduction of various kinds of fees. In many
Universities and institutions, fee increases have been erratic and
unsystematic, with substantial increases in the fees of various types. The
whole new revolution of education providers includes private
institutions, distance education providers, self-financing courses in
public institutions and foreign education providers. The growth of
students enrolling for professional courses is also increasing by the day.
But the spiraling cost of education deprives many a needy students to

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attain the desired educational excellence. Thus the Government has
called upon the Banks to provide educational loans to facilitate the poor
and needy students to pursue higher education.

The different types of student loans are offered, these are:-

Undergraduate student loans-

It is a type of unsecured loan offered by TheLoanBazaar.com to be used

for education-related expenses. In case you are not currently earning
while studying or do not meet our policies for eligibility criteria, you
may need a suitable cosigner, like a parent, friend or any relative or
eligible adult.

This type of undergraduate student loan includes your Tuition, previous

school fee, living expenses, books and other expenses like transportation
costs.
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While the funds are sent directly to the student, TheLoanBazaar.com
also offers competitive interest rates and flexible repayment terms,
wherein the repayment can also begin after graduation. With quick
application process and easy to fill up application form, getting could
not get any simpler.
MODEL EDUCATIONAL LOAN SCHEME:
The role of commercial banks in facilitating poor but meritorious
students desirous of pursuing higher education had been highlighted by
the Finance Minister in a meeting with the Chief Executives of the

public sector banks on 13th June, 2000. Accordingly, in the year 2000,

a study group was constituted under the chairmanship of Shri R. J.

Kamath, Chairman and Managing Director of Canara Bank to examine
and study the issue of providing financial support to needy students who
wish to pursue higher education. Based on the recommendations of the
Study Group, a comprehensive 'Model Educational Loan Scheme'was
prepared by the Indian Bank'sAssociation. The Finance Minister after
meeting the heads of the Commercial Banks on 7th April 2001, formally
announced the scheme in 2001.
NEED FOR THE SCHEME:
The scope of education has widened both in India and abroad covering
new courses in diversified areas. Knowledge and information are the
driving force for economic growth of a country. While government
endeavours to provide primary education to all on a universal basis,
5
higher education is progressively moving into the domain of private
sector. With a gradual reduction in government subsidies, higher
education is getting more and more costly and hence the need for
institutional funding in this area. National and State level policies are
framed to ensure that this basic need of the population is met through
appropriate public and private sector initiatives. Loans for education are
seen as an investment for economic development and prosperity.

Graduate/professionalstudents –

Graduate/ professional student loans are basically suitable for students

who higher or advanced degrees at nationwide colleges.These are the
type of unsecured loans offered by TheLoanBazaar.com to be used for
education-related expenses. In case you are not currently earning while
studying or do not meet our policies for eligibility criteria, you may need
a suitable cosigner, like a parent, friend or any relative or eligible adult.

Careereducationloans –

Career education loans are basically available for students who are
attending the undergraduate career oriented programs at nationwide
colleges and technical and trading schools.

These are the type of unsecured loans offered by TheLoanBazaar.com to

be used for education-related expenses. In case you are not currently
earning while studying or do not meet our policies for eligibility criteria,
6
you may need a suitable co signer, like a parent, friend or any relative or
eligible adult.

While the funds are sent directly to the student, TheLoanBazaar.com

also offers competitive interest rates and flexible repayment terms,
wherein the repayment can also begin after graduation. With quick
application process and easy to fill up application form, getting could
not get any simpler.

OBJECTIVES OF THE SCHEME:

The Educational Loan Scheme aims at providing financial support from

the banking system to deserving/meritorious students for pursuing
higher education in India and abroad. The main emphasis is that every
meritorious student though poor is provided with an opportunity to
pursue education with the financial support from the banking system
with affordable terms and conditions. No deserving student is denied

an opportunity to pursue higher education for want of financial support.

RBI GUIDELINES PROVIDED WITH RESPECT TO THE

MODEL

EDUCATION LOAN SCHEME:

The Model Educational Loan Scheme introduced by Reserve Bank of

India could be adopted by all Commercial Banks. The scheme provides

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broad guidelines to the banks for operationalising the educational loan
scheme. The implementing bank will have the discretion to make
changes suiting to the convenience of the students/parents in order to
make it more customer friendly.

THE GUIDELINES PROVIDED COVER THE FOLLOWING

AREAS:

APPLICABILITY OF THE SCHEME: The scheme provides details

about how to implement the scheme so as to make it possible for
Commercial Banks to make their operations easy and prompt and serve
the basic purpose of providing higher education opportunities to the
needy students.

ELIGIBILITY CRITERIA: The Courses mentioned in the scheme are

pertaining to studies in India and stUdies abroad. The courses include
school/graduate and post graduate studies both in India and abroad.

QUANTUM OF FINANCE: The guidelines provides for details of the

amount of loan to be sanctioned. It also mentions the margin money
requirements and the ceilings thereof.
SECURITY: The scheme also details out on the collaterals to be
accepted by the banks. As also, it also mentions as to whether to support
meritorious students without collaterals.

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RATE OF INTEREST: The details related to the rate of interest to be
charged during the repayment holiday/moratorium period and later are
clearly mentioned in the scheme.

APPRAISAUSANCTION/OISBURSEMENT: The basis on which the

loan application would be appraised and the sanctioned thereof is
outlined in the scheme. Also, guidelines related to disbursement of loan
amount in total or in stages are provided.

