The launch of the Education
Loan Guarantee Scheme by the Delhi government to enable students of all
universities, colleges, technical institutes, skill centres, polytechnics and
ITI’s in the national capital to get an educational loan is a game changer that
other states should adopt. Students preparing for courses like CA, ICWA or CFA
and even those doing skill development courses specified by the Delhi
government can also avail of the educational loan.
To meet the costs of the
scheme the state government has set up a Higher Education and Skill Development
Credit Guarantee Fund (HESDCGF) for providing guarantees to the banks against
any default on these educational loans. It will have an initial corpus of Rs 30
crore and will also collect an annual guarantee fee of 0.5% of the outstanding
amount of the loan from the banks each year.
In case of default by the
students the HESDCGF will initially settle 75% of the claims of the bank after
the initiation of the recovery proceedings and the remaining 25% will be
settled after ascertaining the final loss of the bank at the end of the recovery
process. The threat of defaults are to be minimized by making the parents or
the legal guardian’s joint borrowers of the educational loan along with the
student. A default will also negatively impact the credit rating of the
student and parents.
The educational loan would be
available not only to students of government owned institutions but also to the
private or self-financing institutions which have been a minimum grade of A+, A
or B from either the National Assessment and Accreditation Council (NAAC),
National Board of Accreditation (NBA) or the State Fee Regulatory Committee
(SFRC).
The competition among
educational institutions to attract more students and the government
stipulations for securing accreditation by educational institutions providing
admission to students availing educational loans will ensure improvements in
quality of education. The educational intuitions would also be forced to
improve the course content in tune with market needs to ensure employability of
the students.
By liberally expanding the
educational loan scheme the Delhi government has wisely chosen to follow the
approach most popular with the governments in advanced economies. This would
help expand educational loans as an important market to the banks like in the
US where the outstanding educational loans of more than $ 1.3 trillion makes it
the largest form of household debt next only to mortgages.
The liberal educational loan
of the Delhi government, the risks of which are borne by the government, is in
line with the practices in advanced countries like Australia, Canada, Denmark,
England, France, Germany, Japan, Sweden and United States where the funds are
provided by the government to improve student access to higher education. The
shifting the burden of losses from the banks to the government is a landmark
move which will give a big boost to higher Education loan in India and help roll out important national programs
like the Make in India initiative and also build a new knowledge economy in
tune with the needs of changing times.
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