However, from the banks' side, education loan falls under 'unsecured loans' category. That is, they do not have any collateral security unlike housing loan where the house (and land) is the collateral security.
It is the experience of banking industry that education loans have a high percentage of default in comparison to other loans. There are many practical issues banks face in education loan. Though people are eager and sincere at the time of availing loans, by and by, they 'forget' about the loan. As there is no EMI remittance during the education period and there is not frequent contact with the borrowers, by the time the loan is due for repayment, banks may not have the latest whereabouts of the borrower also. As there is no collateral security, banks find it very difficult to recover such defaulted education loans. In the case of educational loans without security bankers (especially public sector bankers) find themselves between devil and deep sea.
Personally I feel that the education loan scheme has to be thoroughly remodelled so that deserving students get loans at affordable interest rates and repayment, and at same time they are bound suitably to pay back on time without default. It needs thorough reworking.
As the general financial culture is trending towards a scenario that defaulters are encouraged or benefitted, I have my own doubts in this regard.
K Mohan @ Moga
'Idhuvum Kadandhu Pogum "
Even this challenging situation would ease
No life without Sun
Knowledge is power.