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Saturday, May 7, 2005 |
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Saturday, May 7, 2005 |
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IT was 1957 and O.N. Tickoo secretly nursed a dream of studying at Oxford. Tickoo, whose father worked as a state government employee, was always putting money together for the wedding of his three daughters. Compelled by the situation, Tickoo obediently took up a job in a bank. "My father could not afford my education abroad and education loans were unheard of," he recalls. But 47 years later, when it was his son’s turn to sail across seven seas, Tickoo was a happy man. "I wanted him to dream big `85 encouraged him to study further. Fortunately, I had no reason to worry when he secured an admission in a university in Australia because I knew I could go in for a loan," says the content father. And so with the State Bank of India coming to his aid, Manish (26) was on his way to Australia in July 2004, where he is today pursuing MBA in a college in Melbourne. The loan extended by the bank has helped Tickoo realise a dream. Manish is one of a growing tribe of people who have taken an education loan to pursue their cherished dream of studying abroad. "I always wanted to study abroad but I had to wait till I completed M.Com from Pune. The college fee in the US or Australia is prohibitive and my father would have found it extremely difficult to bear this burden `85 fortunately, the bank sanctioned my loan. It’s good for people like us `85 even the have-nots can now hope for good education," he says. Like him, M. Nilesh (27) too had packed his bags and left for the US to pursue a course in engineering when he had just passed his 10+2 examination. He had not been sure if he could qualify the entrance test conducted for admission to the prestigious Indian Institutes of Technology. "I applied to US universities. I got admission, but without a scholarship. I had to eventually apply for an education loan to finance my four-year engineering course in the US," he says. Dream options With both private and public sector banks hardselling education loan schemes, studying at home and abroad has never been easier. "In 2004-2005, we opened 230 accounts and disbursed education loans amounting to Rs 5.6 crore. In 2003, we opened 275 accounts and extended loans up to Rs 4.3 crore," says an official of a State Bank of India branch in Delhi. "These figures are for one branch `85 you can imagine the total loan sanctioned by the SBI in a year," he adds. The educational loan scheme aims at providing financial support from the banking system to deserving or meritorious students for pursuing higher education in India and abroad. The government maintains that every meritorious student is provided with an opportunity to pursue education with financial support on affordable terms and conditions and that no deserving student is denied an opportunity to pursue higher education for want of financial support. The Indian Banks’ Association (IBA) constituted a study group headed by Chairman and Managing Director of Central Bank R. J. Kamath to examine the issue in detail. Based on the recommendations of the study group, a comprehensive model educational loan scheme was prepared by the Indian Banks’ Association for adoption by all banks. The objective was to provide financial support from the banking system to deserving or meritorious students for pursuing higher education in India and abroad. The government has since decided to accept the model scheme prepared by IBA for implementation but with certain modifications like doing away with the condition of minimum qualifying marks in the last examination and not insisting on margin and security for loans up to Rs 4 lakh. However, banks have been asked to consider relaxing the norms on a case-to-case basis in order to bring flexibility in terms like eligibility, margin, security norms, etc. Union Finance Minister P. Chidambaram recently told the Rajya Sabha that the government was committed to ensuring the smooth flow of education loans for students and a total of 1.4 lakh such loans were given till December 2004. According to the ministerstatement, the model educational loan scheme of the IBA had been adopted by all banks. There was no proposal to increase the interest rate on bank loans and no collaterals were required for loans up to Rs 4 lakh. Students qualifying for admission to an Indian Institute of Management are assured of loans on easy terms. These loans are recovered from their salaries after they start working. This arrangement is possible because an IIM graduate immediately gets a highly paid job on the completion of his studies. The average starting salary is four to five times the fees charged. Securing a loan is equally easy for those studying in an Indian Institute of Technology. Ironically, at a time when banks are more willing than ever to extend education loan to students, the chances of getting an approval for