The government’s keen interest in education loans has continued. After the HRD Minister Arjun Singh, announced the government’s objective to guarantee education loans to students, the Government announced its intention to include a life insurance cover with every education loan.
Expressing the need to modify the existing education loan scheme, it has suggested all public sector banks (PSBs) to add a life insurance cover on any student going in for an education loan. All public sector banks (PSBs) may also be asked to introduce facility of online request for education loans.
Like their earlier step, the new scheme of an insurance policy on the life of the student, at the time of granting of education loan, is to benefit both the bank as well as the student. The issue of modifying the existing education loan scheme (2004) is likely to come up for discussion during the Finance Minister, Mr P. Chidambaram’s meeting with the chief executives of PSBs.
Speaking on the benefits of the insurance, official sources said that in case of an unfortunate demise of the borrower, the bank would be able to recover the loan amount from the insurance amount.
For the student, this would inculcate a habit of taking insurance. A student, who is once covered by life insurance, even after repaying the bank loan, would be inclined to continue with the life insurance policy.
However, this new scheme as suggested by the government has been in use by UBI. Union Bank already has a provision for an insurance policy in their education loan scheme. According to that scheme, to lessen the cost of premium, a convertible insurance policy (convertible into an endowment assurance policy for 5 years) could be accepted. According to the scheme, in cases where the parent/guardian cannot bear the premium cost, the amount of premium during the period of education could be remitted by the bank to LIC to the debit of loan account.
There are hints that the Finance Minister may ask the Indian Banks’ Association (IBA) to incorporate specific clauses for life insurance (on the lines of the Union Bank’s scheme) in the model education loan agreement circulated by it to banks for implementation. Also, IBA may be asked to provide broad guidelines to banks regarding the material to be published in the loan forms about insurance options available to students.
Meanwhile, there are indications that PSBs may be asked to provide facility of web-based online request for education loans. A presentation is likely to be made by Corporation Bank, which already offers such a facility.
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