By Girish Phonde
New Delhi: Outbreaks appear to be exacerbated during this time. Economies around the world began to collapse. Unemployment is the biggest problem that has arisen from the collapse of the economy. Although this has had a major impact on employment in the unorganized sector, the organized sector has not been able to stay aloof from it. Many lost their jobs, and even though some of them survived, it was difficult to get paid.
Coronavirus impact on economies
The Corona crisis will have less of an impact on countries whose economies were formerly in good shape than others. India’s economy was in crisis before Corona. The unemployment rate was as high as 7.3%. Between 2018 and 2019, more suicides of unemployed people have been reported than farmers’ suicides. According to a study by the Center for Monitoring Indian Economy (CMIE), the unemployment rate rose to a record high of 27.11% in May from 8.74% in March. This gives an idea of the catastrophe. Therefore, due to such a clear situation, getting employment for the newly educated unemployed will be a daydream.
The education loan scheme provides for repayment of the loan to the bank for a period of 5 to 7 years after completion of education. This period can also be extended. Now a serious problem has arisen as to how the people who have taken education loans will not be able to repay the loans in a situation where they will not get employment. The government has waived off Rs 7,77,800 crore to industrialists in the last five years. Therefore, in the same way that the government extends a helping hand to the Corporates and farmers, it is necessary to extend a helping hand to the youth who have taken educational loans.
Correlation between education and unemployment
There is a correlation between education and unemployment. The privatization of education is taking place rapidly in the country at present. In the process of globalization, education is becoming a commodity. Multinational companies are increasing pressure on the government to open up the education sector to investment. Education is going to be a big market for investment in the next few years. Market systems are born with some ideas. They are reinforced in the minds of the people. Education loan is one of them. The first National Loan Scholarship Scheme was introduced in India in 1962. The first interest-bearing education loan was introduced in 1991. At present, the Vidyalakshmi Portal is launched by the Government of India. Information on loans, scholarships and applications of all banks and schemes are available on this portal. The government has started announcing that students should study in private universities on their own as they cannot afford the cost of education. Educational debt is a sign that the government is shirking its responsibilities in the education sector. That is, the government does not intervene in raising windfall education fees from private educational institutions. The government’s response to rising tuition fees is that students can pay as much as they want. Here the responsibility of the government comes to an end. Educational debt is an idea that is ingrained in the lower middle class and middle class. The poor do not have access to higher education and are educated in government universities.
Another important reason is that a chain is working to draw student youth into this circle. It belongs to educational institutions and private banks. Students are drawn into this circle with the promise of providing educational loans and 100% placement in the advertisements of educational institutions. After completing the education, one does not get a job and any pretense of giving a job does not match the quality of education, skills and salary criteria. When students finally find out they have been cheated, they have no choice but to sell the family property to pay off the debt.
As the privatization of education has increased and the tuition fees of educational institutions have increased immensely, so has the number of educational borrowers.
However, in the intervening period, as unemployment rose and the economic strength of the people waned, the number of people taking out educational loans declined slightly. In 2000, the country borrowed only Rs 300 crore. The loan disbursement percentage is 9.25%. As on March 31, 2015, loans were given to 3 lakh 34 thousand students. The same figure dropped to 2.5 lakh students on March 31, 2019.
NPAs in educational loans
NPAs in educational loans have doubled in the last 5 years. It was 12.5%. Overall, this resulted in less student loans. Educational credit has declined by 25 per cent, but NPAs have continued to rise. According to a survey by the Indian Banks Association, the NPA was 7.3% in March 2016, 7.67% in March 2017 and 8.97% in March 2018. A total of Rs 71,724 crore was disbursed in 2017-18. Out of the total NPAs in 2018, up to Rs 4 lakh was 85 per cent of the total NPAs. The average debt disbursed in India is Rs 9.6 lakh Out of the total 7.86 lakh students who took educational loans in the country in 2016-17.Out of it 1.5 lakh students took loans from Tamil Nadu. 99,314 students in Kerala and 90,630 students in Karnataka had taken educational loans. The picture is similar in 2020. Due to the Corona crisis, some figures for this year have not been available. Due to the losses incurred by banks due to non-performing loans, the disbursement of educational loans by banks in India has declined. The year 2017 saw a decline of 3.3%, 2018 saw a decline of 4.7% and 2019 saw a decline of 5.6%. As of 2017, 5,53,000 students were studying abroad. Most of them take out educational loans. However, let’s put their thoughts aside for a moment and think of those who are learning in the country.
Rising unemployment and declining economic strength of the people have led to an increase in non-performing loans in education. Due to rising NPAs, the education loan scheme is unpopular with private banks. According to the Reserve Bank of India, 91% of students in India get education loans from government banks. Private banks hesitating due to this growing Non-performing assets (NPAs).Private banks provide loans to students only by entering into agreements with large educational institutions. Private banks have less social commitment than public sector banks. In their view, the sinking of educational debt is a matter of concern. They can afford to lend in areas other than that. For example, NPA s in home loans are 0.5 to 1%, two-wheelers 2 to 3%, commercial vehicles 3 to 4%. This proportion is much higher in educational loans.The red tape of government banks and the complicated process also motivate students to take loans from private banks at high interest rates. Private banks may charge higher interest rates than public banks.
The bank pays the tuition fees for education in India but the students have to bear 5 per cent of the fees for education in the country and 15 per cent for foreign education at their own expense. This is called ‘loan margin’. An unsecured loan of up to Rs 4 lakh can be obtained. Collateral is required for loans above Rs 7.5 lakh. For loans up to Rs 4 lakh to 7.5 lakh, a third guarantor is required. The loan repayment period is generally 5 to 7 years.