REPAYMENT: This provides for the period within which the loan
could be repaid, along with the guidelines on accrued interest on loans
and or any concessions for loanees if interest is paid during the
moratorium period.
FOLLOW-UP: The procedure which helps to keep a track of the
students who have availed loans is provided briefly in the scheme.
PROCESSING CHARGES:The rules related to charging processing
fees on educational loans is outlined in the scheme.

CAPABILITY CERTIFICATE: The powers to a bank to issue

capability certificate to students going abroad is mentioned in the
scheme.

OTHER CONDITIONS: In addition to the above guidelines, the

scheme also details out other conditions relating to 'no due' certificate
and the time period for disposal of loan applications.

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DETAILS OF EDUCATIONAL LOAN SCHEME:

During the year 2001-2002, Reserve Bank of India introduced Model

Education Loan Scheme prepared by Indian Banks Association to be
implemented by the Commercial Banks. The RBI circular
No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001,
provided broad guidelines to the commercial banks for operationalising
the scheme successfully. However, it was decided to review the scheme
and make modifications in the scheme to facilitate smooth operation at
bank branches. Towards this, a Working Group of General Managers
drawn from select banks was constituted at IndianCollegeparentsloans-
It is a type of unsecured loan offered by TheLoanBazaar.com to be used
for education-related expenses. In case your child is currently studying
and now working alongside, you can take up the loan by being a co
signer. This type of loan can help you assist your child with any kind of
undergraduate/graduate or career education plan in college. And what’s
more, you do not even have to keep collateral and do not have to sell
away your homes, investments money for the school and college fee of
your child.

This type of undergraduate student loan includes your Tuition, previous

school fee, living expenses, books and other expenses like transportation
costs. With quick application process and easy to fill up application
form, getting could not get any simpler.

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K 12 Parents loans-

It is a type of unsecured loan offered by TheLoanBazaar.com to be used

for education-related expenses. It is basically available to parents and
other adult relatives for their children who are attending non-public,
private, religious, military elementary and secondary schools
countrywide.

This type of K 12 Parents loans include your child’s tuition fee,

uniforms, previous school fee, living expenses, books and other
expenses like transportation costs. With quick application process and
easy to fill up application form, getting could not get any simpler.

While the funds are sent directly to you, TheLoanBazaar.com also offers
competitive interest rates and flexible repayment terms, wherein the
repayment of principal and interest begins 30-60 days after the loan is
laid out.

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REVISED MODEL EDUCATIONAL LOAN SCHEME FOR
PURSUING HIGHER STUDIES IN INDIA AND ABROAD

1. OBJECTIVES OF THE SCHEME :-

The Educational Loan Scheme outlined below aims at providing

financial support from the banking system to deserving/ meritorious
students for pursuing higher education in India and abroad. The main
emphasis is that every meritorious student though poor is provided with
an opportunity to pursue education with the financial support from the
banking system with affordable terms and conditions. No deserving
student is denied an opportunity to pursue higher education for want of
financial support.

2. APPLICABILITY OF THE SCHEME:-

The scheme detailed below could be adopted by all Commercial Banks.

The scheme provides broad guidelines to the banks for operationalising
the educational loan scheme and the implementing bank will have the
discretion to make changes suiting to the convenience of the students/
parents to make it more customer friendly.

The scheme details are as under :

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3.ELIGIBILITY CRITERIA :-

Student eligibility:-

 Should be an Indian National

 Secured admission to professional/ technical courses in India or
Abroad through Entrance Test/ Merit Based Selection process.

Courses eligible :-

a. Studies in India: (Indicative list)

Graduation courses : BA, B.Com., B.Sc., etc.

Post Graduation courses : Masters & Phd.

Professional courses : Engineering, Medical, Agriculture, Veterinary,

Law, Dental, Management, Computer etc.

Computer certificate courses of reputed institutes accredited to Dept.

of Electronics or institutes affiliated to university.

Courses like ICWA, CA, CFA etc, Courses conducted by IIM, IIT,
IISc, XLRI. NIFT etc.

Regular Degree/Diploma courses like Aeronautical, pilot training,

shipping etc., approved by Director General of Civil Aviation/Shipping,
if the course is pursued in India.

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Courses offered in India by reputed foreign universities.

Other courses leading to diploma/ degree etc. conducted by colleges/

universities approved by UGC/ Govt./ AICTE/ AIBMS/ ICMR etc

Courses, which are not covered under the criteria mentioned above,
individual banks may take a view to consider extending education loan
under the scheme taking into account the future prospects/recognition
by user institution.

b. Studies abroad :-

Graduation : For job oriented professional/ technical

courses offered by reputed universities.

Post graduation: MCA, MBA, MS, etc.

Courses conducted by CIMA- London, CPA in USA etc.

Expenses considered for loan :-

Fee payable to college/ school/ hostel.

Examination/ Library/ Laboratory fee.

Purchase of books/ equipments/ instruments/ uniforms.

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Caution deposit, Building fund/refundable deposit supported by
Institution bills/receipts, subject to the condition that the amount does
not exceed 10% of the total tuition fees for the entire course.

Travel expenses/ passage money for studies abroad.

Purchase of computers - essential for completion of the course.

Insurance premium for student borrower

Any other expense required to complete the course - like study tours,
project work, thesis, etc.

4. QUANTUM OF FINANCE:-

Need based finance subject to repaying capacity of the parents/ students

with margin and the following ceilings.

