Abstract

India has large number of students who are aiming for higher education and are seeking financial
assistance in the form of educational loans from Indian banks. It has been found in the study that,
educational loans are available to deserving / meritorious students at affordable interest rates for
pursuing higher studies in India and abroad for various courses. Even though the number of
education loan accounts has increased; the year-on-year growth rate had been showing a
declining trend both in number of accounts as well as in the amount.

Introduction
In their pursuit of financial sustainability, higher education institutions across the world, including
India, are always pushing for higher course fees and thus making it difficult for average middle-
class students to enroll in technical courses without the help of bank financing.

Educational loan is a loan that provide for the student who is unable to complete his or her study
due to the lack of money. The difference in the educational loan from other modes of loans is this
was used to the purpose of education. Educational loan have interest rate is less in compared to
other mode of loan. And also get a time for repaying only after the completion of study. That is
the borrower didn't make repayment at the time of study. He should repay the amount after the
completion of the course. The educational loan provides a good support for the student by helping
them to pay the university fees, tuition fees, hostel fees etc.

Education loans in India have traditionally been targeted at meritorious students from middle and
lower class financial status, and the product has been designed around the model education loan
scheme of the Indian Banks Association (IBA). Under this scheme, interest gets accrued during
the course period and is capitalized with the re- payment starting from one-year post completion
of the course. Under the Central Sector Interest Subsidy (CSIS) scheme of the Government of
India, students belonging to the economically weaker sections of the society get interest subsidies
for the moratorium period. Loans are the collateral and guarantee to free up to INR 750,000 and
normally require co-obligation on part of the parents.

Some banks offer collateral-free loans up to a higher limit for admission into courses offered by
certain categories of premier institutions. Interest rates vary from 2-2.5% above the deposit costs
of banks. The repayment period is generally fixed up to a maximum of 15 years from the first
installment. RBI (Reserve Bank of India) data reveals that more than 90% of the education loans
in India are offered by the public sector banks, indicating low returns and riskiness perceived by
the private sector lenders towards these unsecured loans.

With high default rates in the segment and the onus of disbursement of education loans largely
resting with the public sector banks, bank managers with the sanctioning powers need to be
sensitized on the issues pertaining to this product. Bank branches are the units that cater to
applicants at rural, semi- urban and urban centers, and it is hard to follow up with borrowers once
they finish education and migrate to far-off places, as well as the bank staff gets changed on a
regular basis. The unsecured category of small educational loans that need to be made available to
deserving weaker sections of society also needs a transparent, robust, and successful sanctioning
and monitoring mechanism.

Literature Review
Higher education at the start of 21st century is beset with problems of declining financial support
by government, higher fees, greater student debt loads, and a restive student body .

In India, the 1992 Education policy provided for the establishment of self-financing colleges and
deemed Universities in the private sector to address the gap in Government investment in higher
education. It also suggested educational loans for meeting the expenses for higher education. The
Central Government and the Indian Banks association finalized norms for educational loans in
2001. Since then the educational loans grew substantially.

According CRIF High Mark, in financial year 2016-17, around 2.98 lakh students took education
loans; the figure has increased to 3.09 lakh students in financial year 2019-20. This includes
education loan disbursals from public sector banks, private banks, a non-banking finance company
(NBFC) and others (includes fintechs).
Dongbin (2007) examines the relationship between undergraduate student loan debt and college
degree attainment. The results of his study find that higher student loan debt in the first year
of college is associated with lower chances of degree attainment among low-income and
Black students. Her findings suggest that students' increased reliance on loans for financial
aid may widen the income and racial/ethnic gaps in degree completion, despite the fact that
a primary goal of financial assistance is to narrow those gaps.
 Need for the study

Education assumes significance as a provider of input for economic, political and social
development, besides as a source of knowledge. Economic growth in recent years has been based
on availability and quality of knowledge in any country, which in turn depends on access and
affordability to education.

India has large number of students who aim for higher education and the gap between the
number of educational loans availed and those who seek financial assistance is significant, which
in turn is affecting the student community. To make things more complex and difficult the banks
impose stringent and inflexible terms and conditions. The main emphasis is that every
meritorious student is provided with an opportunity to pursue education with the financial
support on affordable terms and conditions.

Objectives of the study:

The current research was undertaken to achieve the following objectives:

 To study the terms & conditions imposed by banks for educational loans in India.
 To study the growth in educational loans in Public Sector Banks.
 To examine the interest rates charged by different public and private sector banks for
educational loans.

Research Methodology

Sources of secondary data for the current research were as follows: Research works of various
scholars; journals and magazines; websites of various banks giving educational loans; journals
and magazines; books and other literature on Educational loans, Research Methodology, etc.
 Data Analysis & Interpretation
Objective

Objective of the current research was to study the terms and conditions imposed by banks for
educational loans in India. Hence it was decided to collect the secondary data for this
purpose basing on the literature available. We have taken one public sector bank and one private
sector bank for this purpose. Details for public sector bank are as following.

