Educated, unemployed and in debt

The high profile exit of Professor Pratap Bhanu Mehta, arguably one of India’s foremost public intellectuals, from Ashoka University, arguably the market leader in liberal arts education in India, has triggered a massive debate about a number of burning issues, ranging from the current dispensation’s ongoing bid to capture the “commanding heights” of publicly-funded educational institutions to its relentless attempts to muzzle all kinds of public dissent to the limits of academic freedom, particularly in the new age, elite institutions like Ashoka, which are entirely private funded.

All of which are issues well worthy of extensive public debate and discourse, but the education sector in the country, whether public, autonomous or private, may have a much bigger headache to worry about — the rising tide of education loans turning dud and being written off.

Over 3.66 lakh accounts with outstandings of over ₹8,587 crore have been classified as non-performing assets (NPAs) as of December 31, 2020, by commercial banks. At the current NPA level of over 9.7 per cent, banks are staring at the unappetising prospect of writing off one in 10 loans they have given out under this heading.

This has, understandably, led to increasing reluctance on the part of bankers to disburse education loans. That’s because, like credit card loans, these are not secured against any collateral. Many banks insist on the loans being guaranteed by credit-worthy individuals and parents, but such guarantees are difficult and time consuming to enforce. And given the low ticket size of such loans, the costs often outweigh any recoveries they may end up making.

According to RBI data, as of January 29, 2021, education loans accounted for ₹64,000-odd crore worth of bank credit, a reduction of 4 per cent year-on-year. In fact, total outstandings under the head of education loans have been declining by 4-5 per cent every year for the past few years, RBI data shows.

Crippling costs

This is bad news for students, but even worse news for the education sector. Even in government or aided autonomous institutions like IITs and IIMs, the cost of education for an engineering degree or an MBA is now high enough that even middle class students feel the need to avail themselves of loans to fund this.

Medical education is even costlier, at roughly triple the cost of an engineering degree, that too in government colleges. In private colleges, a medical degree can cost 10 times as much as a government college.

Even private universities offering a liberal arts education charge fees of several lakh rupees a year. If the cheap and non-collateralised education loan scheme collapses, these institutions can say goodbye to a large number of their paying customers.

In fact, the problem is worse for the non-elite — indeed, the non-tier-I institutes. While those with a reputation in the market (and more importantly a placement record) can still possibly scrape through, the hundreds of second and third grade engineering, medical, and management schools could well be finished.

A look at the constituents of the NPA loan portfolio in education shows where the problem lies. Nursing tops the list with over 14 per cent share of the NPAs, followed by 12.1 per cent in engineering, 7.1 per cent in MBA and 6.2 per cent in medical.

In fact, according to a study by a ratings agency, Nursing courses accounted for over a fifth of all education loans NPAs, followed by Engineering (9.76 per cent), other professions (9.49 per cent), Medical (6.06) and MBA (5.59 per cent).

The reasons are not far to seek. In nursing for instance, the pay levels are appalling, with salaries ranging from ₹13,000 to ₹25,000 per month for a qualified nurse. That is, if they get a job. Many go abroad for work and become untraceable. Engineering is no better. Nearly 30 per cent of engineering students drop out annually. Over the past few years, Tier 2 and Tier 3 engineering schools have found it impossible to place their graduates, leading to a steep fall in fresh admission seekers — and a rise in education loan NPAs.

MBA institutes have a relatively lower level of NPAs, but with the Covid-19 pandemic having knocked the jobs market for a six, that situation is changing as we speak. The next big problem is going to come in the overseas education sector, since even students with degrees from elite global universities —particularly those with non STEM degrees — struggling to find regular jobs, leave alone ones paying enough to enable them to repay their costly loans.

Weak job market

Of course, job creation — or the lack of it — lies at the root of the problem, but the education sector is equally responsible for the mess. To put it bluntly, the quality of education meted out simply does not pass muster in most cases. It is not just India’s engineering graduates who are unemployable — so are our arts, sciences, humanities grads, as well as those trained in professions and vocational skills.

One cannot blame them entirely of course. With a college degree a must even for basic jobs like slinging fries at a fast food outlet, and with the quality of our schools being what they are, those who have no business being allowed entry into a higher education course are admitted into second-rate institutes — for a price.

Here they are taught by people who have no business being teachers — often, the faculty is mostly unemployed students of earlier batches. So we have the situation of functional illiterates entering the job market with valid college degrees, often funded by loans. In the real world, these degrees are worthless, the degree holders find it impossible to find a job (or a job they are prepared to accept, given their ‘college degree’), and the NPA cycle starts rolling.

The loss of one Pratap Bhanu Mehta or one Arvind Subramanian is a loss for liberal education and academic freedom in India. But these NPA losses of banks could soon lead to the loss of an entire sector. With the government having long since abdicated its primary role in higher education (and increasingly in basic education), this loss will be catastrophic for India’s growth ambitions.

The education loan NPA problem is not just a financial problem — it is symptomatic of a systemic rot which threatens to destroy what remains of India’s so-called demographic dividend. All stakeholders — government, educators and promoters of private education enterprises — need to come together to find solutions.

The writre is a former Editor of BusinessLine

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