Studies in India - Maximum Rs.10.00 lacs.

Studies abroad - Maximum Rs.20 lacs

5. MARGIN :-

Upto Rs 4 lacs Nil

Above Rs. 4 lacs : Studies in

5%
India

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 Studies Abroad 15%

Scholarship/ assistantship to be included in margin.

Margin may be brought-in on year-to-year basis as and when

disbursements are
made on a pro-rata basis.

6. SECURITY :-

Co-obligation of parents.
Upto Rs 4 lacs
No security

Co-obligation of parents together with

collateral security in the form of
suitable third party guarantee. The bank
Above Rs.4 lacs and upto may, at its discretion, in exceptional
Rs7.5 lakhs cases, waive third party guarantee if
satisfied with the net-worth / means of
parent/s who would be executing the
document as "joint borrower".

Above Rs.7.5 lakhs Co-obligation of parents together with

tangible collateral security of suitable
value, along with the assignment of

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 future income of the student for
payment of instalments

The loan documents should be executed by both the student and the
parent/ guardian as joint-borrower.

The security can be in the form of land/ building/ Govt. securities/

Public Sector Bonds/Units of UTI, NSC, KVP, life policy, gold,
shares/mutual fund units/debentures, bank deposit in the name of
student/ parent/ guardian or any other third party with suitable margin.

Wherever the land/ building is already mortgaged, the unencumbered

portion can be taken as security on second charge basis provided it
covers the required loan amount.

In case the loan is given for purchase of computer, the computer has to
be hypothecated to the Bank.

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7. RATE OF INTEREST :-

Upto Rs 4 lacs BPLR

Above Rs. 4 lacs BPLR + 1%

Simple interest to be charged during the Repayment holiday/

Moratorium period.

Penal interest to be charged as applicable to individual banks.

8. APPRAISAL / SANCTION/ DISBURSEMENT : -

In the normal course, while appraising the loan the future income
prospects of the student will be looked into. However, where required,
the means of parent / guardian could also be taken into account to
evaluate re-payment capability.

The loan to be sanctioned as per delegation of powers preferably by the

Branch nearest to the place of residence of parents. No application for
educational loan received should be rejected without the concurrence of
the next higher authority.

The loan to be disbursed in stages as per the requirement/ demand

directly to the Institutions/ Vendors of books/ equipments/ instruments
to the extent possible.

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9. REPAYMENT:-

Repayment Course period + 1 year or 6 months after

holiday/Moratorium getting job, whichever is earlier.

The loan to be repaid in 5-7 years after commencement of repayment. If

the student is not able to complete the course within the scheduled time,
extension of time for completion of course may be permitted for a
maximum period of 2 years. If the student is not able to complete the
course for reasons beyond his control, sanctioning authority may at his
discretion consider such extensions as may be deemed necessary to
complete the course.

The accrued interest during the repayment holiday period to be added

to the principal and repayment in Equated Monthly Instalments (EMI)
fixed.

1% interest concession may be provided for loanees if the interest is

serviced during the study period when repayment holiday is specified for
interest/ repayment under the scheme.

10. INSURANCE:-

Banks may arrange for life insurance policy on the students availing
Educational Loan. Individual Banks may work out the modalities with
insurance companies

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11. FOLLOW UP/TRACKING:-

Banks to contact college/ university authorities to send the progress

report to the bank at regular intervals in respect of students who have
availed loans. In case of studies abroad, bank may obtain the Unique
Identification Number (UIN)/Identity Card and note the same in the
bank's records.

12. PROCESSING CHARGES:-

No processing/ upfront charges may be collected on educational loans

for studies in India.

13. CAPABILITY CERTIFICATE:-

Banks can also issue the capability certificate for students going abroad
for higher studies. For this purpose financial and other supporting
documents may be obtained from applicant, if required.

14. OTHER CONDITIONS:-

a.Meritorious Students

Banks which wish to support highly and exceptionally meritorious/

deserving students without security may delegate such powers to a fairly
higher level authority.

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b. Multiple Loans
In case of receipt of application for more than one loan for student
borrower from a family, the 'family' as a unit has to be taken into
account for considering the loan and security taken in relation to the
total quantum of finance disbursed, subject to margin and repaying
capacity of the parent/student.
c. Minimum Age :-
There is no specific restriction with regard to the age of the student to be
eligible for education loan.
d. Change of Address
In cases of student staying with parents and where such parents have
transferable jobs or there is change in address, the bank may provide in
the system of noting the ‘address for correspondence' for tracking
purpose.
e. Top up loans
Banks may consider top up loans to students pursuing further studies
within the overall eligibility limit, with appropriate re-schedulement,
subject to taking required security.
f. Co-obligator
The co-obligator should be parent(s)/guardian of the student borrower.
In case of married person, co-obligator can be either spouse or the
parent(s)/parents-in-law .

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No Due Certificate

No due certificate need not be insisted upon as a pre-condition for

considering educational loan. However, banks may obtain a declaration/
an affidavit confirming that no loans are availed from other banks.

Disposal Application

Loan applications have to be disposed of within a period of 15 days to 1

month, but not exceeding the time norms stipulated for disposing of loan
applications under priority sector lending.

Flexibility in terms

In order to bring flexibility in terms like eligibility, margin, security

norms, banks may consider relaxation in the norms on a case-to-case
basis delegating the powers to a fairly higher level authority.