State Bank of India Educational Loan

State Bank of India included in one of the leading nationalized bank in India. The bank offer
educational loan for the student who are unable to go for the study due to lack of cash or money
for the higher education. But providing of the educational loan for the student is based on some
eligible criteria. The facility provided by the bank of providing education loan should be a very
good relief for the student who had the ambition to full fill their studies but due to lack of money
that ambition was broken. The bank thus provides a very good service for the student or the society.

Scope of the scheme

The scheme will apply to deserving/ meritorious students who wish to pursue higher studies in
India and abroad.

Eligibility criteria for SBI student educational loan

There are some eligibility criteria for the applicant to fulfill for availing educational loan from
state bank of India. They are listed below:

 The primary eligibility criteria for the applicant for availing educational loan in the State
bank of India is the applicant should be Indian citizen. Or the applicant should be Indian
national. The bank provides the educational loan for the Indian national.
 The second condition is that the applicant should have secured an offer letter for admission.
In case of applying educational loan for overseas college or university.
 The applicant should have secured the admission through proper entrance test or selection
process in the case of availing educational loan for Indian college or University.
  The student is eligible for educational loan for studying in abroad, only if the course he
joined including in the Graduation/ Post graduation for job oriented professional or
technical courses offered by the reputed colleges or universities.

Eligible courses for SBI student educational loan

The eligible courses for availing SBI student educational loan in India is given below:

 Graduation, Post-graduation including regular technical and professional Degree/ Diploma

courses conducted by UGC/ IMC/ AICTE/ Govt. etc. are eligible course for the SBI
education loan.
 The regular Degree or Diploma courses conducted by the autonomous institutions like IIM,
IIT etc. are also eligible for the education loan from SBI.
 The central government or the state government approved teacher training or nursing
courses are also eligible for the educational loan from the SBI.
 Regular Degree or Diploma courses like pilot training, shipping, aeronautical etc. are also
eligible for the educational loan from SBI if it was approved by the Director General of
Civil/Aviation/Shipping.

Expenses considered for the Educational loan

The bank put forward some considered expenses under the educational loan facility. They are
listed below:

 The expense include the money for paying fees for college, school, or hostel
 The examination fees, library fees, and also laboratory fees are included in the expense.
 The expense required for purchasing of books, purchasing of equipments, purchasing of
instruments, purchasing of uniforms etc are also included.
 The expense required for depositing the caution deposit, building fund, and refundable
deposit (for the entire course maximum of 10% tution fees) are also under these.
 Travel expenses or passage money for studies abroad are also considered as the eligible
expense by the bank
 Purchasing of computer is a necessary requirement for the completion of course, hence it
also included in the valid expense.
  You can buy a two wheeler up to the cost of RS 50,000 are also considered as the expense
eligible in the educational loan offered by the SBI.
 Any other expenses required for the completion of the course, like study tour, project work,
etc are also included in the valid expenses.

Limits of SBI student educational loan

There is some limit in providing the education loan by the State bank of India. They offer upto
Rs10 Lakh maximum for the studies in India. And they offer up to RS20 Lakh of maximum for
the studies in the abroad.

Security requirement for availing educational loan from SBI

SBI offers loans upto Rs10 lakh for the studies in India and upto Rs 20 lakh for studies in the
abroad. There is some security requirement for availing the loan.

 There is no security is needed for the loan upto Rs 4 lakhs.

 A collateral security in the form of third party guarantee is required for the loan amount
between Rs 4 lakhs to Rs 7.50 Lakhs. The bank may weive the third party guarantee in
some of the exceptional cases. If bank is satisfied with net-worth/ means of parent who
would executing the document as " Joint borrower"
 For the loan above Rs 7.5 Lakhs bank require tangible collateral security of suitable value,
along with assignment of future income of the student for payment of installment.

The bank provide the loans to the student borrower should secured by the parents/ guardian of the
student. In case of the married person the co-obligator can be either spouse or the parent of the
student, or the parents in law of the student.

Documents required for SBI educational loan

The bank needs some of the documents for providing the educational loan for the applicant. They
are listed below:

 A completed application form of educational loan

 Mark sheet of examination the student last qualified.
 The proof of admission scholarship, studentship etc. are should be submitted
 Should submit the scheduled expense for the completion of the specified course
  2 recent passport size photographs should be submitted
 Should submit the account statement of the last six month of the borrower
 Should submit income tax assessment order of last 2 years
 Brief statement of the assets and liabilities of the co-borrower should be submitted.
 The income proof of the co- borrower should be submitted (i.e., salary slips/ form 16 etc.)

