Professional Documents
Culture Documents
Education Loan Project
Education Loan Project
SPECIALISATION REPORT
On
Education loans
Under the subject of
Business Entrepreneurship
Submitted By
Vaishali.V.Koner
R.No. 30
SUBMITTED TO
SCHOOL OF COMMERCE AND MANAGEMENT
SCIENCES
UNDER GUIDANCE OF
Dr. Mrs. V.N.LATURKAR
Academic yr :- 2011-2012
CERTIFICATE
(Project Guide)
I am also thankful to our head of the department Dr. Biradar sir for his
constant support and co-operation.
And of course I sincerely thanks to all my friends and relatives who have
directly or indirectly been a source of inspiration to me to prepare this project.
Signature
Vaishali .V.Koner
COMPARITIVE STUDY BETWEEN EDUCATIONAL LOANS PROVIDED BY
PRIVATE & PUBLIC SECTOR BANKS
INTRODUCTION :-
An education loan is a loan taken to help pay for an education, usually at a college or trade
school, but may also be used to pay for private schools or prep schools as well Students
prefer education loan for pursing higher education. Also education loan is free from tax.The education
loan is available in several different types.These are student loans, parent loans and private loans.
Loans are also either guaranteed or unguaranteed. Student and parent loans are most likely to be
guaranteed by the government, though many agencies work for the government in this respect.
Unguaranteed or unsubsidized loans are usually from private lenders only, and usually can only be
obtained if one has a good credit score or significant equity.
The scope of education has widened both in India and abroad covering new courses in
diversified areas. Development of human capital is a national priority and it should be the endeavour of
all that no deserving student is denied opportunity to pursue higher education for want of financial
support. Loans for education should be seen as an investment for economic development and
prosperity. Knowledge and information would be the driving force for economic growth in the coming
years.
Based on recommendations made by a Study Group, IBA had prepared a Model Educational
Loan Scheme in the year 2001 which was advised to banks for implementation by Reserve Bank of
India vide circular No.RPCD.PLNFS.BC.NO.83/06.12.05/2000-01 dated April 28, 2001 along with
certain modifications suggested by the Government of India. In line with the announcement made by
the Hon'ble Finance Minister in his Budget Speech for the year 2004-05, IBA had communicated
certain changes in the security norms applicable to educational loans with limits above Rs.4 lakhs and
up to Rs. 7.5 lakhs.
This type of undergraduate student loan includes your Tuition, previous school fee, living expenses,
books and other expenses like transportation costs.
While the funds are sent directly to the student, TheLoanBazaar.com also offers competitive interest rates
and flexible repayment terms, wherein the repayment can also begin after graduation. With quick
application process and easy to fill up application form, getting could not get any simpler.
Graduate/professionalstudents -
Graduate/ professional student loans are basically suitable for students who higher or advanced degrees at
nationwide colleges.These are the type of unsecured loans offered by TheLoanBazaar.com to be used for
education-related expenses. In case you are not currently earning while studying or do not meet our
policies for eligibility criteria, you may need a suitable cosigner, like a parent, friend or any relative or
eligible adult.
While the funds are sent directly to the student, TheLoanBazaar.com also offers competitive interest rates
and flexible repayment terms, wherein the repayment can also begin after graduation. With quick
application process and easy to fill up application form, getting could not get any simpler.
Careereducationloans -
Career education loans are basically available for students who are attending the undergraduate career
oriented programs at nationwide colleges and technical and trading schools.
These are the type of unsecured loans offered by TheLoanBazaar.com to be used for education-related
expenses. In case you are not currently earning while studying or do not meet our policies for eligibility
criteria, you may need a suitable co signer, like a parent, friend or any relative or eligible adult.
While the funds are sent directly to the student, TheLoanBazaar.com also offers competitive interest rates
and flexible repayment terms, wherein the repayment can also begin after graduation. With quick
application process and easy to fill up application form, getting could not get any simpler.