‘Government of India,Ministry of Human Resource Development

Department of Higher Education'

Central Scheme to provide Interest Subsidy for the period of moratorium

onEducational Loans taken by students from economically weaker
sections fromscheduled b:mks under the Educational Loan Scheme of
the Indian Banks'Association to pursue technicaJLprofessionaleducation
studies in India.

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One of the major concerns of the 'Government is to ensure that nobody
is Qenied professional education because he or she is poor. TI1e Indian
Banks'Association (lBA) had formulated a comprehensive
model.educational loan scheme for adoption by all Banks, aimed at
providing financial support from the bankingsystem to deserving /
meritoriousstudents for pursuing higher education in India and. abroad.
Government of India has now approved a Scheme to provide full
interestsubsidy during the period of moratorium on loans taken by
students belonging toeconomically weaker sections from scheduled
banks under the Educational LoanScheme of the IndianBanks'
Association, for pursuing any of the approved courses ofstudies in
technicaland professional streams,from recognized institutions in India.

The broad parameters of the Scheme are :-

(i) The Schedule would be only applicable for studies in technical

courses in India. The: interest subsidy shall be linked with the existing
Educationa Loan Scheme of IBA and restricte:d to students enrolled in
recognized professional courses (after ClassXII) in India in Educational
Institutions established by Acts of Parliament, other Institutions
recognized by the concerned Statutory Bodies, Indian Institutes of
Management (IIMs) and other institutions set up by the Central
Government.

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(ii) Under the Scheme,interest payable by the student ,availingof the
Educational Loan Scheme of the Indian Banks Association for
professional courses for the period of moratorium (i.e.. course period,
plus one year or six months after getting job,whichever is earlier)as
prescribed under the Educational Loan Scheme of the Indian Banks
Association, shall be borne by the Government. After the period of
moratorium is over, the interest on the outstanding loan amount shall be
paid by the student, in accordance with the provisions of the existing
Educational Loan Scheme and as may be amended from time to time.

iii) The benefits under the Scheme would be applicable to those students
belonging to economically weaker sections with an annual parental
income upper limit of Rs. 4.5 lakh per year.

(iv) The- interest subsidy under the Scheme shall be available to the
eligible students only once, either for the first undergraduate degree
course or the postgraduate degrees/diplomas. Interest subsidy shall,
however be admissible for combined undergraduate and post graduate
courses.

(viii) The Scheme shall be implemented through Canara Bank, which is

the nodal bank for the Ministry of Human Resource Development.
Modalities for implementation and monitoring mechanism shall be
finalized in consultation with the Canara Bank.

(ix) The Scheme shall be applicable from the academic year 2009-10.
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REASONS FOR TAKING EDUCATION LOANS:-

For most, the steep fees for professional courses are becoming
unaffordable as a result of which, more and more students are knocking
on the doors of banks to pay for their education.

Data prepared by the Indian Banks' Association (IBA) shows that the
number of students applying for loans has more than doubled between
2005 and 2010. The outstanding amount has also gone up from Rs
6,713.16 crore till 2005 to Rs 40,497.46 crore till 2011.

25
The IBA data, compiled annually from the records of all the 28
nationalized banks in the country, shows that 1.48 lakh applications
were received in 2004-05, while the numbers went up to Rs 3.25 lakh in
2009-10. The total outstanding accounts in 2005 was 4,68,207 that rose
to 19,28,350 in 2010. The corresponding outstanding loan amount went
up from Rs 6,713.16 crore in 2005 to Rs 35,628.33 crore in 2010.

The reasons for the surge in applications, bankers say, are the rising fees,
easy availability of loans and low interest rates. "The cost of
professional education has gone up and loans are easily available to
students. Banks have also become proactive in marketing their products;
they have started combing campuses as they know they will find their
borrowers there," said Prabhuta Vyas, vice-president of the social
banking department of IBA. Since banks provide loans up to Rs 4 lakh
without any collateral, "around 67% seeks loan of that amount", she
said.

According to students, smooth process, low interest rates, few

paperwork and reputation of a bank are what they seek when they apply
for loans. Shiv Shetty, a PG student in marketing communications at the
University of Westminster, UK, took loan through a nationalized bank.
However, non-computerization of the process had complicated his
application to the university, he claimed.

26
Which Banks in India Offer Education Loans?
Most nationalized banks, private banks, foreign banks and private
lending institutions provide students loans. Some of the loans from the
most popular banks are as follows:

Axis Bank Study Loan

Allahabad Bank Loan

Bank of India Loan

Bank of Maharashtra Loan

Bank of Baroda Loan

Bank of Rajasthan Loan

Canara Bank Student Loans

Federal Bank Vidya Loan

IDBI Bank Education Loans

HDFC Education Loan

UCO Bank Education Loan

ICICI Bank Education Loan

Punjab National Bank Loan

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Syndicate Bank Loans

Indian Overseas Bank Loan

Oriental Bank of Commerce

State Bank of India Loan

United Bank of India Loans

Documents required for availing the loan are: -

Mark sheet of last qualifying examination.

Schedule of expenses for the course

Offer letter or any other proof of admission to the course.

Copies of letter confirming scholarships.

Borrower’s last 6 months’ statement of bank account.

List and statement of borrower’s assets and liabilities

How much Loan Can You Get?