Processing fees for the educational loan

There is no processing fees or upfront charges not required for student education loan from SBI.
A deposit of RS 5000 is needed for education loan for studies in abroad. It will be adjusted in the
margin money.

Margin for the Educational loan

No margin is needed for loans up to Rs 4 lakshs. 5% of margin is needed for the loans above Rs 4
Lakhs for studies in India. 15% of margins is needed for the loans above Rs 4 Lakshs for studies
in abroad.

Interest rate for the Educational loan in SBI

Rate of interest (w. e. f. 27-2-12) , The interest rate for loans up to Rs 4 lakhs is 350 bps above the
base rate, presently the rate is 13.5% per annual. The interest rate for above Rs 4 Lakhs and up to
7.5 Lakhs it is 325 bps above the base rate, presently it is 13.25 % annual. For the loan amount
above Rs 7.5 Lakhs it is 200 bps above the base rate, currently it is 12 %. There is concession of
.50 % of interest in the case of girl student.

Repayment of Educational loan of the SBI

The student borrower is responsible of repayment of the loan after the six month of getting job or
after the one year of completion of the course, whichever is earlier. If the place of study is India,
the borrower should repay the educational loan within five to seven years if the amount is less than
Rs 7.5 lakhs. If the amount is more than Rs 7.5 Lakhs then the borrower should pay within the
period of 5 to 10 years. In the case of studying in abroad the repayment period for up to Rs 15
lakhs is 5 to 7 years. Whereas for above Rs 15 Lakhs repayment period 5 to 10 years.
Axis Bank
AXIS Bank is one of the fastest growing banks in private sector. Axis Bank's Education Loan aims
to provide the much needed financial support to deserving students for pursuing higher
professional or technical education in India and abroad. The education loan would be provided to
those students who have obtained admission to career-oriented courses e.g. medicine, engineering,
management etc., either at the graduate or post-graduate level.

Expenses considered for Axis Bank Education Loan

The education loan will cover the tuition fees, hostel charges, cost of study materials and other
education related expenses.

Amount of Education Loan

For studies in India, the maximum quantum of finance offered is Rs.10 lakhs. The maximum loan
amount for studies abroad is Rs.20 lakhs. The minimum amount of education loan is fixed at Rs.
50,000.The interest rates depend on the loan amount and tenure. Also, if the education loan is
availed by a female the interest rate is 0.5 % lower.

Processing Fees and Other Charges

There are no loan processing charges and prepayment charges for Axis Bank Education
Loans. For the late payment of EMI, Rs.500 plus taxes per cheque bounce and a penal interest of
24% per annum on the overdue amount is charged.

Security

Third party guarantee and/or collateral security might be asked as security in certain cases. As
additional security, assignment of an Aditya Birla policy in the bank’s favor for the sum assured
being at least 100% of the education loan amount might be required. Also, the future income of
the student needs to be assigned in favors of Axis Bank for meeting EMI obligations.
 Conclusions
 Educational loans are available to deserving/ meritorious students who wish to pursue
higher studies in India and abroad for various courses including Vocational courses.
 Loan can be taken from a minimum of Rs50, 000 and up to maximum of Rs 20, 000, 00.
Banks may consider higher quantum of loan based upon course.
 Loan covers expenses of tuition fees, hostel fee, books, projects, study tours and refundable
deposits.
 For a student taking loan for studies in abroad bank covers air passage and maintenance.
 Co-obligation and collateral is required in most of the cases.
 Holiday period is 1 year after course period or 6 months after getting job, whichever is
earlier.
 The education loan growth rate in Public Sector Banks (PSBs) had witnessed a
huge decline.
 Interest rate is 0.5% lower for girl students.
 Interest rates are based on the base rate, which is given by Reserve Bank of India.

Education loans are a critical product for a vast segment of low to middle-income families in
developing economies like India. The product, although commercial in execution, is an important
social intervention by the government through its vast network of public sector banks. However,
it has not been able to efficiently cover the target beneficiaries. The purpose of the study was to
look at the gaps from the service providers, i.e. the banker’s point of view. The study was based
on qualitative feedback from branch heads of a public sector bank posted in various geographical
locations around the country.

These measures are necessary to unlock the potential of human capital, which is unable to get
access to education finance. Future research may be taken up with wider coverage of banks as well
as with the borrower’s perception of service quality.
 Scope for Further Research
Education loan disbursements are dropping and non-performing assets are increasing. Studies can
be done in this direction to find out reasons for this.

References
 Dongbin, Kim. (2007), The Effect of Loans on Students' Degree Attainment:
Differences by Student and Institutional Characteristics. Harvard Educational Review,
77, 64-100.
 Kothari, C.R.(2004). Research Methodology.New Age International Publishers, 179-180.
 Malhotra, Naresh. K., & Dash, Satyabhushan.(2007).Marketing Research,Pearson.