Editorial. Loans to learn – The Hindu BusinessLine
The PM Vidyalaxmi Scheme for higher education, announced earlier this month, tries to ensure that meritorious students from financially disadvantaged backgrounds are not deprived of access to quality colleges. In relation to the existing guidelines on education loans, the scheme expands both the scope of concessions and subsidies (in the form of interest subvention and, significantly, loan counter-guarantees) and the number of ‘top ranking’ institutions to which these will apply.
The Vidyalaxmi scheme builds upon the existing norm of interest-free loans up to ₹4.5 lakh, by providing a 3 per cent subvention on loans up to ₹10 lakh for families with an annual income of less than ₹8 lakh. Loans up to ₹7.5 lakh will be guaranteed by the Centre. Therefore, the present norm of banks funding about 80 per cent of the education loan, while generally being flexible on collateral, is expected continue at least for loans up to ₹10-12 lakh. This package has the potential to reduce the financial burden for poor and lower middle class households, provided the institutions identified keep their charges at reasonable levels. However, the Vidyalaxmi scheme, which is expected to benefit 22 lakh students annually, raises concerns on three counts: first, whether banks, fearing NPAs, will go slow on disbursement, notwithstanding the government’s guarantee; second, whether the problem of ‘brain drain’ can be dealt with by making some changes to the scheme; and finally, whether this sort of loan-based subsidy will yield better outcomes if channelled towards primary or secondary education.
The expansion of the list of eligible top-ranked institutions from about 260 to 860, certainly improves access, but there could be some apprehensions on whether the additional 600 colleges can secure students jobs that ensure loan repayment. These fears may translate into banks turning risk averse, reducing the loans as well as their exposure. At present, banks’ education loan NPAs are not threatening. The June 2024 Financial Stability Report pegs it at 3.6 per cent. Banks would like to keep it that way. This issue can be addressed by fine-tuning some of the incentives in favour of technical subjects. This may create better employment outcomes.
On ‘brain drain’, or students leaving the country, a few options could be explored. Making students sign a bond not to leave the country for a certain period is a common global practice, but it seems a tad unfair, and hard to enforce. Instead, those who opt to go abroad should be made to make good the loan subsidy and the forego the benefit of the moratorium period. Finally, the efforts to create a more skilled workforce should begin at schools. The South East Asian ‘Tiger’ economies have reaped the benefits of high public investments in primary and secondary education. Investments at the base of the pyramid, with loan inducements for a range of skilling programmes at the secondary level, can create a workforce with diversified abilities.