For studying in India a student can borrow up to 4 lakh (INR) without

providing any margin or security. A loan amount above this and up to
7.5 lakh (INR) is available against a third-party guarantee, which comes

28
with a 5% margin. For studying outside the country, loan amounts above
7 lakh (INR) is sanctioned against NSC certificates, fixed deposits,
property, and so on, against a loan margin of 15%.

An education or student loan means financial support given by a bank or

a financial institute to help a student meet the expenses needed for
higher education. Many colleges, universities and other educational
institutions have tied up with private and nationalized banks to help the
students achieve their dreams. For studying in any institute within the
country, the maximum loan amount granted is 7.5 lakh (INR) and for
studying abroad, the maximum loan amount granted is 15 lakh (INR).
In India, if a student is under 18 years of age, an education loan is
granted to the parents. Loans are also granted through third-party
guarantee, who can be a relative, friend or neighbor. Students, above 18
years of age get loans to meet their professional or academic education
costs. Compared to other types of loans, education loans in India come
with lower interest rates. Sometimes, the loans are supplemented by
student grants, which in general cases do not have to be repaid. Most
nationalized and private lending institutions in India need authorization
from the respective college or university. These education loans
generally include the costs of tuition fee, hostel expense, and books &
stationery costs.

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Procedure :-

Step 1: Fill in the loan application form

Like in case of every loan, the applicant has to fill in an application form
which may ask for details such as contact details, details relating to
academics etc. it is important to fill in accurate information.

Step 2: Personal Discussion

Once the applicant, ie the student fills in the form, there is a round of
personal discussion wherein he/she may be asked various question
relating to the academic performance, the course one has selected,
probably the institute etc. At this stage, it is very important to be lucid
and clear about one's selection of course and its future potential of
generating income. While some banks are known to hold the academic
record important, some may give it a slightly lesser attention. This does
not go to say that one needs an excellent academic record. But, make
sure that there are answers to those mishaps that could have occurred
during the academic life.

Step 3: Provide validated supporting documents

Unlike other loans where the talk of documents relating to say property,
might come in at a later stage and may cause delay-documents are a
must. In case of education loans, documents relating to admissions are
mandatory even before the bank considers the loan application. The
30
bank will verify the enrollment of the student from the concerned
institute. One may also require collateral security such as papers relating
to property to be mortgaged if the loan amount is above Rs. 4 lakh.

Step 4: Stage of loan approval or denial

When one takes some other kind of loan, there is a co-guarantor,

especially in case of personal and home loans. For an education loan, a
guarantor is mandatory. The guarantor could be an applicant's parents or
guardians. The bank will run a thorough check of the guarantor and
his/her credit history before sanctioning the loan. After completion of
the process, the loan may be sanctioned or denied.

Step 5: Borrower's signature on a Promissory Note

While the parents/guardians are guarantors, the student is the actual

borrower of the loan. Once the loan is sanctioned, the student has to sign
a promissory note to the bank.

Step 6: Disbursal of the loan

Once the formalities are completed (additional documents and signed

post-dated cheques may be required), the bank will disburse the loan.
The bank may disburse the college/institute fee directly to the concerned
institute.

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Online Applications

In the current times, availing an education loan has been made even
easier. Now, one can apply for an education loan online. The loan will
be sanctioned only in principal and the applicant will have to contact the
bank for actual approval and disbursement of the education loan.

Securities required for loan :-

You need to have a guarantor for the education loanto be sanctioned. If

you fail or are incapable of repaying the student loan, the guarantor will
have to clear the debt. Usually, most banks require the guarantor to have
a net worth and/ or annual income equivalent or more than the education
loan amount.
Only education loans above Rs 4 lakh require tangible collateral,
security for the full value of the loan or third-party guarantee, depending
on the amount. However, the co-borrower -- the parent or guardian - is
required to furnish his/her bank account statement, tax returns of the last
two years, statement of assets and liabilities and proofofincome.
The usual security that banks accept are National Savings Certificates
(NSCs), bonds, gold, vehicle,house,property,etc.
Loans above Rs 4 lakh and up to Rs 7.5 lakh: Collateral in the form of a
suitable third-party guarantee. The bank may, at its discretion, waive
third-party guarantee if satisfied with the net worth / means of the parent
who is executing the document as a joint borrower.

32
Loans above Rs 7.5 lakh: Collateral security of a suitable value or a
suitable third-party guarantee, along with the assignment of the student's
future income for payment of installments.

When the education loan amount is greater than Rs 1 lakh, banks usually
prefer students who have life insurance policies equivalent to, or more
than, the education loan amount. This is nothing more than a security
feature and also forms part of your collateral. If something unfortunate
happens to the borrower,the bank does not lose money and can recover
the outstanding amount from the insurance policy.

Some banks have tied up with specific institutions to provide education

loans to students for select courses. In such cases, the banks may be
willing to forgo collateral requirements.

COMPARITIVE STUDY BETWEEN EDUCATION LOANS

GIVEN BY PRIVATE AND PUBLIC SECTOR BANKS:-

33
Banks choosen for comparison

BANKS

PUBLIC BANKS PRIVATE BANKS

STATE BANK OF HYDERABAD

ICICI BANK

UNION BANK OF INDIA

HDFC BANK

State bank of Hyderabad :-

Purpose -
For pursuing studies in recognised schools/ colleges/ institutions to
meet: -

34
Tution and other fees- Maintenance costs, books and equipment etc.

- Cost of passage (for studies abroad)

Eligibility-

For School / College education in India.

a) Minimum second division (Pass marks for SC/ST)

b) Parents / guardians (Including persons engaged in agriculture / allied

activities having independent regular source of income.

