Re visiting education loans

Indian education loans

Report 2019

Gen.Z

U N

DERSTANDING AFFORDABLE BEARABLE

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ACKNOWLEDGMENT INTRODUCTION HISTORY OF LOANS REASON TO CHOOSE PROOF OF CONCEPT STAKE HOLDERS OVERVIEW SPECULATION SOLUTION 3

Acknowledgements I would like to express my sincere gratitude to my supervisors Mr. Udit bhattacharya & Mr. Sagar joshi for providing their invaaluable guaidance, comments and suggestions throughout the course of project. i would specially thanks Udit Bhattacharya for constantly motivating us to work harder and ans Sagar sir to helping us with the resources needed.

Also i would ike to thank them n=both for their assistance in interview imagning process, giving us preparation time and to achieve an overview of systems mapping effortlessly.

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INTRODUCTION Education and development are closely related, as education provides inputs for economic growth among which knowledge is an important one. Development of knowledge is based on the quantity and quality of education system available, particularly of higher education, in a country.

Development of higher education depends on various factors, among which finance plays a major role. Bank credit has an important role in promoting the education and development of skilled professionals required by an emerging market economy such as India.

This financing is being met through various resources, loans being one of them. Understanding these education loans in India to thrive for a secure financial future of our future generation.

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THE HISTORY OF STUDENT

LOANS

Arun Jaitley in the 2015, Budget session announced: “We will ensure no student misses on higher education due to lack of funds.”

A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses.

Education loan is becoming popular day by day because of rising fee structure of higher education. It came into existence in 1995 started

by SBI Bank and after that many banks started offering student loan. The Indian banking sector began giving education loan from 2001 onwards.

But recently, in the wake of increasing Non Performing Assets (NPA) on educational loans, the Indian Bankers Association (IBA) has revised the educational loan scheme, framed in 2001.

Though the situation is far from worrying, banks have been advised to be prudent and cautious while granting educational loans

Taking an education loan helps you in building a good credit score as this is the first loan in a person’s life. If you repay the loan on time without any defaults then it also makes easier for you to get home loan, car loan, etc., in future.

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Major disruptors According to a recent report, the total non-performing assets (NPAs) in the education sector registered an increase from Rs 2,615 crores in March 2013 to Rs 6,336 crores in December 2016. That is, Indian banks saw a 142% increase in student loan defaults during a period of just over three years. In percentage terms, the share of NPAs increased from 5.40% to 8.76%.

What are we to make of these numbers?

To begin with, the larger issue of the increase in student loan defaults is worrisome. Until recently, student debt and growing loan defaults were considered to be an American problem, where 44 million borrowers owe $1.3 trillion in student loans.

It has been reported that a record number (~8 million) have given up paying on more than $137 billion in education debts.

Over time, the problem spread to the UK, where the student debt now stands at ÂŁ100.5 billion ($132 billion). According to one study, about 70% of students who left university in 2015 are not expected to finish repaying their loans.

The problem of growing student debt and loan defaults may have already arrived in India. With high actual loan defaults and the likelihood of worse to happen becoming a feature of high income countries with robust higher education systems, the signs are ominous for India, where the higher education system is broken and degreed but unemployable young people are mass-produced by the hundreds of thousands. It therefore becomes essential to understand the drivers of the increase in student loan defaults in order to address the problem before it overwhelms us.

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Amount on student loans is increasing year on year as banks are favouring giving out hig value loans and avoiding the 4lakh below loans segment

3.5

2.5

3.34

22.55 20.9

3.12

19.5 2.0

3.0 2.92

18.1 16.8

2.74 2.5 ‘15

‘16

‘17 March

‘18

‘19

‘15

‘16

‘17 March

‘18

‘19

Amount disbursed ( 000 crores)

6.9

Average size for new loans disbursed during the year (in lakhs)

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Mar ‘19

Mar ‘18

Mar ‘17

Mar ‘16

Mar ‘15

Mar ‘19

Mar ‘18

Mar ‘17

Mar ‘16

Mar ‘15

5.3

5.9

7

7.8

8.7

10.2

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9.02

Number of students getting loans (in lakhs)

1.5

12.5

2.5

NPA (% of loan advance)

Fees payable, accommodation charges, exam and library fees, reasonable expenses for books and equipment including computer, travelling expenses abroad and other reasonable expenses required to complete course.

