The launch of the Education Loan Guarantee Scheme by the Delhi government to enable students of all universities, colleges, technical institutes, skill centres, polytechnics and ITI’s in the national capital to get an educational loan is a game changer that other states should adopt. Students preparing for courses like CA, ICWA or CFA and even those doing skill development courses specified by the Delhi government can also avail of the educational loan.
For the first time in the country a state government will provide a guarantee for all student loans up to Rs 10 lakh irrespective of the social or economic background. The scheme will also ensure that the students do not have to provide any collateral or margin money to the banks. The only condition is that the student should have done their education in Delhi and are studying in institutions whose fees are regulated by the government.
To meet the costs of the scheme the state government has set up a Higher Education and Skill Development Credit Guarantee Fund (HESDCGF) for providing guarantees to the banks against any default on these educational loans. It will have an initial corpus of Rs 30 crore and will also collect an annual guarantee fee of 0.5% of the outstanding amount of the loan from the banks each year.
In case of default by the students the HESDCGF will initially settle 75% of the claims of the bank after the initiation of the recovery proceedings and the remaining 25% will be settled after ascertaining the final loss of the bank at the end of the recovery process. The threat of defaults are to be minimized by making the parents or the legal guardian’s joint borrowers of the educational loan along with the student. A default will also negatively impact the credit rating of the student and parents.
The educational loan would be available not only to students of government owned institutions but also to the private or self-financing institutions which have been a minimum grade of A+, A or B from either the National Assessment and Accreditation Council (NAAC), National Board of Accreditation (NBA) or the State Fee Regulatory Committee (SFRC).
Banks will be allowed to charge a maximum simple interest rate of Base rate plus 2%. Application for loans is to be made simpler by receiving them in online and ensuring sanction for eligible loans in 15 days. Rejection of individual loans is to be intimated the higher education department of the Delhi government.
The repayment holiday of the Education loans will extend up to one year after the completion of the course and will have to be paid in fixed equal monthly installments over a period of 15 years. Banks are to also allow for telescoping of repayments with the size of installments going up in the later years. Students availing of educations loans are also to given life insurance cover.
This educational loan facility worked out by the Delhi government will be a game changer in the annals of higher education and could help boost both the quantity and quality of the higher education infrastructure. This is because the liberal education loans will increase manifold the number of students taking up higher education.
The competition among educational institutions to attract more students and the government stipulations for securing accreditation by educational institutions providing admission to students availing educational loans will ensure improvements in quality of education. The educational intuitions would also be forced to improve the course content in tune with market needs to ensure employability of the students.
By liberally expanding the educational loan scheme the Delhi government has wisely chosen to follow the approach most popular with the governments in advanced economies. This would help expand educational loans as an important market to the banks like in the US where the outstanding educational loans of more than $ 1.3 trillion makes it the largest form of household debt next only to mortgages.
The liberal educational loan of the Delhi government, the risks of which are borne by the government, is in line with the practices in advanced countries like Australia, Canada, Denmark, England, France, Germany, Japan, Sweden and United States where the funds are provided by the government to improve student access to higher education. The shifting the burden of losses from the banks to the government is a landmark move which will give a big boost to higher education and help roll out important national programs like the Make in India initiative and also build a new knowledge economy in tune with the needs of changing times.
Source: http://blogs.timesofindia.indiatimes.com/minorityview/delhi-govts-educational-loans-to-students-will-help-expand-facilities-improve-quality-of-institutions/
Education Loan 