Loan Amount -

(I) School / College education in India: (Upto 6 times the

monthly net (take home) income of the parents / guardian.
Minimum loan of Rs. 4,000/- Maximum Rs. 1lac.

(II) Technical / Professional higher studies in India and Abroad

90% of the cost of study, subject to maximum of Rs. 8lacs.
Margin-10%
Interest Rate -

At competitive rates on reducing balance only. Please check-up for latest

rates at your nearest branch Interest is compounded at quarterly basis.
Period of Loan

35
(I) For School / College Education in India: Loans to be repaid in a
period of 36months, commencing immediately after disbursal, by the
parents / guardian.

(II) For Technical / Professional higher studies in India and abroad:

The loan is to be repaid is 60 months after the completion of the course
of securing job, whichever is earlier. Regular periodic repayment as
much as possible should be made during the period of study. Quarterly
interest should be paid regularly.

(III) Permitted without any penalty.

DETAILS OF LOAN GIVEN IN LAST YEAR -

1.Total number of educational loans provided this year:- 6

2.Total number of proposals handled :- 53

3.Total amount sanctioned :- 90 lacs.

4.NPA’s in education loans :-Nil

5.Schemes detail :-

Fees payable to college/school/hostel

Examination/Library/Laboratory fees

Purchase of Books/Equipment/Instruments/Uniforms

36
Caution Deposit/Building Fund/Refundable Deposit (maximum 10%
tuition fees for the entire course)

Travel Expenses/Passage money for studies abroad

Purchase of computers considered necessary for completion of course

Any other expenses required to co mplete the course like study tours,
project work etc.

UNION BANK OF INDIA:-

PURPOSE:-

Basic education

To pursue graduation / higher education

To pursue technical / professional / management courses

ELIGIBILITY -

Indian citizen

Secured admission to the concerned institute in India or abroad through

appropriate selection process and cleared the ualifying examination, if any

Courses covered in India

Graduation / post-graduation / diploma courses from recognized

37
Universities

Technical / professional / management courses

Courses covered outside India

Graduation / post-graduation degrees offered by recongnized universities

Certified degree courses conducted by CIMA, London, CPA, USA and

other such institutes

Diploma courses are not covered under Union Education

QUANTUM OF LOAN -

For studies in India - maximum upto Rs. 10 Lakhs. The quantum of loan is
higher for the institutes covered under Special Education Loan schemes.
Please check the Special Offers Tab above for further details.

For studies outside India- maximum Up to Rs. 20 Lakhs

MARGIN -

For loans upto Rs. 4 Lakhs, the margin is nil

For loans above Rs. 4 Lakhs, margin is 5% for studies in India and 15%
for studies outside India

38
MORATORIUM PERIOD-

The moratorium period is minimum of the following two.

Course period + 1 year

Course period + 6 months after commencement of job

REPAYMENT-

Repayment period of up to 7 years after moratorium period

Interest rate -

SECURITY -

The security required is as mentioned below.

Loan amount Security

Upto Rs. 4 Lakhs NIL

Rs. 4 – 7.5  No collateral security required

Lakhs  Third party guarantee is needed

Above Rs. 7.5  Collateral security of suitable value is required

GUARANTEE-

39
Parent / guardian of the student who is availing loan have to join in as co-
borrower

INSURANCE-

Life insurance of the borrower is compulsory to the tune of the loan

amount

OTHER CONDITIONS-

The loan shall be sanctioned / disbursed from the branch nearest to the
place of domicile of the student

Loan would be disbursed directly to the institute

DETAIL OF LOAN GIVEN IN LAST YEAR-

1.Total number of educational loans provided this year:- 12

2.Total number of proposals handled :- 12

3.Total amount sanctioned :- 24,33,687/-

4.NPA’s in education loans :-All new loans

5.Schemes detail :-

40
 6.Balance Sheet :-

------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 524.33 505.12 505.12 505.12 505.12

Equity Share Capital 524.33 505.12 505.12 505.12 505.12

Share Application Money 111.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 10,555.35 8,302.69 6,549.26 5,118.19 4,228.16