Collegeparentsloans-
It is a type of unsecured loan offered by TheLoanBazaar.com to be used for education-related expenses.
In case your child is currently studying and now working alongside, you can take up the loan by being a
co signer.
This type of loan can help you assist your child with any kind of undergraduate/graduate or career
education plan in college. And what’s more, you do not even have to keep collateral and do not have to
sell away your homes, investments money for the school and college fee of your child.
This type of undergraduate student loan includes your Tuition, previous school fee, living expenses,
books and other expenses like transportation costs. With quick application process and easy to fill up
application form, getting could not get any simpler.
K 12 Parents loans-
This type of K 12 Parents loans include your child’s tuition fee, uniforms, previous school fee, living
expenses, books and other expenses like transportation costs. With quick application process and easy to
fill up application form, getting could not get any simpler.
While the funds are sent directly to you, TheLoanBazaar.com also offers competitive interest rates and
flexible repayment terms, wherein the repayment of principal and interest begins 30-60 days after the
loan is laid out.
The Educational Loan Scheme outlined below aims at providing financial support from the banking
system to deserving/ meritorious students for pursuing higher education in India and abroad. The main
emphasis is that every meritorious student though poor is provided with an opportunity to pursue
education with the financial support from the banking system with affordable terms and conditions. No
deserving student is denied an opportunity to pursue higher education for want of financial support.
3.ELIGIBILITY CRITERIA :-
Student eligibility:-
Courses eligible :-
Other courses leading to diploma/ degree etc. conducted by colleges/ universities approved by UGC/
Govt./ AICTE/ AIBMS/ ICMR etc
Courses, which are not covered under the criteria mentioned above, individual banks may take a view
to consider extending education loan under the scheme taking into account the future
prospects/recognition by user institution.
b. Studies abroad :-
4. QUANTUM OF FINANCE:-
Need based finance subject to repaying capacity of the parents/ students with margin and the following
ceilings.
5. MARGIN :-
6. SECURITY :-
The loan documents should be executed by both the student and the parent/ guardian as joint-
borrower.
The security can be in the form of land/ building/ Govt. securities/ Public Sector Bonds/Units of
UTI, NSC, KVP, life policy, gold, shares/mutual fund units/debentures, bank deposit in the
name of student/ parent/ guardian or any other third party with suitable margin.
Wherever the land/ building is already mortgaged, the unencumbered portion can be taken as
security on second charge basis provided it covers the required loan amount.
In case the loan is given for purchase of computer, the computer has to be hypothecated to the
Bank.
7. RATE OF INTEREST :-
9. REPAYMENT:-
The loan to be repaid in 5-7 years after commencement of repayment. If the student is not able to
complete the course within the scheduled time, extension of time for completion of course may be
permitted for a maximum period of 2 years. If the student is not able to complete the course for reasons
beyond his control, sanctioning authority may at his discretion consider such extensions as may be
deemed necessary to complete the course.
The accrued interest during the repayment holiday period to be added to the principal and repayment
in Equated Monthly Instalments (EMI) fixed.
1% interest concession may be provided for loanees if the interest is serviced during the study period
when repayment holiday is specified for interest/ repayment under the scheme.
10. INSURANCE:-
Banks may arrange for life insurance policy on the students availing Educational Loan. Individual
Banks may work out the modalities with insurance companies
No processing/ upfront charges may be collected on educational loans for studies in India.
