Education-Loans for financing job-oriented higher education has come to be an attractive segment in the credit portfolio of Banks. Several Banks have introduced liberal schemes offering loans for pursuing higher education including education abroad. The service industry today is the most booming amongst the sectors of national economy in India. Providing career oriented education to the talented youngsters of a family is the surest gateway for advancement of the status of the family from low-income to middle-income level.

No doubt education loans came to be accepted as a segment of bank credit at least three decades back, but the momentum of dispersing such loans on a wider scale has taken place only recently. What has brought forth this new interest amongst the banks to fund liberally students desiring to pursue higher education through their loan schmes and to market such schemes with a new-found enthusiasm?

Knowledge Revolution that is taking place in the aftermath of the onset of Internet and the Information Age has made knowledge to be deemed as an essential intangible asset of the corporate entities, who pride in possessing Intellectual Capital more than financial capital. India was all along a poor country. But today it is a fastly developing country. The core of our development presently is knowledge-driven. We have trade deficits, but surplus in balance of payments. The invisible exports boost our economy and swell our foreign-exchange reserves. And today we have the simultaneous paradox of still widespread unemployment in the country as the legacy of the past with a dearth of trained and qualified managers / technocrats for our expanding business and industry. Providing job-knowledge and professional skills to the youth of the country is the surest way for bringing down educated unemployment and increase our national wealth. To this higher education, career oriented professional and technical education is the tool.

In the era of globalisation Indian boys and girls seek career opportunities not only within but also outside the country in the newly turning borderless world. At the same time the country is turning to be a knowledge centre. With this vast educated youngsters, English speaking population, stable democratic form of government and independent legal system it is attracting large scale outsourcing of back office business processing from multinationals from the USA and European countries on a vast scale. These are the factors that has created a wider demand for educational loans from credit institutions.

Is it also true that the banks consider that as a student has sentimental attachment to the University/Institutions he studies, he will also turn life long loyal to the financial institution that enabled to secure higher education and a better career? This is partly so and may be realised to a considerable extent through effective marketing.

Erstwhile the country was having a regulated economy dominated by the public sector, manually processing every type of data through the pen and ink method. This had created a multitude of clerical jobs and the Universities and Colleges acted as factories turning out clerks for the country. A college degree was the coveted possession and acted as a passport for securing a clerical posting in the government or in a public sector corporation. The environment in those days was not different in the private sector, which was more family owned and family managed and less professionally conducted. Powerful trade unions secured better emoluments to the clerical cadre in the public sector. Education was a tool for earning the daily bread. It was seldom considered as the pathway for career building. Rapid computerisation consequent to economic & structural reforms is fast changing this scenario. We hear of repeated efforts through attractive VRS schemes to offload surplus manpower doing routine jobs in every organisation, both public and private. Routine-level jobs are off-loaded to be replaced by knowledge and skill-backed workers. In this environment the pattern career oriented education has become popular. Vast number of educational institutions offering professional courses like B-Schools, IITs, Engineering Colleges have sprung up. Students joining these institutions are able to find cream jobs in reputed concerns & multi-nationals through campus selection. We thus have career building institutions in place of the erstwhile factories (Degree Colleges) turning out clerical employees as was the case earlier.

It is today quite easy for talented young managers, professionals and technocrats to change three or four jobs securing better prospects at each change even before they complete the age of 35. In the software industry, it quite common to hear the complaint of software-developers that no employee sticks to the job for more than 2 years, as they are able to easily secure new offers with better prospects. We thus find that the clerical cadre as a white-collar workforce is fastly disappearing from the employment scene, while better paid jobs of higher-grades are immensely increasing.

Getting new jobs is much easier today for the qualified candidate. He is not to wade through several advertisements in a host of newspapers and journals. The Internet with several job-portals has made easy contacts between seeking employers and offering applicants.

At the same time higher education is becoming much costlier. Government grants to Universities are now on a tapering scale and these Institutions providing higher learning are forced to be self-reliant. This results that higher education is no longer heavily subsidised. Indigent students need loan support and feel confident of repaying the same, from earnings through employment, which they are confident to find at the completion of the course.

All the above statements account for the widespread demand for higher education in the country by aspiring students and the need to find the financial means, as such education is costly. But how does this fit in the gambit of the credit schemes of the commercial banks?

Education Loans can be considered purely as a personal loan or consumer loans based on the income level of the family. Lump sum funds are invested in specific terminal ends in two or three years and repayment secured by distributing burden over a longer period from the current earnings of the family. In fact courses at the junior level (high schools or degree colleges) are financed on this basis.

Education loans can also be considered as an investment credit. This is so in respect job-oriented professional and technical courses. Students completing such courses almost normally secured gainful employment within 6 months to one year of completion of the course and bring additional earnings to the family and create incremental cash flow as an additional source towards repayment. It is thus a productive enterprise.

What are the normal precautions?

1. Age Restriction: The job market looks to the younger candidates at the entry level. Age of the borrower-student should not be more than the normal age relevant to the course and normally not more than 30.

2. Proficiency & Talent: Selection is based on merit. Students who have a poor past academic career, or who fail to secure a pass in the mid-course in terminal tests, after granting the loan are not safe borrowers.

3. Courses lacking job potential: Certain courses do not attract quick job opportunities. Certain courses take a long time for the student to take off in the profession. Th example is legal studies. Care should be taken not to finance such courses exclusively based on the project approach.

4. Deficiencies to some extent can be bridged by securing collateral and obtaining guarantors. Project failure in such cases necessitates harsh recovery measures and protracted litigation and hence should not be resorted to extensively.

5. When the loan is considered essentially on the earnings of the parent, he/she should be made a co-obligant. Since education loan is a personal loan, some banks prefer a condition that the loanee should take a life insurance policy for the 150% of the face value of the loan amount and assign the same in favour of the BANK.