Revaluation Reserves 1,573.84 1,615.97 1,685.98 1,724.40 456.59

Net Worth 12,764.52 10,423.78 8,740.36 7,347.71 5,189.87

41
 138,702.8
Deposits 202,461.29 170,039.74 103,858.65 85,180.22
3

Borrowings 13,315.97 9,215.31 3,884.90 4,760.49 4,215.53

142,587.7
Total Debt 215,777.26 179,255.05 108,619.14 89,395.75
3

Other Liabilities &

7,442.67 5,483.01 9,647.43 8,106.43 8,092.26
Provisions

160,975.5
Total Liabilities 235,984.45 195,161.84 124,073.28 102,677.88
2

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

12 mths 12 mths 12 mths 12 mths 12 mths

Assets

Cash & Balances with

17,610.45 12,468.24 8,992.05 9,454.74 5,917.57
RBI

Balance with Banks,

2,487.99 3,308.45 6,992.88 643.10 2,508.87
Money at Call

42
Advances 150,986.08 119,315.30 96,534.23 74,348.29 62,386.43

Investments 58,399.14 54,403.53 42,996.96 33,822.63 27,981.77

Gross Block 3,598.41 3,396.98 3,220.65 2,937.45 1,487.21

Accumulated
1,319.21 1,101.50 893.35 741.62 664.49
Depreciation

Net Block 2,279.20 2,295.48 2,327.30 2,195.83 822.72

Capital Work In Progress 13.58 9.96 7.86 4.57 2.28

Other Assets 4,208.00 3,360.89 3,124.23 3,604.10 3,058.24

160,975.5
Total Assets 235,984.44 195,161.85 124,073.26 102,677.88
1

Contingent Liabilities 148,033.99 63,675.91 63,248.00 47,413.13 32,894.26

Bills for collection 16,652.20 13,227.35 22,391.95 18,280.70 10,537.72

Book Value (Rs) 211.31 174.37 139.66 111.33 93.71

43
44
HDFC BANK

Purpose:-

HDFC gives loans to students to partly meet their educational expenses /

costs for pursuing specific higher educational courses at institutes
approved by HDFC. Loans are given to students who are citizens of
India. The student should have a consistently good academic record, and
admission to an approved Educational Institute for pursuing a
recognized course.

Eligibility:-

Students enrolled with an approved Educational Institute and desirous

of availing the education loan can make an application, with the earning
parent / guardian being the co-applicant to the loan. Currently, new
entrants and existing students of only select leading national educational
institutions are eligible to apply for education loans. Please check with
your nearest HDFC Office for the list of approved institutions.

Amount of loan:-

Loans can be availed upto a maximum of 90% of the total cost as

determined by HDFC. The costs would generally cover expenses
incurred towards the course fee, library charges, hostel and mess

45
charges, cost of books and equipment. HDFC lends upto a maximum of
Rs. 2,00,000 on an Education Loan.

The period of the loan is determined on the merits of each case but
would not exceed 5 years. The repayment can be accelerated on
completion of the course, considering the earning capacity of the
student. HDFC's main concern is to help individuals comfortably repay
the borrowed amount.

Rate of interest :-

Loan Amount (Rs.) Rate of Interest - % p.a.

Upto 2,00,000 14.0

1.Total number of educational loans provided this year:- No loans given

for domestic purposes.

2.Total number of proposals handled :-nil

3.Total amount sanctioned :- nil.

4.NPA’s in education loans :-nil

5.Schemes detail :-

Interest Subsidy for Educational Loans

46
In order to support students from economically weaker sections of the
society, Department of Education, Ministry of Human Resource
Development, Government of India has launched an interest subsidy
scheme. The MoHRD has appointed Canara Bank as the Nodal Bank for
the Scheme.

6.Balance sheet :-

ICICI BANK

EducationLoan
The Educational Loan Scheme aims at providing financial support to
deserving/ meritorious students for pursuing higher education in India
and abroad.

Eligible Student:

Should be an Indian National

Secured admission to professional/ technical courses in India or Abroad

through Entrance Test / Merit Based Selection process.

CoursesEligible
StudiesinIndia:
Graduation courses, Post Graduation courses, Professional courses,
Computer certificate courses, Courses like ICWA, CA etc, Courses
conducted by IIM, IIT etc., Courses offered in India by reputed foreign

47
universities, Evening courses of approved institutes, Other courses
leading to diploma/ degree etc. conducted by colleges/ universities
approved by UGC/ Govt etc., Courses offered by National Institutes and
other reputed private institutions, Teacher Training Course/Nursing
Course/B.Ed approved either by the Central Government or by State
Government and such courses should lead to DegreeorDiplomaCourse.
StudieSabroad:
Graduation : For job oriented professional/ technical courses offered by
reputed universities, Post graduation: MCA, MBA, MS, etc., Courses
conducted by CIMA- London, CPA in USA etc.
Expenses considered for loan:

Fee payable to college/ school/ hostel

Hostel expenses (Wherever students have to stay outside the campus or

avail private accommodation banks may consider reasonable lodging &
boarding expenses)

Examination/ Library/ Laboratory fee

Purchase of books/ equipments/ instruments/ uniforms

Caution deposit/ building fund/ refundable deposit supported by

Institution bills/ receipts

Travel expenses/ passage money for studies abroad.

48
Purchase of computers - essential for completion of the course

Any other expense required to complete the course - like study tours,
project work, thesis, etc

Quantum of finance: Need based finance subject to repaying capacity of

the parents/ students with margin and the following ceilings.

Studies in India - Maximum Rs. 10.00 lacs

Studies abroad - Maximum Rs. 20.00 lacs

Margin:-

Upto Rs 4 lacs : Nil

Above Rs 4 lacs : Studies in India 5% Studies Abroad 15%

Security:-

Loans Upto Rs 4 lacs - Co obligation of parents.

Further wherever parents are not there banks could consider grandparent
as co obligator to the loans taking into account their net worth

Above Rs 4 lacs and upto Rs. 7.5 lacs

Co obligation of parents along with Collateral in the form of a suitable

third party guarantee for 100% of the loan amount to be taken

For cases above Rs 7.5 lacs

49
Co obligation of parents along with Collateral security of 100% value of
loan

Assignment of future income of the student for payment of the loan

instalments for all loans

The co-obligator should be parent(s)/guardian of the student borrower.

In case of married person, co-obligator can be either spouse or the
parent(s)/parents-in-law

Rate of Interest:-

loans upto Rs 4 lacs shall be IBAR ( not exceeding BPLR)

for loans above Rs. 4 lakhs shall be BPLR + 1%

At least 0.50% concession in interest rates on Education Loans to girl

students for pursuing higher education in India and abroad

Penalty interest @2%.

