Education Loan sector Of Bank

1. EducationLoan
Education loanissanctionto studentsforextendingfinancial assistance forhighereducation.Bank
usuallyprovidesloantostudentbasedontheiracademicperformance.The total exposure of bankto
the educationloanswas64900 crore, available to3million andaverage loansize is211666 (FromDaily
NewsandAnalysis).
79000 crore total exposure of bank
Features
 Out of 64900 crore bank faces5.192 crore 8% defaultonit.Mostlysuch defaultiscomingfrom
the southstate of India(FromDailyNewsandAnalysis). And7% that is5.2crore defaultof banks
(Fromthe IndianExpress).
 In the USA, whose population is about one fourth of that of India, has a total education loan outstanding of
over $1 Trillion. Education Loan is the second biggest asset class in the USA after Mortgages.On that
context, education loan segment in India is just getting started.
 The repaymentof Educationloanbeginsafter ‘MoratoriumPeriod’ or 'repaymentholiday',that
is,one year afterthe endof studiesorsix monthsaftergettingajob,whicheverisearlier.
 Duringthe periodof the studenteducationandendof the course the interestischargedonthe
loan.But the customerscan too paythe loan duringthe time of whenstudentiscontinuingits
course and can reduce itsloansize.
 If the studentisnotable to complete the course withinthe scheduledtime,extensionof time
for completionof course maybe permittedforamaximumperiodof 2years.
 Publicsectorbankchargeseducationloanfrom9-12% while private sectorbankchargesloan
higherthat10% and can goesupto16-17% also
 The NIM of bankin educationloanof publicsectorisaround1.5-3%.
 Duringthe timesof crisesor the economyisnot performingwellbanksgive additionaltime of
6months-2yearsforthe studenttobe eligible topayloan.
 Classificationsof Educationloans
a) Loans to studentsadmittedtoTopratedinstitutions
b) Loans to studentadmittedtoDomesticinstitutions
c) Loans to studentsseekingstudiesforabroad
Process
 Applications will be received either directly at bank branches or through on-line mode. Upon
receipt of application, standard acknowledgement giving a reference number will be issued. The
acknowledgement will contain contact details of the bank official who, could be contacted in
case of delay in disposal of application.
 Normally, sanction/rejection will be communicated within 15 days of receipt duly completed
application with supporting documents.

2.  Students may submit their loan applications either at the bank branches near to the residence of
parents or to the educational institution.
Whocan get loan
 Must be the citizenof India
 Till the age of 35 years
 Parentor guardianmustbe the co-applicant.If youare marriedyourspouse can be co-applicant
 Financial history andcredithistorywill be checkedbythe bankof the co-applicantandthe
academicprogressof the student.
CredilaBank: -
 Total loanamounted1172 crore (2016) whereasitwas1186crore (2015).
 The NPA resultedoutforEducationloanwas 1.54crore which is0.05% whereascompanyhas
provisionof 0.61crore.
 The company has54% of hisportfolioassecuredand46% as unsecured.
 Numberof employeesinMarch2016 are 207 within24 branches.
Education loan portfolio of banks
Banks
Education loan
[in Rs crore]
% of net
worth
% of total
advances
State Bank of Travancore 2,263 58.5 4.1
Indian Bank 3,222 33.4 3.6
Syndicate Bank 2,270 28.2 1.8
Indian Overseas Bank 2,469 24.9 1.8
Andhra Bank 1,516.00 20.3 1.8
Canara Bank 3,948 19.1 1.7
State Bank of Mysore 565 16.6 1.4
Major Banks
State Bank of India 12,566 15 1.4
Punjab National Bank 3,309.00 12.5 1.1
Bank of Baroda 1,872 6.9 0.7
Bank of India 2,193 11.1 0.9
Union Bank of India 1,860 14.2 1.0

