They are just too high! From the prevalent interest rate on Education Loan, it doesn’t even look like that higher or specialized education is even a priority. Herein, I narrate my first-hand experience while seeking an education loan. The story of my experience, is sort of complain, a resolution to which is also my suggestion for course correction.

It all so happened, that my son secured admission in a foreign university for his graduation in a subject of his choice. As an optimistic parent, I expressed no hesitation to fund his higher education. Due to his persistence over several years, he is confident and I am clear on what he is sure to pursue. There was total unanimity in the family. Now, the concern on mind was funding!

Our Profile:
I am a self-employed businessman with additional rental income from a tenant of repute. My wife is a teacher with a World School. We live in an owned ancestral property in the heart of South Delhi. We have a proven record of timely or pre-payments of all previous auto and housing loans. Our credit cards are always paid on time. My Cibil Score as per Credit Mantri and Bank Bazar is 800.

Despite good regular income, we are very much a middle class family. Almost all our income gets spent on some commitment or the other (including current education fee), leaving very little to save. Yet, consistent income results in finding money in several pockets! So it happened with us. We were sitting over saving bank balances of 8 lakhs.

Admission Fee:
The University had sent a fee advisory of Rs.45 lakh for the 3 year course to be spread over as advance annual payment of Rs.15 lakh. For now, we needed 7 Lakhs and I took to street for funding. I knew it won’t be difficult.

My first step was my home branch of HDFC Bank. Just like Home Loan disbursal is through HDFC Ltd., Education Loans are dealt with another group company Credila. My query at the counter was made good immediately and in quick follow-up over next 3 days by their representative, documentation fulfilment procedure was completed. But here I must tell the story of loan nitty-gritty.

Sanctioned Amount:
Credila insisted upon sanctioning entire funding requirement spread over three years upfront. That is, they would sanction loan of full Rs.45 Lakh or even more to meet travel and sundry expenses. Once sanctioned, I could take lesser disbursement due to my own initial contribution. I refused, day one!

Processing Fee:
Credila charges 1% of sanctioned amount as upfront processing fee. This meant paying Rs.45,000/- + Service Tax to get disbursal. A clear case of total blackmailing!

I reasoned. I argued, just like contributing 50% now, I think with my existing cash flow I should be able to contribute as much each year. Hence, why don’t you just sanction 20 or 25 lakhs? Request declined!

Financial Closure:
I was told total financial closure has to be done upfront. However stable, future incomes are not accounted for. Make known clear availability of entire own contribution upfront to get a lower sanctioned amount. (Total Project Cost – Own Contribution = Sanctioned Amount)! No arguments!

I was just not comfortable. Days were running out. Last date of fee payment was just two weeks away. Statements of Shares, FDs and a contingency fund of our joint family were provided to prove financial muscle and in the end of struggle stretched to a week, Sanctioned Amount of Rs. 30 Lakh got agreed. I still ended up owning a liability of Rs.35,000/- in initial processing fee charges. Consumer reluctance can’t fight monopolistic or cartel systems!

Property Mortgage:
Without a fixed asset collateral the loan application would not be considered. I agreed. Property papers of a 3 BHK flat in my wife’s name were provided as collateral. Bank is lending for profit and hiding behind total safety cover at my cost, exhibiting zero risk appetite in business!

EMI / Disbursement:
Normally, education loan tenure is stated to be 10 years with disbursed amount being the Principal Outstanding. EMI begins immediately on disbursement with 1st EMI in advance. No issues, it’s a standard business practice.

Prepayment Penalty:
Foreclosure within a year or part prepayment could attract charges upto 4% of outstanding amount. Gross injustice!

At this stage, since the education loan issue had reached other members in family, they suggested me to explore possibilities with public sector banks (PSB). Meanwhile, I had found Avanse (DHFL subsidiary) only slightly better on terms. But PSB interaction is an eye opener as most are clueless in their business.

Unprofessional PSBs:
Like an FD or insurance form, Education Loan form is just another form in PSB cupboard. At best they provide that to a querying customer. There is no further help. Managers do not know the interest rate or a committed processing fee. All they say is, it would be much cheaper than HDFC. They still don’t call it Credila! Bank branches do not process loan applications at all. They are mere forwarding agents to a centralized office. Hence, do the documentation on your own and submit to the branch. Inadequacy of any document or fulfilment of an error could take 2-3 working days and the week gone! Within three weeks, one could check up status of application. Managers said, mostly approvals are not declined once credit and collateral verifications are completed, but the borrower is kept under suspense and possible threat of decline without reasons! Who would deal with PSBs when so much is at stake? I found it to be a risky proposition to fill up application with PSBs.

During my walk up and down to PSBs, cursing system as I was, several questions ran my mind regarding their overall unprofessional functioning. Those questions haunted me for days and are taking shape to be a subject matter for a new write up.

To me it looks like, while retaining the banking infrastructure for understandable reasons, government has given a free run to the private sector to actually do the businesses where money is. However, it is the responsibility of the government to benchmark the rates, more so, for an important segment like Education.

Could there be any defaults in education loans? Remote possibility! Perhaps stray cases. Education loan is meant for already the educated. A candidate who has high aspirations, chosen a career thoughtfully, disciplined and serious enough in academics to have qualified minimum requirements for admission, and more or less stable or high income prospects on completion. For a person who is future in the making. The youth with unlimited potential, I do not see any likelihood of serious default.

In fact, there is no likelihood of a default on education loan. Unlike other loans which are mostly released in a single full payment by bank, education loan is a structured product like a construction linked payment plan. Most education loans are for course spread over three to five years. Release of next annual fee to the educational institution is also subject to the borrower having continued to pay the EMI towards the disbursed amount in the first or preceding years. Even a single default can render further disbursements cancelled. The guardians are extremely cautious in timely fulfilment of their monthly obligation. At stake is their future, and not of the bank. Such high is the commitment of the borrower of educational loan for timely repayment!

Its something like holding the innocent to ransom. Because the loan quality is excellent and the borrower profile superior. Just because the borrower has no choice, you can’t reduce him to be a beggar, completely screw him up financially, and make him a slave to your whimsical ransom! Is it that banks got lucky to get hold of somebody to churn! Someone of really decent character, a very responsible citizen, a humble, polite, unwilling to argue or confront citizen, complying and obedient – hardly knows to protest like cow!

Nothing can be more secure than an education loan to the student borrower who is still left with an economically productive life expectancy of another 50 years! It can’t be compared with other popular loan variants like a continuously depreciating auto asset or helping people acquire their unnecessary second home!

I can endlessly go on to vent out my ire. No point. The point to be made has been made. More than financial concerns, I had discovered that PSBs are unprofessional and private entities like Credila are too arrogant! I decided to take an obligation I didn’t want to. Called up a friend who instantly arranged transfer of balance fee to University. I am ever thankful to the almighty who takes care, but my heart goes out to borrowing parents who may not be as much resourceful. I know the struggle has not ended. Though I am not the one to worry too much about future, but I realise, I could genuinely face similar situations next year and the next!

Think! Think dear decision makers of banking policy, even if you do not intend to completely upside down the interest rates on varied segments, cease to treat education loan as paper priority. Act not upon my unsolicited advice, but do accord some dignity to the product and borrower. Introspect and heed to the call of the nation for a relook into education loan rates and process.