an education loan for studying streams like arts remains slim. Reason? There is little or no scope of landing a job. Banks say they prefer giving loans to students of professional or technical courses although a student of history will become eligible if the banks are adequately satisfied about the creditworthiness of the applicant. An official of the SBI says the bank extends education loan for graduation, postgraduation and professional courses alike as also other courses approved by the University Grants Commission or the All-India Council for Technical Education but admits, albeit sheepishly, that courses having employment prospects are more likely to find favour with the bank than others. "There is a risk factor associated with courses like BSc or BA," he acknowledges. The official, however, says the banking sector, in general, and the SBI, in particular, does offer education loan to students who want to study humanities and have an outstanding score, along with an offer of admission to a renowned college or university. The discretion, he cautions, lies with the banks. While some banks look at the profile of parents or guardians, others like the HSBC in the private sector have a list of universities at home and abroad that they would finance. If you have taken an education loan from the SBI, the repayment would begin one year after the completion of the course or six months after you get a job, whichever is earlier. "For loans up to Rs 4 lakh, the interest rate would be 10.5 per cent and for loans above Rs 4 lakh, the interest rate would be 11.5 per cent. The repayment period varies from five to 10 years. We do not insist on security for loans up to Rs 4 lakh for studies in India or abroad," says the SBI official. There are others like Nilesh, who took an education loan in the US for studying engineering soon after passing out of class XII here in India. "I took a loan in the US. In India, the rates of interest are very high and the maximum amount of loan I was allowed was short of what I needed. I needed a huge amount and that too in dollars," he puts in matter-of-factly. Nilesh, who is currently doing MBA in Carnegie Mellon University, says his decision was well thought out. "In India, one has to provide property, bank assets, etc, as collateral with the banks. They process it within four or five days and you are supposed to repay it as soon as your programme ends. Basically, the whole thing is very rigid `85 here one can’t change the terms or conditions. Moreover, the maximum loan permissible is Rs 15 lakh although the Bank of Punjab is an exception; it offers Rs 20 lakh," he says when asked why he chose this different approach. "It’s very easy in the US," he exclaims narrating his experience. "There everything works on credit history. Since I haven’t been in the US for a very long time, I needed someone to apply it on my behalf. Anytime you get a credit card, a loan, a house or a bank account, your credit history is checked. Moreover, the loan is processed in 24 to 48 hours and the rates of interest are floating; they vary with bank rates and these are in general lower than what is available in India." "More importantly, customer service is better there than in India and it’s very flexible. Suppose I’m eligible for a loan of $1,00,000. For my first year, if I wish, I can withdraw only $50,000 and I will be charged interest on that amount only. By the end of the first year, if I see that I am still left with $20,000, then for second year I can take only $20,000 more and hence overall I repay only $50,000 `85 that is, two years’ interest plus $20,000 (one-year interest)," he says. Easy payback The repayment of an education loan is deductible under Section 80E of the Income Tax Act. The yearly limit for deduction is Rs 40,000 (for both the principal and the interest). Only loans taken for higher education — fulltime studies in any graduate or postgraduate, professional and pure or applied science courses — may claim deduction. The deduction will be available for a maximum of eight years, starting from the day you start repaying. The banks are vying with one another to claim a share of the loan pie. Allahabad Bank, for instance, has launched an advertisement blitzkrieg to promote its education loan scheme. For the benefit of applicants, the bank has drawn up a list of over 80 educational institutions in India whose courses it will finance. There are four institutions in Punjab and Haryana on the list : Management Development Institute, Gurgaon; NIT Kurukshetra; NIT Jalandhar; and Panjab University, Chandigarh. Most banks today accepts applications online.
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With both private and
public sector banks extending attractive loan schemes to students,
education at home and abroad has been made financially more manageable
and easier. Banks, however, prefer giving loans to students opting for
professional courses rather than those taking up liberal arts and
sciences, reports Ramesh Ramachandran