Banks can also issue the capability certificate for students going abroad for higher studies. For this
purpose financial and other supporting documents may be obtained from applicant, if required.
a.Meritorious Students
Banks which wish to support highly and exceptionally meritorious/ deserving students without security
may delegate such powers to a fairly higher level authority.
b. Multiple Loans
In case of receipt of application for more than one loan for student borrower from a family, the 'family'
as a unit has to be taken into account for considering the loan and security taken in relation to the total
quantum of finance disbursed, subject to margin and repaying capacity of the parent/student.
c. Minimum Age
There is no specific restriction with regard to the age of the student to be eligible for education loan.
d. Change of Address
In cases of student staying with parents and where such parents have transferable jobs or there is
change in address, the bank may provide in the system of noting the ‘address for correspondence' for
tracking purpose.
e. Top up loans
Banks may consider top up loans to students pursuing further studies within the overall eligibility limit,
with appropriate re-schedulement, subject to taking required security.
f. Co-obligator
The co-obligator should be parent(s)/guardian of the student borrower. In case of married person, co-
obligator can be either spouse or the parent(s)/parents-in-law .
No Due Certificate
No due certificate need not be insisted upon as a pre-condition for considering educational loan.
However, banks may obtain a declaration/ an affidavit confirming that no loans are availed from other
banks.
Disposal Application
Loan applications have to be disposed of within a period of 15 days to 1 month, but not exceeding the
time norms stipulated for disposing of loan applications under priority sector lending.
Flexibility in terms
In order to bring flexibility in terms like eligibility, margin, security norms, banks may consider
relaxation in the norms on a case-to-case basis delegating the powers to a fairly higher level authority.
‘Government of India,Ministry of Human Resource Development Department of Higher Education'
Central Scheme to provide Interest Subsidy for the period of moratorium onEducational
Loans taken by students from economically weaker sections fromscheduled b:mks under the Educational
Loan Scheme of the Indian Banks'Association to pursue technicaJLprofessionaleducation studies in India.
One of the major concerns of the 'Government is to ensure that nobody is Qenied professional
education because he or she is poor. TI1e Indian Banks'Association (lBA) had formulated a
comprehensive model.educational loan scheme for adoption by all Banks, aimed at providing financial
support from the bankingsystem to deserving/meritoriousstudents for pursuing higher education in
India and. abroad. Government of India has now approved a Scheme to provide full interestsubsidy
during the period of moratorium on loans taken by students belonging toeconomically weaker sections
from scheduled banks under the Educational LoanScheme of the IndianBanks' Association, for
pursuing any of the approved courses ofstudies in technicaland professional streams,from recognized
institutions in India.
(i) The Schedule would be only applicable for studies in technical courses in India. The: interest
subsidy shall be linked with the existing Educationa Loan Scheme of IBA and restricte:d to students
enrolled in recognized professional courses (after ClassXII) in India in Educational Institutions
established by Acts of Parliament, other Institutions recognized by the concerned Statutory Bodies,
Indian Institutes of Management (IIMs) and other institutions set up by the Central Government.
(ii) Under the Scheme,interest payable by the student ,availingof the Educational Loan Scheme of the
Indian Banks Association for professional courses for the period of moratorium (i.e.. course period,
plus one year or six months after getting job,whichever is earlier)as prescribed under the Educational
Loan Scheme of the Indian Banks Association, shall be borne by the Government. After the period of
moratorium is over, the interest on the outstanding loan amount shall be paid by the student, in
accordance with the provisions of the existing Educational Loan Scheme and as may be amended from
time to time.
iii) The benefits under the Scheme would be applicable to those students belonging to economically
weaker sections with an annual parental income upper limit of Rs. 4.5 lakh per year.
(iv) The- interest subsidy under the Scheme shall be available to the eligible students only once, either
for the first undergraduate degree course or the postgraduate degrees/diplomas. Interest subsidy shall,
however be admissible for combined undergraduate and post graduate courses.
(viii) The Scheme shall be implemented through Canara Bank, which is the nodal bank for the Ministry
of Human Resource Development. Modalities for implementation and monitoring mechanism shall be
finalized in consultation with the Canara Bank.
(ix) The Scheme shall be applicable from the academic year 2009-10.
Data prepared by the Indian Banks' Association (IBA) shows that the number of students applying for
loans has more than doubled between 2005 and 2010. The outstanding amount has also gone up from
Rs 6,713.16 crore till 2005 to Rs 40,497.46 crore till 2011.
