Student loans: Many young people are stuck in unsatisfying or low-paying jobs, unable to upgrade or leave due to student loans.
The burden of debt (Photo courtesy-shutterstock)
NEW DELHI: Rohit is stuck. When he graduated from a private engineering school affiliated with Guru Gobind Singh Indraprastha University – better known as IP University – in 2019, he hoped to become a software engineer. He had studied electronics and communication.
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Now he’s in a software company, in a role he doesn’t like but has no way out. Rohit, his name changed on request, is forced to stay at work as he has an Rs 4 lakh education loan to repay. He is the son of a single parent who earns his living by running a
Sumit Mishra, another student pursuing MBBS at GS Medical College in Ghaziabad, Uttar Pradesh, had to apply for a loan while in his second year of medical school. His father, who deals in real estate, suffered huge losses during the Covid-19 lockdown in 2020. He will have to pass the very competitive National Eligibility cum Entry Test for Postgraduate – NEET PG – to be able to start repaying his student loan. .
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Thousands of students across the country have had their options severely reduced by the burden of debt. They have to stay in low paying and unfulfilling jobs or look for a job when they want to continue their education. In the last financial year, up to December 31, 2021, banks had disbursed education loans amounting to Rs 11,321.80 crore, the Ministry of Finance told parliament in March. This equates to 27.7% of the higher education department’s total expenditure in the 2022 union budget.
Student loan history
A national loan program has existed since 1963 to help deserving students finance their higher education. In 1995, the State Bank of India started offering loans for education, and other banks followed in 2001. Education is a priority sector for loans.
Students only receive loans above a certain amount after providing some form of collateral. The banks also perform due diligence on the institutes offering the programs whether the institutes are approved by regulatory bodies such as University Grants Commission (UGC), Indian Council for Technical Education (AICTE) and others authorities.
Also, loans for a particular program are not granted all at once. Students must prove their progress each year.
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“The loan is usually granted based on the progress of the student. They have to present the certificate of achievement, only then they opt for the second year loan. We also study the financial capacity of the child, ”said a bank official on condition of anonymity.
The amount for a given year includes tuition, accommodation, and books and stationery.
Banks can lend up to Rs 7.5 lakh without collateral or collateral to study in India under the Central Sector Interest Subsidy Scheme. Under this, the interest for one year – the moratorium period – is borne by the central government, after which the student must repay the principal and the rest of the interest.
Placement and repayment of the loan
The loan subsidy program comes with a one-year moratorium on repayment after graduation. This means that once a student graduates, they have one year before they have to start repaying the loan.
If repayment is delayed, the equated monthly payments (EMI) continue to increase. If the loan is not repaid between five and seven years, the borrower is considered to be in default. If they can’t even pay a one-time settlement, the loan becomes a “non-performing asset,” or NPA, for the bank.
Therefore, it is essential that students land a job as soon as they graduate and start paying back. However, not all students find employment during on-campus internships.
Rohit did not. “After I finished school, I couldn’t get a job through an on-campus internship,” he said. “I started applying for jobs on my own,” he said. He received offers from three tech majors and chose one on the belief that he “will have the long-term opportunity to work in the IT field”, something he had always wanted. “But that didn’t happen. I don’t like the job, but I have to because I have to repay the loan,” Rohit said.
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Mishra, likewise, has limited options. The medical student is the younger of two siblings and will complete his internship next year. He intends to write the NEET PG next year and all his plans depend on passing this extremely difficult exam and winning a scholarship.
“If I clear NEET PG and get the junior scholarship, I will clear the loan EMI from the junior scholarship stipend,” he said, “I also have to prepare myself mentally [and explore] where all i can apply for a job or work alone to repay the loan if i fail to break NEET-PG.
Landing a job, while helpful, doesn’t always mean repayment will be easy. In many cases, the EMI can be higher than the monthly salary. “The income is generated but this income is not enough to repay the loan. There is nothing left for the child,” said another official working with the Punjab National Bank, asking not to be named.
Defaulters and Settlements
Among the large number of NPAs, there are also deliberate defaulters, bank officials said.
“They have the resources to pay but know that if they don’t pay for a certain period, the bank will opt for a one-time settlement or OTS,” an official said. “We make ad-hoc settlements very frequently. Each bank has their policy, it depends on how they proceed for a unique settlement depending on the financial situation of the student who took out the loan and their parents.
Moreover, experts say education loans are not reaching all the poor and deserving – the intended target of the subsidy program.
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“We fully support more education loans being given to students as we are still falling short on education. Banks should give loans on soft terms, the interest rate should be reduced and finally, the repayment should be linked to employment,” said CH Venkatachalam, Secretary General of All India Bank Employees Association.
Venkatachalam also spoke out against some banks that harass parents. “If they can’t find a job, how do they reimburse? So here we are facing problems. Banks harass them and parents are harassed. Banks sell these student loans to private entities. Taking a loan from a government bank and the government can handle that is one thing or the government can give a grant until they find a job. Banks sell education loans to private entities, which is not acceptable. »
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Again, when a student takes out a loan but is unable to complete their program, the bank will still demand repayment of the loan amount. “We have practically faced this problem,” a senior PNB official said. “The student took a loan amounting to lakhs. The child died but the parents have to repay the loan. I was in tears when I met a couple who had lost their child. They were very poor and they were here asking me how they could repay the loan. It’s pathetic, but it’s public money that needs to be repaid.
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