It can also be extended up to 15 years. State Bank of India loans have a repayment period of 1 to 12 years and interest rates range from 9.33% to 11.50%. Of course, the rates of private banks are higher than this.
As far education loan interest is concerned, India is seen to be doing injustice to its students compared to other countries. There are Educational loans schemes available in other countries. But those countries charge very nominal interest rates on these loans or do not charge at all or charge negative. Here are some examples of countries. Sweden: -0% (Negative) Switzerland: -0.75% (Negative) Denmark: -0.60% (Negative), Japan: -0.1% (Negative), US: 2.75% In India, however, public and private banks collect interest rates ranging from 8.50% to 15%. Even in a country where there are educational incentive schemes for socially and economically backward students, interest rates are not discounted. Under the Maulana Azad Educational Loan Scheme provided by the National Minority Development Corporation, a loan of up to Rs 2.50 lakh is provided but an interest rate of 3% is also charged. This underscores the need for the government to rethink this whole policy.
India’s educational debt paradigm is similar to the American paradigm. We can compare how both countries react to Corona crisis.In America 1 out of every 15 students commits suicide due to this loan. Under the proposed Heroes Act, the interest rate on loans will be 2.75 per cent after July 2020, depending on the circumstances arising out of the policy. This is 1/4 of the interest rate in India. On May 15, Democrats in the Senate passed the 3 trillion’s “The Heroes Act” in the Senate. Accordingly, loans up to USD 10,000 will be waived . The US Department of Education has asked for relaxation of education loan repayment installments by October 2020 and interest waiver. In addition, the government will repay the installments of private educational loans. Each unemployed person will receive USD 600 per week until 2021. The education loan market in the United States currently stands at USD 130 billion. This has increased by 70 per cent in the last ten years.
Elections are taking place in the United States in the coming months. It will be a fight between Republican Donald Trump and Democrat Joe Biden.
Biden has promised to forgive the debts of students going to undergraduate public colleges.While Indian political class never discussed this issue in any election ever.In US graduate students currently have an average debt of USD 30,000. Notably, in 1990 it was 10,000. Currently 4 crore people are unemployed in the Corona crisis. The government is providing USD 1,200 each of them. During the Corona period, all citizens lost a total of USD 1.3 trillion. That means everyone lost an average of USD 8,900. Student youth were among the many people affected by the 2008 recession in the United States. That’s why students who took out educational loans, along with employees and pensioners who took part in the historic Occupy Wall Street movement, were largely active. That is why in the last two elections, education debt has become a topic of discussion. It will also be an important issue in the November elections. Compared to the US, Indian politicians have not touched on the issue of education loans while announcing various packages.
GoI on education loan issue
The Government of India does not seem to have considered the issue of education loans independently in its financial package. Therefore, the RBI initially gave a three-month waiver to repay the general loan installments and once again a three-month waiver. Interest in this also needed to be waived. But as interest continues, people are frustrated. Therefore, the youth who have taken education loans and are unemployed are facing the challenge of repaying the installments. As mentioned in the article above, the borrowing rate of students in the southern states is increasing so the ratio of bad loans is also high. The Kerala state government has shown some sensitivity by launching an ‘Educational Debt Repayment Assistance Scheme’ and partially repays the loans of students whose families have an income of less than Rs 6 lakh. The central government needs to extend a helping hand to the youth on a large scale.
Initiatives by educational institutes
Seeing the plight of the students, the educational institutes are also taking initiatives to find a way out of this. IIT Delhi has asked the Ministry of Manpower Development to recover the debts of its students on the basis of the Australian model. The scheme is called HELP (Higher Education Loan Program) in Australia.Debt is disbursed in this scheme but debt recovery starts only when the student gets a job.
Just as the students were thrown into trouble by launching loan schemes for the students, now the educational institutions are also trying to push them into the debt trap 1HEFA (Higher Education Finance Agency) is a joint venture between Manpower Resource Development Department and Canara Bank. It will raise funds from the stock market through bonds and other means. Through this institution, loans can be taken to public universities as well as educational institutions. For this, universities have to pledge their land and building. This means that in case of repayment of the loan or failure to repay it, the property of the university will go to the private sector.
The state of higher education in India needs to be improved. A conducive environment should be created for this. The younger generation who seek higher education and want employment during the Corona crisis needs help. It should be possible for ordinary students to get an education. An unfavorable environment is being created for the common man by introducing schemes like educational loans. This will be realized from the facts of higher education in India. In 2007, only 7 per cent of the youth between the ages of 18 and 23 had higher education. According to the All India Survey of Higher Education (AISHE) government figures, in the academic year 2018-19, 26.3% of the youth are pursuing higher education.
In terms of numbers, 3.74 crore students are studying. Out of the total 993 universities in the country, 385 are private. Out of the total 39931 colleges, 77.8% are private colleges. This is due to the fact that higher education has been largely privatized, depriving 74% of the young generation of higher education. If higher education is to reach everyone, the government must spend more on education. The budget for 2020 includes Rs 99,311 crore, or 3.1% of GDP on education. Of this, Rs 39,466 crore will be spent on higher education. That much share of funds is not enough at all solve issues like education loan.Many experts, including the Kothari Commission, have insisted that at least 6 per cent should be spent on education. It has a direct bearing on people’s employment and livelihood.
By Girish Phonde
Former Vice president, World Federation of Democratic Youth