The IBA data, compiled annually from the records of all the 28 nationalized banks in the
country, shows that 1.48 lakh applications were received in 2004-05, while the numbers went up to Rs
3.25 lakh in 2009-10. The total outstanding accounts in 2005 was 4,68,207 that rose to 19,28,350 in
2010. The corresponding outstanding loan amount went up from Rs 6,713.16 crore in 2005 to Rs
35,628.33 crore in 2010.
The reasons for the surge in applications, bankers say, are the rising fees, easy availability
of loans and low interest rates. "The cost of professional education has gone up and loans are easily
available to students. Banks have also become proactive in marketing their products; they have started
combing campuses as they know they will find their borrowers there," said Prabhuta Vyas, vice-
president of the social banking department of IBA. Since banks provide loans up to Rs 4 lakh without
any collateral, "around 67% seeks loan of that amount", she said.
According to students, smooth process, low interest rates, few paperwork and reputation
of a bank are what they seek when they apply for loans. Shiv Shetty, a PG student in marketing
communications at the University of Westminster, UK, took loan through a nationalized bank.
However, non-computerization of the process had complicated his application to the university, he
claimed.
Most nationalized banks, private banks, foreign banks and private lending institutions provide students
loans. Some of the loans from the most popular banks are as follows:
For studying in India a student can borrow up to 4 lakh (INR) without providing any margin or
security. A loan amount above this and up to 7.5 lakh (INR) is available against a third-party guarantee,
which comes with a 5% margin. For studying outside the country, loan amounts above 7 lakh (INR) is
sanctioned against NSC certificates, fixed deposits, property, and so on, against a loan margin of 15%.
An education or student loan means financial support given by a bank or a financial institute to help a
student meet the expenses needed for higher education. Many colleges, universities and other
educational institutions have tied up with private and nationalized banks to help the students achieve
their dreams. For studying in any institute within the country, the maximum loan amount granted is 7.5
lakh (INR) and for studying abroad, the maximum loan amount granted is 15 lakh (INR).
In India, if a student is under 18 years of age, an education loan is granted to the parents. Loans are also
granted through third-party guarantee, who can be a relative, friend or neighbor. Students, above 18
years of age get loans to meet their professional or academic education costs. Compared to other types
of loans, education loans in India come with lower interest rates. Sometimes, the loans are
supplemented by student grants, which in general cases do not have to be repaid. Most nationalized and
private lending institutions in India need authorization from the respective college or university. These
education loans generally include the costs of tuition fee, hostel expense, and books & stationery costs.
Procedure :-
Like in case of every loan, the applicant has to fill in an application form which may ask for details
such as contact details, details relating to academics etc. it is important to fill in accurate information.
Once the applicant, ie the student fills in the form, there is a round of personal discussion wherein
he/she may be asked various question relating to the academic performance, the course one has
selected, probably the institute etc. At this stage, it is very important to be lucid and clear about one's
selection of course and its future potential of generating income. While some banks are known to hold
the academic record important, some may give it a slightly lesser attention. This does not go to say that
one needs an excellent academic record. But, make sure that there are answers to those mishaps that
could have occurred during the academic life.
Step 3: Provide validated supporting documents
Unlike other loans where the talk of documents relating to say property, might come in at a later stage
and may cause delay-documents are a must. In case of education loans, documents relating to
admissions are mandatory even before the bank considers the loan application. The bank will verify the
enrollment of the student from the concerned institute. One may also require collateral security such as
papers relating to property to be mortgaged if the loan amount is above Rs. 4 lakh.
When one takes some other kind of loan, there is a co-guarantor, especially in case of personal
and home loans. For an education loan, a guarantor is mandatory. The guarantor could be an applicant's
parents or guardians. The bank will run a thorough check of the guarantor and his/her credit history
before sanctioning the loan. After completion of the process, the loan may be sanctioned or denied.