Repayment / Holiday:-

The repayment holiday shall be a year more than the period of the course
or 6 months after the borrower gets a job, whichever is earlier.

The loan shall be repaid in 5-7 years after commencement of repayment.

50
DETAILS OF LOAN GIVEN IN LAST YEAR-

1.Total number of educational loans provided this year:-No loans

given for domestic purposes.

2.Total number of proposals handled :- nil

3.Total amount sanctioned :- nil.

4.NPA’s in education loans :-nil.

5.Schemes detail :-

ARTICLE

Chart of the Day: Student Loans Have Grown 511% Since 1999

AUG 18,2011

You think the housing bubble was enormous? Meet the education
bubble.An article here by Andrew Hacker and Claudia Dreifus explained
the debt crisis at American colleges. But some startling statistics will
help to make their analysis a little more tangible. The growth in student
loans over the past decade has been truly staggering.

Here's a chart based on New York Federal Reserve data for household
debt. The red line shows the cumulative growth in student loans since

51
1999. The blue line shows the growth of all other household debt except
for student loans over the same period.

This chart looks like a mistake, but it's correct. Student loan debt has
grown by 511% over this period. In the first quarter of 1999, just $90
billion in student loans were outstanding. As of the second quarter of
2011, that balance had ballooned to $550 billion.

The chart above is striking for another reason. See that blue line for all
other debt but student loans? This wasn't just any average period in
history for household debt. This period included the inflation of a
housing bubble so gigantic that it caused the financial sector to collapse

52
and led to the worst recession since the Great Depression. But that other
debt growth? It's dwarfed by student loan growth.

How does the housing bubble debt compare? If you add together
mortgages and revolving home equity, then from the first quarter of
1999 to when housing-related debt peaked in the third quarter of 2008,
the sum increased from $3.28 trillion to $9.98 trillion. Over this period,
housing-related debt had increased threefold. Meanwhile, over the entire
period shown on the chart, the balance of student loans grew by more
than 6x. The growth of student loans has been twice as steep -- and it's
showing no signs of slowing.*

Obviously the number of students didn't grow by 511%. So why are

education loans growing so rapidly? One reason could be availability.
The government's backing lets credit to students flow very freely. And
as the article from yesterday noted, universities are raising tuition
aggressively since students are willing to pay more through those loans.

This student loan growth sure looks unsustainable. But it's hard to see
how this bubble's inevitable pop might look. Ultimately, it might look
more like a balloon slowly deflating, if a large portion of college
graduates decide to strategically default on their debt over time.

53
Recommendations:

Poor banking access (50% people do not have bank accounts) to a large
section of people restricts the access of educational loan to meritorious
and deserving students. The banking regulators and other stakeholders
need to come up with a framework to provide access of educational
loans through the public private partnerships and involvement of self
help groups, to unbanked people. National level test could be conducted
only for the remote and backward areas to identify talented students who
would then be given educational loans.

Provide educational loans on first priority to first generation of higher

education students. Since the resources for educational expenditure are
scarce in India, the reservations should only be allowed to the first
generation higher education students. A student going for higher
education first time in his family would be considered a first generation
higher education student. Though it may sound difficult to implement. A
system to prepare data of the citizens through Aadhar card like scheme
may make it feasible. A family should get only one chance to get
reservation or scholarship or subsidized education loan. The reservations
on the basis of social castes should also include the population residing
in areas devoid of basic amenities and banking services. This would
enhance the access and equity expansion of higher education through
educational loans.

54
The government should reduce the budgetary allocation from the
premier institutes and support private institutions in scholarships and
loan guarantee for the talented students from the weaker sections. The
students in the premier institute’s gets subsidized education from public
funds but enjoy private benefits for a longer duration. The government
should only provide guarantee for the student of these institutes and
increase the fees of these institutions. The premier institutes should be
encouraged to replace government budgetary support with higher fees
recovered through educational loans and corporate donations made by
the alumni. Income tax exemption may be granted to those contributing
towards higher education of weaker sections. The profit motive in
private higher education institutions need to be justified with the return
on investment achieved by a student from the study.

Dual degree program that allow students to work in industry to part

finance their study and also get work experience which will improve
their employability. Innovative delivery modes like e-education to
reduce the operational cost and reduced fee structure, which may be
easily financed through educational loans disbursed through self help
groups or financial institutions will go a long way to propel India to the
status of an economic superpower by capitalizing on the demographic
dividend.

55
Conclusion

Higher education creates and supplies knowledge, which is driving

modern economic growth. Hence, development of qualitative higher
education system becomes crucial, which could provide access to all
those who want to pursue higher studies. Access to higher education
should not be limited to few sections of the society which creates
inequity. As observed earlier, enrolment to higher education has
increased significantly in the country, showing rising demand for higher
education. But, at the same time inequity in enrolment ratio is also
observed, particularly with respect to SC/STs, women, rural youths, etc.
This disparity needs to be corrected by bringing all those socially and
economically weaker sections in the fold of higher education.
Introduction of economic reforms has reduced government spending on
higher education and new sources of financing are being explored. In
this direction, student loan scheme for higher education has got much
attention as a way for finance and cost recovery. Education constitutes a
small share of 3.7 per cent of the total priority sector lending in the year
2009. This indicates that banks can increase their share of lending for
higher education. Analysis of student loan by Canara Bank and State
Bank of Mysore also showed that educational loan is increasing over the
years.

56