Government support offers no help to poor students seeking educational loans

On July 2017, R Gomathi, a 21-year-old from Chennai, applied for an education loan in a nationalised bank to study engineering in a private college near the city suburbs.

When she did not hear from the bank even a month after submitting her application, Gomathi and her parents visited the bank to enquire about the loan application. To their shock, the officials told them that their application was rejected. They were not even given a reason for the rejection even though Gomathi had scored more than 80 per cent in her Class 12 examinations.

When her parents forced the bank officials to explain the situation, one of them told them that the loan was rejected on the grounds of the family’s economic background. 

According to the RBI guidelines with regard to student loans, no deserving student should be denied an opportunity to pursue higher education for want of financial support. The loan scheme aims at providing financial assistance on reasonable terms to the poor and needy to undertake basic education.

But, even private banks are extremely picky in granting loans to the students despite Tamil Nadu government’s order stating not to reject loan for students even if they came from poor families, as was the case with Gomathi.

Experts said that while getting an educational loan is gaining popularity among students from middle and higher middle-class families who want to go ahead with higher education, it is denied to those who come from poor backgrounds which defeats the purpose of introducing the loans.

“I got an education loan of Rs 2 lakh from a private bank for my daughter. Though there is no rule, the bank authorities insisted for a collateral security and for which I pledged my flat,” said S Venkatesan, who hails from a middle-class family in Pallavaram.

His daughter studies visual communication at a private college in Chrompet.

Many students, who availed bank loans for their higher studies, were forced to take up jobs that were not related to their field so that they could repay the loan. “Though I finished my mechanical engineering in 2016, I could not get a good job. But since I need to repay my loan, I started working in a BPO office,” said S Murugasean, from Tirunelveli, who works in Chennai said.

When compared to the rest of the country, Tamil Nadu plays a key role by providing education loans through various banks and thus helping students who deserve them. 

However, with the non-payment of loans reaching an all-time high, at about 18 per cent in 2017, bankers have now applied brakes and are restricting education loans to students, especially from poor financial background.  

Ironically, those affected by this strict measure are not students who come from affluent background and take up high profile courses including MBA and MCA but those who want to enter arts and polytechnic colleges.

Loan distributions to the students have dipped to Rs 1,600 crore in 2016-17 from Rs 1,900 crore in 2013-14.

“We cannot afford losses anymore. Therefore, given the huge default rate, we are trying to be more prudent with especially education loans. We are all in the loan recovery process,” a senior official, posted in loan recovery wing, from Indian Bank said.

The official explained that most of the students from rural areas seek education loan to pursue higher studies such as engineering and other courses. However, due to lack of certain extra skills, they do not get job after completing their degrees. “Though we give them a grace period of 6 months to one year, most of the students, who get the loan, do not get jobs within a year,” the official said.CH Venkatachalam, general secretary of All India Bank Employees Association (AIBEA) also explained that bank officials are under severe pressure with regard to loan defaulters.

According to him, although each and every nationalised bank should not deny loans to students on the basis of their background, many banks avoid extending financial assistance to students since several students who were granted loans have been unable to repay it in time. “The debt of education loan is mounting in many banks,” he added.

“While loans are made available by nationalised and as well as private banks, students fail to get jobs right after they graduate. Even though the Central government assured creation of more than one crore jobs every year, the reality is totally different. Hence, students are unable to repay their loans in time,” Venkatachalam said.