While the parents/guardians are guarantors, the student is the actual borrower of the loan. Once the loan
is sanctioned, the student has to sign a promissory note to the bank.
Once the formalities are completed (additional documents and signed post-dated cheques may be
required), the bank will disburse the loan. The bank may disburse the college/institute fee directly to the
concerned institute.
Online Applications
In the current times, availing an education loan has been made even easier. Now, one can apply for an
education loan online. The loan will be sanctioned only in principal and the applicant will have to
contact the bank for actual approval and disbursement of the education loan.
Securities required for loan :-
You need to have a guarantor for the education loanto be sanctioned. If you fail or are
incapable of repaying the student loan, the guarantor will have to clear the debt. Usually, most banks
require the guarantor to have a net worth and/ or annual income equivalent or more than the education
loan amount.
Only education loans above Rs 4 lakh require tangible collateral, security for the full
value of the loan or third-party guarantee, depending on the amount. However, the co-borrower -- the
parent or guardian - is required to furnish his/her bank account statement, tax returns of the last two
years, statement of assets and liabilities and proofofincome.
The usual security that banks accept are National Savings Certificates (NSCs), bonds, gold,
vehicle,house,property,etc.
Loans above Rs 4 lakh and up to Rs 7.5 lakh: Collateral in the form of a suitable third-party
guarantee. The bank may, at its discretion, waive third-party guarantee if satisfied with the net worth /
means of the parent who is executing the document as a joint borrower.
Loans above Rs 7.5 lakh: Collateral security of a suitable value or a suitable third-party guarantee, along
with the assignment of the student's future income for payment of installments.
When the education loan amount is greater than Rs 1 lakh, banks usually prefer students
who have life insurance policies equivalent to, or more than, the education loan amount. This is nothing
more than a security feature and also forms part of your collateral. If something unfortunate happens to
the borrower,the bank does not lose money and can recover the outstanding amount from the insurance
policy.
Some banks have tied up with specific institutions to provide education loans to students for
select courses. In such cases, the banks may be willing to forgo collateral requirements.
Purpose -
For pursuing studies in recognised schools/ colleges/ institutions to meet: - Tution and other fees
Eligibility-
b) Parents / guardians (Including persons engaged in agriculture / allied activities having independent
regular source of income.
Loan Amount -
(I) School / College education in India: (Upto 6 times the monthly net (take home) income of the
parents / guardian. Minimum loan of Rs. 4,000/- Maximum Rs. 1lac.
(ii) Technical / Professional higher studies in India and Abroad 90% of the cost of study, subject to
maximum of Rs. 8lacs.
Margin-10%
Interest Rate -
At competitive rates on reducing balance only. Please check-up for latest rates at your nearest branch
Interest is compounded at quarterly basis.
Period of Loan
(I) For School / College Education in India: Loans to be repaid in a period of 36months,
commencing immediately after disbursal, by the parents / guardian.
(II) For Technical / Professional higher studies in India and abroad: The loan is to be repaid is
60 months after the completion of the course of securing job, whichever is earlier. Regular
periodic repayment as much as possible should be made during the period of study.
Quarterly interest should be paid regularly.
(III) Permitted without any penalty.
5.Schemes detail :-
Fees payable to college/school/hostel
Examination/Library/Laboratory fees
Purchase of Books/Equipment/Instruments/Uniforms
Caution Deposit/Building Fund/Refundable Deposit (maximum 10% tuition fees for the entire
course)
Travel Expenses/Passage money for studies abroad
Purchase of computers considered necessary for completion of course
Any other expenses required to co mplete the course like study tours, project work etc.
6.Balance sheet :-
Assets
Current Assets
Accumulated Amortization - - -
Liabilities
Current Liabilities
Minority Interest - - -
Negative Goodwill - - -
Stockholders' Equity
-
Preferred Stock - -
Currency in USD.
