Getting Education loans for foreign studies not to be easy for next academic session

Now it will be difficult for the aspiring students who might be planning for higher studies in abroad from the next academic session.

The multinational companies have started handing out pink slips almost every day and job prospects are also getting bleak in the West, and banks are also likely to tighten their education loan norms. Banks are also considering of lowering the limit for collateral requirement for destinations like the US & UK.

Adding to the worries the students will be going to find difficulty in getting education loan for second and third step universities in these countries. As per HDFC bank sources, it has already zeroed lending in aviation sector where it will be conventional in its lending approach to students.

A senior banker, who refused to be identified, told that the step taken by the bank will be logical for the banking system, which is already facing chin music because of downslide in the equity markets. “It’s always better to prepare a disaster plan rather than wait for the disaster to strike, and then plan. Not only will the banks benefit, but students will also be saved from an uncertain future,” the banker said.

Sujan Sinha, senior vice-president, retail assets, Axis Bank agreed with this. According to him lot will depend on the existing macroeconomic environment globally when the new education season will begin next year. “Though it’s a bit premature to comment, but considering the uncertainty surrounding the Western economies, the possibility of banks getting stringent about education loans can’t be ruled out,” he said.

Sources in HDFC Bank conveyed that they are already taking precautions, in terms of lending. "There are always some sectors which are riskier than others. In the last few months, aviation has been identified to be one such sector, and hence we were cautious while disbursing educational loans in this sector," the bank official said.

While academicians are of the view that a majority of students have plans for traveling abroad for master courses and foreign degrees. In foreign the courses offered are usually of 12-18 month duration. This is further going to add to the agony of the students as the job market is improbable to stabilize in the near future.

Even Anindya Sen, professor at the IIM, Kolkata, doesn’t rule out a possible dip in the numbers. "Those students going to lesser known universities will find it difficult to fund their education, as the banks are likely to be extra careful while sanctioning education loans," he said.

Another end result will be a major shift from the financial sector to other areas of study. "Looking at the job market, we will also see a sect oral shift over the next couple of years. Not many students will go abroad for degrees in financial studies. There will also be a slight dip in the salary packages," he said.

Rupee is depreciating rapidly against the US dollar adding to the hardships of those weaving dollar dreams. Now the cost of the loan of $25,000 (around Rs 10 lakh) has increased to Rs 12.5 lakh as compared to six months before. However currently, in case of a loan amount exceeding Rs 4 lakh majority of the banks ask for collateral. The collateral can be in the shape of property, FDs, NSCs, life insurance policy or any other instrument, which the banks find appropriate.

A Syndicate Bank official also points towards the rise in defaults. "If we are faced with such a problem, we have leverage and we may package the loan differently and offer the opportunity of postponing certain payments or making balloon payments in later part of the loan. But they will have to repay the loan within the specified time period. It will also depend on how genuine the case is."