Time to resolve student loan stress

At a time when the cost of higher education in India is spiralling higher, it is disturbing that banks should be witnessing a slowdown in their student loan portfolios. A recent BusinessLine report noted that priority sector education loans disbursed by banks registered a year-on-year decline of 5.6 per cent in November 2019, following a 4.7 per cent drop in 2018 and a 3.3 per cent per cent dip in 2017. Given that children’s education remains the top priority for aspirational Indian households and that sought-after higher degrees are far from affordable for most folk, it is inconceivable that shrinking education loan disbursements represent a demand-side problem. Lenders appear to be stepping back from this category owing to their adverse credit experience with it. Data from the government earlier this year showed that 9 per cent of education loans had turned into non-performing assets (NPAs) for public sector banks by March 2018.

Banks cannot be wholly blamed for letting commercial considerations override social objectives when it comes to lending decisions. Rising defaults on student loans are a symptom of the uncertain job and income prospects facing students who graduate from all but a handful of premier institutions in India. Even in supposedly lucrative streams such as engineering or management, where there’s no dearth of physical infrastructure put up by private promoters, graduates are found to be lacking in the basic skill-sets sought by recruiters, thanks to severe deficiencies in the quality of faculty and course material. Ironically, fees at these mid-rung institutions have risen in inverse proportion to the placement prospects of their students, landing unemployed graduates and those in low-paying jobs in a debt trap. The Centre’s own attempts at making premier institutions such as the IITs and IIMs self-sustaining by sharply hiking their course fee have had a role to play in this anomalous situation. With education loans turning unsustainable both for lenders and borrowers, it is high time it reviewed its fee structures for higher education to better align them with income levels and market realities on entry-level compensation. Public investments in higher education are also imperative for India to rein in the immense brain-drain as well as dollar-drain, from an increasing number of parents choosing to send their wards abroad even for basic under-graduate studies.

Given the crying need for student loans in India’s current demographic context, banks need to be pushed too, to make these loans more borrower-friendly. Their current practice of unofficially insisting on collateral or personal guarantees, rigid loan tenors and repayment terms and the whimsical powers that bank officers seem to enjoy in turning away deserving candidates, results in student loans being accessible largely to those who can do very well without them. The fact that banks’ aggregate education loan portfolio stood at just ₹67,000 crore by October 2019 at 0.8 per cent of gross bank credit, is ample proof that they haven’t met even a fraction of the demand.