Quantum of finance: Under section 80(e) of the Indian income tax act, a person can exempt the amount paid against the interest of the education loan – either for self or for his/her spouse or children – for eight years from the year(s) he starts to repay the loan or for the duration the loan is in effect, whichever is more.

Moratorium period for repayment: Course period + 1 year or 6 months after getting job, whichever is earlier

Quantum of finance:

Eligible Expenses for education loan Tenure of loan: 10 and 15 years for loan up to Rs 7.5 lakhs and above respectively.

Margin money: Nil for loan up to Rs. 4 lakh. 5 percent and 15 percent respectively for study in India and abroad on loan above Rs. 4 lakhs. Also in cases where your loan amount is higher than 20 Lakhs to study abroad the percentage is calculated in a margin of the required amount where the bank sets a ratio.

Rs. 10 lakh for study in India and Rs. 20 lakh for study abroad. Banks may consider lending higher amount in special cases at their discretion.

Security : Upto Rs. 4 lakh – No security, but in this case parents needs to be a joint borrower Between 4-7.5 lakhs- along with parents collateral security in form of third party guarantee Above 7.5 lakhs- Parents to be joint borrowers + tangible collateral security of suitable value required.

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Proof of questions Student loans, Social Security, and Medicare make a difference in the lives of working families every day, and the conversation that should be taking place is how we can save these programs, not weaken them.

-Tanmy Dulkar

“ON A PATH TO REACH MY CAREER GOALS”

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1Rising costs of education

The cost of a college degree has gone up over the years, even at public institutions. Private institutions, of course, are more expensive to begin with. According to an NSS Report, the fee at private institutions is at least double that charged by government institutions. The rising costs of obtaining a college degree has meant that for many students the only way to finance their education is via student loans. over the years is that the numbers of students enrolled at private institutions has gone up, primarily due to the slow growth of public institutions and their physical and academic decay.

With an increase in the numbers of borrowers, there is a greater probability that more students will default on loans.

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2 Rise in student numbers

Student numbers have increased due to population growth and, more specifically, India’s demographic profile; the common belief that a college degree improves one’s life chances; and the government’s push to improve the gross enrolment ratio (GER).

The population in the age-group of 15-34 years increased from 353 million in 2001 to 430 million in 2011. Their numbers are expected to rise further, to 464 million by 2021, before declining to 458 million by 2026 At the same time, more Indians are seeking college education because they feel it improves their life chances. The government is also making efforts to nudge more young people to colleges based on the belief that their education will benefit the nation’s economy Notably, there has been a substantial increase in the numbers of first-generation and low-income students. Because of the rising costs of education, such students have to depend heavily on bank loans to earn their degrees. First-generation and low-income students perhaps contribute disproportionately to an increase in loan defaults because they are likely to borrow with unrealistic expectations about post-graduation employment opportunities. Lacking sufficient information and social networks in the knowledge sector and related areas, all they get for their money at most higher education institutions in the country is a degree that usually leaves them unemployed or at best underemployed. The end result is a loan default.

According to one study, over 71% of parents in India were willing to go into debt to finance college education of their children.

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The quality of education Student loan defaults have increased also because India’s colleges and universities add little or nothing to the skills and knowledge of students so that they end up underemployed or unemployed.

Subramanian Committee Report noted, most private institutions are nothing more than shops selling degrees: “While there are a few (institutions) which can be identified as ‘Centres of Excellence’, both in the public and private sectors, there are a large number which are mediocre, some of them could well be described as ‘degree shops’.”

India’s college education itself rests on a weak base of poor schooling. Many students who head to college are ill-prepared for the syllabus, and most colleges themselves are in no condition to do anything much Employability reports on college students and graduates present a grim picture.

According to a more recent and particularly controversial study by the same organisation, 95% of Indian engineers cannot code. the current larger scenario is not promising. Unemployed and underemployed students can hardly be expected to be able to repay their loans. And if their numbers grow, so will student loan defaults.

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The state of the Indian economy

Student loan defaults have also increased due to the state of the Indian economy. A broad consensus seems to be emerging that not enough jobs are being created. for the time being, those looking for jobs with the burden of student debt are finding the going harder. A loan default is on the cards for such job-seekers.

Authorities need to compress this spread to revive demand for goods and services, rather than focus on incentives to companies, Abhishek Lodha, managing director at Macrotech Developers, The decision to merge non-performing banks with anchor banks--those performing much better--could turn out to be a fruitless move, according to many economists who feel that it would only increase complications.

