By Upasana Hembram
It is a well-known fact that student loans have become more of an economic burden rather than an economic ameliorator. With students suffering on the account of “bad loans” (banks sell them off as Non-Performing Assets (NPAs)), the Kerala government has decided to step up its game. On the 60th anniversary of the first sitting of the Kerala Legislative Assembly, the government announced the launch of the Education Loan Repayment Support Scheme to help financially backward students.
Kerala government: The knight in shining armour?
This scheme seeks to aid financially backward families (those with an annual income of less than Rs. 6 lakh) in repayment of education loans. The initiative is meant to support families who have availed a loan of up to Rs. 9 lakh and will be enforced retrospectively from April 1, 2016. The scheme has been met with a mixed reaction from all quarters, however, it would be wrong to wholly discredit the scheme.
Modus operandi of the loans scheme
For bad loans below Rs. 4 lakh, the government will provide 60% of the principal amount. On the same lines, for loans above Rs. 4 lakh, the government will provide 50% of the principal amount with an upper limit of Rs. 2,40,000 as part of a special package, the details of which have not yet been finalised. For loans between Rs. 4 lakh and Rs. 9 lakh that have not turned into Non-Performing Assets (NPAs), the government will foot 90% of the repayment liability in the first year, 75% in the second year, 50% in the third year and 25% in the fourth year. In the case of a student’s demise or he/she becoming physically disabled during the period of repayment, the state shall make an upfront payment of the entire principal amount, provided the bank waives off the interest amount.
Financial implications of the scheme
Defaulted study loans accompanied by laborious rehabilitation processes of banks are a severe social issue in the state. Keralas educational loans add up to a total of Rs. 10,022 crore, of which Rs. 1,315 crores are NPAs. A loan is declared NPA by a bank if the repayment is pending for a period of more than 90 days following the moratorium period. Banks have been selling these “bad loans” to Asset Reconstruction Companies (ARCs) which usually charge an interest rate higher than the pre-decided percentage. Such arrangements ensure further duress for economically backward students.
While announcing the new scheme at the special session marking the anniversary, Chief Minister Pinarayi Vijayan reiterated that the initiative was not a debt-relief or a loan waiver programme, but solely a plan to support the repayment of education loans during the four years after repayment holiday. According to estimates by a state-level bankers committee, the scheme will put a burden of Rs. 9,000 crore on the state’s coffers.
Recovery of the education sector
With a highly subsidised education system, it is reassuring to know that the state government remains committed to provide everyone with opportunity and access to education. However, the cost recovery ratios in the education sector have been relatively low as the state battles with problems of unemployment and slow economic growth. It is essential that such a scheme is followed by implementation measures aimed at enhancing cost recovery from the education sector. This requires a shift from compartmentalised discussions on cost recovery from institutions to a new focus on cost reduction via restructuring of administration and management of education system.
Nobility of intention is not enough
This is a first of its kind initiative to be implemented in India and is definitely a welcome development. While the move addresses the woes of students burdened with educational loan debts, the state government should also look into the inadequacies and glitches in the education system as well as the relevant macroeconomic aspects which fail to provide students with the skills and opportunities to enter the job market. Kerala government should view education as not just an academic activity but a means to empower human capital for the welfare of the state.
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