3. Name of Bank Loan Amount Rate of Interest per Annum
Axis Bank Up to Rs 20 lakhs 13.75% to 15.75%
Bank of Baroda Up to Rs 20 lakhs 10% for loans up to Rs 4 lakhs and 12% for higher amounts
Canara Bank
Up to Rs 20 lakhs
11% for loans up to Rs 4 lakhs, 12% for loans between Rs 4 lakhs and
Rs 7.50 lakhs and 9.50% for loans greater than Rs 7.50 lakhs
Credila (HDFC Bank
Company)
Up to Rs 20 lakhs 13.5%
ICICI Bank Up to Rs 20 lakhs Up to Rs 4 lakhs no interest above Rs 4 lakhs 15%
Indian Overseas bank Up to Rs 40 lakhs Up to Rs 4 lakhs no interest above Rs 4 lakhs 15%
State Bank of India Up to Rs 30 lakhs
Up to Rs 4 lakhs - 13.50%, between Rs 4 lakhs and Rs 7.50 lakhs -
13.75% and above Rs 7.50 lakhs - 11.75%
Advantagesof Educationloan
To Banks: - Banksgenerate lowNPA ineducationloanas securityistoohighwhichisof collateral asset
and the personal guarantee.Whenbankgivesloantoanystudentsome studentafterthe repaymentof
the loanmay become the permanentcustomerof the bank,soitsCustomerBase can alsobe increased.
To Customer: - The otherbiggeradvantage of the customeris the provisionforthistax deductionon
educationloanisbasedonthe Section80E, Income Tax,1961. The income tax benefitcanbe only
availedonthe interestamountof the loan.Hence,the principal amountcanbe claimedforanytax
benefit.The entireinterestamountof the educationloansrepaidisdeductiblewhencalculatingthe
taxable income.

4. Education loan is Counter-Cyclical
The demandof loan increasesatthe time whenthe economyisfacing problemsandisatthe depression
stage.Asduringsuch time the requirementtorevive the economyincreasesandcompanyrequire
efficientandeducatedemployees. The size of educationloanmarketisbasedonprimarilyon3factors:
college enrollmentlevels;the costsof attendingcollege;the availabilityof fundsfromgovernmentto
pay foreducationloan.If the cost of educationincreasesthanthe sumof familyincome,savings,
governmentlending,more studentscanbe expectedtorelyonPrivate Educationloan,andif the
enrollmentlevelsorcollegecostsdeclinethe availabilityof educationloansdecreases.
Risk of Education Loan
1. The risk of collateral issue like(a.) whetherthe propertyislegal (b.) Isownershipclear(c.)Value
of the propertyto be goesdown
2. During the times when the economy is now performing well the student will find difficult to get
the job, so the defaulters may increase, and in that case bank’s NPA increases.
3. While providing loan to the students going in abroad, the bank has risk as the student might
get settle there and don’t repay the loan also and it will difficult for the bank to catch such
customers.
SALLIE MAE PRIVATE LOAN
YEAR
Private Education
Loan
Federal Family
Education Loan
Program
Total Interest
Income NPA Total loan
(inlakhs) (inlakhs) (INMillion$) (In %) (inlakhs)
2007 2835 2848 424 3.8 5683
2008 1738 5173 472 4 6911
2009 1582 3094 1333 6.1 4676
2010 2353 3345 1022 5.3 5698
2011 2429 3461 -174 4.9 5890
2012 53472.4 5279.4 342 4.6 58751.8
2013 59966.5 11429.9 393 3.8 71396.4
2014 75633.6 13534.8 493 4.2 89168.53
2015 98190.5 11797.3 612 4.8 109987.8
2016 127477.6 10633.25 922 5.2 138110.9

5. Data's on Education Loan
Year Total Enrollment PortfolioinEL
Total Amountin
Education Loan
(IN 1000) (IN %) In Crore
2004 470 0.89 6385
2005 641 1.06 10787.2
2006 1002 1.07 14058.1
2007 1215 1.45 19781.5
2008 1580 1.59 26925.7
2009 1911 1.63 35855.1
2010 2211 1.68 41341.2
2011 2373 1.79 46727.1
2012 2479 1.91 50926.9
2013 2590 1.99 70282.5
2014 2876 2.01 73681.1
2015 3000 2.08 79824.6
2016 3486 2.16 85000.4
Education Loan Amount (What all you can cover in the loan amount)
 Tuition fees payable to the institution
 Hostel fees
 Examination, library and laboratory fee
 Insurance premium Amount
 Books, study material, equipment, and uniforms expenses
 Computer / Laptop if required
 Study tours, project work, thesis work expenses
 Deposits (e.g., building fund)
 Travelling cost (some of the institutions cover travel expenses)
RepaymentStrategy: - Repaymentstartsaftera 'moratorium period' or 'repaymentholiday',thatis,
one yearafter the endof studiesorsix monthsaftergettinga job,whicheverisearlier.The borrower
musthave a repaymentstrategyinplace before EMIs. Here Moratoriumperiodisthe time when
borrowerisnot requiredtomake payments.Itisa periodbetweenthe studentclearanceof itscourses
and the jobhe gets. Till thattime interestiscalculatedinSimple Interestbasis.
 Usually, banks offer education loan repayment grace period after you complete your course.
You would need to start repaying the education loan amount disbursed to you either one
year after your course ends (irrespective of whether you have secured a job after your
studies or not) or six months after you start your first job, whichever comes earlier. Your
repayment tenure can be 5-15 years