Considering that past bank mergers have not turned out the way they were envisaged, there are several doubts over the fresh move announced by Finance Minister Nirmala Sitharaman.

The government should focus on measures that will enhance bank and NBFC lending rather than further complicate the situation with bank mergers

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BANKS “Banks are looking at a value game. They are no longer interested in smaller loans lending system ..

Banks are wary of defaulters who may render the loans non-performing assets. They don’t want political parties to make educational loans an election issue. A major factor contributing to non-repayment of loans is the election promise of an education loan waiver.

“You can invoke the clause but banks don’t tell the borrowers about these clauses and students end up as defaulters.

Banks also fail to tell them that the cap for interest subsidy is ₹7.5 lakh and not for the entire loan. The students are under the impression that the entire loan will get subsidy,” Mr. Srinivasan said.

Banks want an attitudinal change among borrowers. Some gainfully employed students in foreign countries tend to forget to repay educational loans.

Bank managers say they are left with little choice but to go after the defaulters with the recovery mechanisms specified by RBI. The banks leave no stone unturned to recover these loans, branch managers add.

A senior bank official said nearly 34% of the loans given to engineering students turn non-performing assets.

All applications for education loans are now routed to the banks through the Vidya Lakshmi portal. In the past four years, banks have approved barely 42,700-odd out of 1.44 lakh-plus applications received through the portal.

A gap between what is on offer, and the borrowers’ understanding of what they are in for when they go in for an educational loan seems to be the reason for a lot of payment defaults

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Stake holders

Our stake holders have been chosen keeping in mind the impact that’s created by each directly or indirectly to the main system and its parent holder.

Bank and student palying the most active role and having the most impact. After thorough research we planned to study a little further about spending habits of each generation.

UNIVERSITIES PARENTS

STUDENT LOANS

BANKS

STUDENTS

The student loan default problem must be addressed now, not later when it may get out of hand. Fears have been expressed that the student loan default is so huge that, at the very least, it will “weaken economic growth and foster inequality” and become an obstacle for realising “broader prosperity.” Like the US, India cannot afford student loan defaults to derail its economic growth and the overall health of the economy.

ADDRESSING THE PROBLEM THROUGH YOUNGER EYES- Studying of generations

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LOOKING BACK 62% of millennials say they’re living paycheck to paycheck Millennials’ Take on Spending The Schwab study mentioned also found that regardless of some of their spending shortfalls, a majority of millennials feel secure in how they spend their money. For example, 81% of millennials felt confident in their ability to achieve their financial goals, compared to 65% of Generation X and 54% of Baby Boomers.

Overall, millennial spending habits seem to reflect the generation’s priorities: convenience, a focus on experience rather than things, and a delayed start when it comes to homeownership and starting a family.

Millennials, more than any other generation surveyed by Schwab, feel the most insecure when it comes to their finances.

Yet millennials also say they spend an average of $478 a month on “nonessential” purchases, such as dining out, entertainment, luxury items and vacations “When your financial life is in disarray, chances are, you will overspend,” she tells CNBC Make It. “Emotions around money lead us to make irrational choices.”

“Spending is not the enemy that we might think that it is,” she says. As a generation, millennials also are facing systemic financial issues that can feel overwhelming.

They generally carry more debt than previous generations did at their age, for example. One major reason for that is student loans. The number of households with student loan debt doubled from 1998 to 2016,

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Understanding genz

College has changed a great deal in the last 25 years. For one thing, we have an urgent crisis of college affordability.

Underemployment and pathways to careers are increasingly pressing issues as colleges and universities haven’t come close to keeping up with the digital skills demanded by employers. . As Gen Z reaches college age, they’re looking at the example of Millennials and contemplating whether a traditional four-year accredited college or university is the optimal path for achieving their primary goal: a good first (and probably digital) job in a growing sector of the economy.

Faster and cheaper pathways to good first jobs are poised to supplant slow, expensive bachelor’s degrees (particularly from non-selective colleges and universities) in Gen Z’s affections.

Gen Z has already been prejudiced against large upfront investments. Why buy a car when you can summon one with an app? Why subscribe to a cable bundle when you can stream individual networks and shows?

In the next decade, I expect apprenticeships of various flavors to emerge as a viable and scalable alternative to college as a first pathway to a good job in growth sectors.