PURPOSE:-
Basic education
ELIGIBILITY -
Indian citizen
Secured admission to the concerned institute in India or abroad through appropriate selection
process and cleared the ualifying examination, if any
Certified degree courses conducted by CIMA, London, CPA, USA and other such
institutes
QUANTUM OF LOAN -
For studies in India - maximum upto Rs. 10 Lakhs. The quantum of loan is higher for the
institutes covered under Special Education Loan schemes. Please check the Special Offers
Tab above for further details.
MARGIN -
For loans above Rs. 4 Lakhs, margin is 5% for studies in India and 15% for studies outside
India
MORATORIUM PERIOD-
REPAYMENT-
Repayment period of up to 7 years after moratorium period
Interest rate -
SECURITY -
The security required is as mentioned below.
GUARANTEE-
Parent / guardian of the student who is availing loan have to join in as co-borrower
INSURANCE-
Life insurance of the borrower is compulsory to the tune of the loan amount
OTHER CONDITIONS-
The loan shall be sanctioned / disbursed from the branch nearest to the place of domicile of
the student
5.Schemes detail :-
6.Balance Sheet :-
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Assets
Cash & Balances with RBI 17,610.45 12,468.24 8,992.05 9,454.74 5,917.57
Balance with Banks, Money at Call 2,487.99 3,308.45 6,992.88 643.10 2,508.87
Mob.no-9860987012.
HDFC BANK
Purpose:-
HDFC gives loans to students to partly meet their educational expenses / costs for pursuing specific
higher educational courses at institutes approved by HDFC. Loans are given to students who are
citizens of India. The student should have a consistently good academic record, and admission to an
approved Educational Institute for pursuing a recognized course.
Eligibility:-
Students enrolled with an approved Educational Institute and desirous of availing the education loan
can make an application, with the earning parent / guardian being the co-applicant to the loan.
Currently, new entrants and existing students of only select leading national educational institutions are
eligible to apply for education loans. Please check with your nearest HDFC Office for the list of
approved institutions.
Amount of loan:-
Loans can be availed upto a maximum of 90% of the total cost as determined by HDFC. The costs
would generally cover expenses incurred towards the course fee, library charges, hostel and mess
charges, cost of books and equipment. HDFC lends upto a maximum of Rs. 2,00,000 on an Education
Loan.
The period of the loan is determined on the merits of each case but would not exceed 5 years. The
repayment can be accelerated on completion of the course, considering the earning capacity of the
student. HDFC's main concern is to help individuals comfortably repay the borrowed amount.
Rate of interest :-
5.Schemes detail :-
In order to support students from economically weaker sections of the society, Department of
Education, Ministry of Human Resource Development, Government of India has launched an interest
subsidy scheme. The MoHRD has appointed Canara Bank as the Nodal Bank for the Scheme.
Only for Educational Loans availed from Scheduled Banks for pursuing any of the approved
courses after Class XII in technical and professional streams from recognised institutes** in
India under the Educational Loan Scheme of IBA.
Students belonging to economically weaker sections with annual gross parental / family
income from all sources with an upper limit of Rs 4.50 Lakh. Certificate to this effect issued
by authorised officers of State Government is to be submitted.
Interest Subsidy Documents :-
Original income certificate from the competent authority under the scheme.
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Assets
Cash & Balances with RBI 25,100.82 15,483.28 13,527.21 12,553.18 5,182.48
Balance with Banks, Money at Call 4,568.02 14,459.11 3,979.41 2,225.16 3,971.40
ICICI BANK
EducationLoan
The Educational Loan Scheme aims at providing financial support to deserving/ meritorious students
for pursuing higher education in India and abroad.
Eligible Student:
Secured admission to professional/ technical courses in India or Abroad through Entrance Test /
Merit Based Selection process.
