Risky study loans

Managing cost of education is not simple. It’s simple only when you ride on an education loan scheme to fund the expenses. But these funds are not free. Education loan comes at a cost. If current burgeoning bad loan scenario is taken into account, chances are that the loan would become a debt trap for student borrowers.

In the context of J&K, a trend is catching up fast among the students to fly abroad for pursuing studies irrespective of their parents’ financial position. Here they capitalize on the easy access to funds through education loan. Precisely, pursuing a degree from a foreign university is a new emerging passion among the local student community and gives less importance to relevance of such degrees to their career building. Most of the foreign degree holders are not matching the local job requirements and they continue to struggle to get a job or get engaged into any other self-employment venture matching to their skill and education qualifications.

Basically, it is relatively the easier access to education loans, which has pushed the student community to explore frontiers in education which are normally beyond their horizon. In normal course, education loans are fast turning into a burden for student borrowers with a direct impact on their future. Instead of guiding them into jobs, the loan burden has engaged them to struggle to get out of the debt trap. Indian Banks’ Association (IBA) has released a data which shows the percentage of defaults on education loans at about 9% as of March 2018. In March 2016, it was 7.3%.

However, there are a few important things to consider for the students before availing education loan facility for studies abroad. Firstly, they should not look at a foreign university because someone in their vicinity is already there. They have to understand that going abroad for studies is at a huge cost. The courses in foreign universities are very expensive. Since they are borrowing money to fund the expenses, they have to repay it along with interest. Higher the repayment period, more they have to pay back. So, what is more important for the students is to evaluate their future employability before boarding for studies abroad. Employability aspect is more important and should not be compromised.

For parents sending their wards abroad for studies has tendency to wipe out all their savings in a jiffy and load them with huge burden in the form of outstanding education loan. It would have been better for them to plan early to get enough time to save for their education abroad.

Secondly, access to education loan is easier as compared to other form of loans. But its repayment can be more stressful. Since these loans come with a repayment holiday which includes course period and some more months after completing the course, the student borrowers should use this moratorium period for saving a portion of their earnings. Out of this saving, they can later on fund their EMIs. It would also be better to repay interest portion on monthly basis. They would avoid accumulation of their loan amount at the end of repayment holiday and would also earn rebate on interest rate. Subsequently, EMI will also reduce.

The student borrowers have also to keep in mind that their good repayment history of education loan would help them to secure good credit score, which means they can get easy access to other form of loans in future.

Lastly, as far as education loans for studies abroad are concerned, the banks have a responsibility to help students as a career guide. They should also consider chances of employability of the student in foreign countries, at least in the country where he/she would be pursuing the degree before sanctioning the education loan. This is imperative, as the opportunities to avail employment in countries like US for Indian students have narrowed. This would directly hit their ability to repay their loans in future.

Precisely, funding a students’ education abroad is risky for the bank as much as it’s for the student. A case in point is US where changes related to currency devaluation and tighter immigration policies have negatively affected students. Earlier the students from this end would work for few years to recover at least a portion of their overseas education expenses.

(The views are of the author and not that of the institution he works for)