The Finance minister declared that Education loans should be treated as priority lending sector during the 2001-2002 Budget speech. The guidelines for lending were formulated by the Indian Banks Association in a comprehensive education loan scheme. By definition, priority sector would mean that higher priority should be given for lending to these sectors, when multiple loan applications are received. But, education loans have a high default rate, which makes it a high risk . With the tightening of the CRR by the RBI, the banks today face a cash crunch. So, its quite obvious that the banks would want to lend the precious cash where they expect maximum benefit with minimum risk. Education loans do not register on their priority list.
In addition to this apathy towards hopeful students, the interest rates are atrociously high. Banks usually lend at PLR+1%, as of date the PLR is 12.5 %. This is very high when we compare to countries like UK - 5.5%, USA - 8.5%, Germany - 3.75%.
I do hope that the situation improves here in India, where majority of people look at higher education as their passport to a better life.