These largest programs will be offered by staffing and service providers in skill-gap areas — providers that have built big businesses in sourcing, screening, and training entry-level talent.

OVER VIEW

TODAY Generation Z: the new face of financial power New data blows away generational assumptions over money as Gen Zers begin taking on the dusty might of the financial world.

And winning despite their young age.

Born in the 1990s and 2000s, though consensus on dates is scarce, these are the post-millennials, the iGeneration.

And that change comfortably includes the shape of their future wealth. They grew up during the latest recession. They learnt about the world of money as we grappled with a global financial crisis. the latest studies show these teens and early twentysomethings are already debunking the myth that the younger you are the less responsible you are with money.

Research from Zopa, for example, has found a third of them already have savings worth more than £1,000. Forty per cent of them believe saving is “fundamental” for their future.

And according to recent Financial Conduct Authority figures, Gen Zers are the least likely working-age group to have debt of any form, including overdrafts, credit cards, and loans from family and friends.

The vast majority of them check their bank balance every day, shunning physical branches and even online banking in favour of mobile apps.

As Gen Zers this year eclipse millennials to become the biggest consumer cohort globally, within 12 months they will make up 40 per cent of the global population. referred to as the change generation for their passion and desire to have a personal impact more than any other generation, notes The Share Centre.

Using their collective buying power to advocate companies and brands that reflect their values, this generation is changing the business landscape. Companies know they need to pay attention to their corporate social responsibility or risk alienating the purchasing power of Generation Z. “Launched in November 2018 the M&G Positive Impact Fund invests in companies that aim to have a positive societal impact through addressing the world’s major social and environmental challenges,” While managing your money is part math, most of it comes down to mindset, Torabi says.

1. Generation Z loves branches.

CivicScience studied consumers’ use of branches and found that Gen Zers are the heaviest users, often visiting them several times a week. This is greater than Millennials and quadruple the rate of people over 55. Why is a generation that knows smartphones, voice assistants and the Internet of Things remotely interested in going to a branch? there’s a strong correlation between feeling bad about one’s finances and visiting financial institution branches frequently, The study also probed consumers for their feelings about the feeling of “community” instilled by branches, and found that while Baby Boomers and older consumers most strongly like that, the second-highest liking for the branch as community center came from Generation Z.

“Forget Millennials, Gen Z is the new golden child. With the oldest of this cohort entering the workforce, flexing their purchasing power and shaping strong opinions of the world around them, it’s time to take this generation seriously,” Generation Z has been called many things, but homogenous is not one of them,” as Gen Z ages into the key 25-to-40-year-old sweet spot for borrowing, they will combine with Generation Y (a.k.a. the Millennials, ages 22 to 37) and could reshape the financial industry in their tech-savvy, mobile-first image.”

We want people to have good experiences in life, but the most important thing is that people find the right balance so that spending doesn’t impact their long-term financial security.” “

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A key point for banks and credit unions: Waiting for Gen Z to start working is too late to make a financial connection. Reachingout now with teen accounts for younger Z’s or fintechs and big techs will become their primary financial institution.

INSIGHT Generation Z thinks banks aren’t authentic enough which leads to minimum to no interactions.

Honest communications

Authenticity Consistency

Banks being a constitution of consistency we decided to select a sector which needed help. that was honest communications. Banks, Banks employees don’t particularly belive in immense transparency while talking. which is the base of any honest communications. Later we studied the places where honest communications take place. Few included Cafes Support groups Bedrooms , etc

In the year 2030 we speculated that there will be an insane rise in the digital sector in banking. genZ being the most tech savy gen will be all up in the technology by this time but there will be an immense need for concensual human interactions Gen Z to be the loneliest generation, with nearly half of those surveyed saying that they feel alone, isolated, left out and without anyone to talk to. Nearly 70% of Gen Zers surveyed say they feel no one knows them well — ironic given that electronically they are the most connected generation. It’s possible that the idea of a place where you can go and see other humans fills a need devices don’t.

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By 2030 there will be a line of spaces affiliated with banks that will educate the younger generation about money planning and also be an supporting pillar for generation Z to interact with employees and other loan borrowers.

03 0. . th ey ea r2 In COMPLETE DIGITAL CONTROL

RISE OF SKILLED BASED LEARNING COLLAPSING UNIVERSITIES

HIGHER LIFESTYLE

NUCLEAR FAMILIES

3RD RICHEST COUNTRY

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