CoursesEligible
StudiesinIndia:
Graduation courses, Post Graduation courses, Professional courses, Computer certificate courses,
Courses like ICWA, CA etc, Courses conducted by IIM, IIT etc., Courses offered in India by reputed
foreign universities, Evening courses of approved institutes, Other courses leading to diploma/ degree
etc. conducted by colleges/ universities approved by UGC/ Govt etc., Courses offered by National
Institutes and other reputed private institutions, Teacher Training Course/Nursing Course/B.Ed
approved either by the Central Government or by State Government and such courses should lead to
DegreeorDiplomaCourse.
StudieSabroad:
Graduation : For job oriented professional/ technical courses offered by reputed universities, Post
graduation: MCA, MBA, MS, etc., Courses conducted by CIMA- London, CPA in USA etc.
Expenses considered for loan:
Hostel expenses (Wherever students have to stay outside the campus or avail private accommodation
banks may consider reasonable lodging & boarding expenses)
Caution deposit/ building fund/ refundable deposit supported by Institution bills/ receipts
Any other expense required to complete the course - like study tours, project work, thesis, etc
Quantum of finance: Need based finance subject to repaying capacity of the parents/ students with
margin and the following ceilings.
Margin:-
Security:-
Further wherever parents are not there banks could consider grandparent as co obligator to the loans
taking into account their net worth
Co obligation of parents along with Collateral in the form of a suitable third party guarantee for
100% of the loan amount to be taken
Assignment of future income of the student for payment of the loan instalments for all loans
The co-obligator should be parent(s)/guardian of the student borrower. In case of married person, co-
obligator can be either spouse or the parent(s)/parents-in-law
Rate of Interest:-
At least 0.50% concession in interest rates on Education Loans to girl students for pursuing higher
education in India and abroad
Repayment / Holiday:-
The repayment holiday shall be a year more than the period of the course or 6 months after the
borrower gets a job, whichever is earlier.
1.Total number of educational loans provided this year:-No loans given for domestic purposes.
5.Schemes detail :-
6.Balance Sheet :-
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Assets
Cash & Balances with RBI 20,906.97 27,514.29 17,536.33 29,377.53 18,706.88
Balance with Banks, Money at Call 13,183.11 11,359.40 12,430.23 8,663.60 18,414.45
ARTICLE
You think the housing bubble was enormous? Meet the education bubble.An article here by Andrew
Hacker and Claudia Dreifus explained the debt crisis at American colleges. But some startling statistics
will help to make their analysis a little more tangible. The growth in student loans over the past decade
has been truly staggering.
Here's a chart based on New York Federal Reserve data for household debt. The red line shows the
cumulative growth in student loans since 1999. The blue line shows the growth of all other household
debt except for student loans over the same period.
This chart looks like a mistake, but it's correct. Student loan debt has grown by 511% over this period.
In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter
of 2011, that balance had ballooned to $550 billion.
The chart above is striking for another reason. See that blue line for all other debt but student loans?
This wasn't just any average period in history for household debt. This period included the inflation of a
housing bubble so gigantic that it caused the financial sector to collapse and led to the worst recession
since the Great Depression. But that other debt growth? It's dwarfed by student loan growth.
How does the housing bubble debt compare? If you add together mortgages and revolving home equity,
then from the first quarter of 1999 to when housing-related debt peaked in the third quarter of 2008, the
sum increased from $3.28 trillion to $9.98 trillion. Over this period, housing-related debt had increased
threefold. Meanwhile, over the entire period shown on the chart, the balance of student loans grew by
more than 6x. The growth of student loans has been twice as steep -- and it's showing no signs of
slowing.*
Obviously the number of students didn't grow by 511%. So why are education loans growing so
rapidly? One reason could be availability. The government's backing lets credit to students flow very
freely. And as the article from yesterday noted, universities are raising tuition aggressively since
students are willing to pay more through those loans.
This student loan growth sure looks unsustainable. But it's hard to see how this bubble's inevitable pop
might look. Ultimately, it might look more like a balloon slowly deflating, if a large portion of college
graduates decide to strategically default on their debt over time.