Pros and Cons of Education Loan?

Higher education is desired by everyone. An excellent college and university degree somewhat assures a good career and resultant financial well-being for the future.

Despite inherent advantages of superior education, a growing number of students find themselves stonewalled due to lack of finances. Shortage of funds to pursue higher studies usually occurs due to economic stature of a student’s family.

Relatively affluent families may lack spare income to pay exorbitant fees demanded by reputed colleges and universities. Educational loans are lifesavers for such students. Yet, a wrong move can land a family in financial doldrums and spell doom for a chosen career.
Understanding education loans

education loan

Educational loan is offered by banks and other established lenders. It covers annual fees payable, entrance and exam fees to the educational institute for duration of the course.

The loan includes expenses on books and study material. For studying abroad, an education loan may cover a student’s living expenses such as hostel fees.

Banks offer an educational loan based upon academic record of a student. They verify if the student is brilliant and has an aptitude for the chosen study course. An education loan is exclusively for higher studies.

Diverting the loaned amount for any other purpose, however pressing or sacrosanct, is not allowed. Banks charge processing fees and other charges from loan applicants.

You can apply for education loan before getting admission to a college or university, to include as ‘Proof of Funds’. Or you can apply for the loan after getting confirmed seat for your course at the college or university. Education loans are given to students seeking higher studies in select institutions only.

In India, education loans are available for studying in over 100 colleges, universities and institutes approved by University Grants Commission (UGC), All India Council for Technical Education (AICTE) and Indian Medical Council (IMC). You can check Vidya Lakshmi to find information & apply for the loan.

For studies abroad, job-oriented professional graduate and post-graduate courses like MCA, MBA, MS, courses conducted by CIMA – London, CPA – USA are eligible for education loan.

Refer:-

A Guide for Education Loan in India
Apply Loan through Vidya Lakshmi

Amount of education loan

The sum of money you can borrow to fund education ranges between Rs.50,000 and Rs.1,000,000 for studies in India. For studies abroad, you can borrow up to a maximum of Rs.5,000,000. Amount disbursed varies per bank.

Educational loans come with a payment moratorium. Repayment is by Equated Monthly Instalments (EMIs) commences after the course is completed. Loans are of five to seven years duration, but can be extended at the bank’s discretion.

Interest rates vary from 7.5 percent to 10 percent per annum. Some lenders credit the loan amount to the borrower’s bank account. Others pay the educational institute directly, during span of the study.

Loans below Rs.400,000: No guarantor
Loans between Rs.400,000 and Rs.1,000,000: Guarantor/s required. Guarantors should have sound credit record.
Loans above Rs.10,00,000: Guarantor required. Borrowers are also required to furnish collaterals such as plot of land, house or jewellery or other items accepted by banks.

Terms and conditions to avail education loan, amounts given differ with banks. It is advisable to check with your preferred bank/ lender about their rules governing education loans.
Who should avail an education loan

A loan is money spent before earning. Education loan is no different. It is an amount of money borrowed by a student. Parents are co-borrowers or guarantors. The loan is repaid with an interest, which makes the repaid amount higher.

For example, you will pay EMI Rs. 21,370 on education loan of Rs.1,000,000 for a duration of five years with 10.25 percent interest and two percent service fees. Meaning, you will pay a total Rs.1,302,215 to lender. Bigger loans require tangible collaterals. Opting for education loan is thus advisable for’

Students whose parents can easily afford the EMI.
Parents who can offer ‘tangible’ collateral specified by the bank such as land or house that are not mortgaged to any other entity and gold, among others.
Students hopeful of earning monthly income in excess of EMI.

Staying within these parameters is vital. Students will usually experience waiting period from graduation to earning. Freshly employed graduates might not immediately earn incomes that can bear the education loan burden.
Reality check on education, loans

India’s Vice President, Dr. Mohammad Hamid Ansari, in a recent speech lamented:

“Almost 59 per cent of students in higher education are enrolled in private institutions. While some of these maintain high standards, a majority are lucrative degree-granting portals where infrastructure is not adequate and admission procedure is not transparent.”

Expressing concern over the lack of research and heavy financial burden on parents due to educational loans, the vice president had warned.

According to the finance ministry data, by December 2014, some 30 lakh students availed of educational loans totalling Rs.70,475 crore. Or about Rs.234,000 per student.
Beware of what you study

In recent years, mushrooming private colleges and universities is churning out more graduates in specialized fields. Traditional favourite streams of study- engineering, medicine and management studies continue to rule high despite low demand.

Indian Medical Council estimates over 200,000 qualified physicians countrywide are languishing sans employment. Medical colleges in India churn out some 50,000 doctors annually.

All India Council for Technical Education reports, 60 percent of the one million engineers who graduate every year, go unemployed. Of the nearly 350,000 Master of Business Administration degree holders from government and private universities, a measly seven to 10 percent find employment.

Those who get jobs find themselves getting paid poorly- about Rs.10,000 per month, a study conducted in 2016 by the Associated Chambers of Commerce and Industry of India, revealed.

Before rushing to take education loan from a bank, consider above facts. Courses mentioned are expensive and a wrong move can cause immense hardships to student and parents.
Problems faced by education loan

Every loan has intrinsic drawbacks. In the unfortunate event of being unable to service an education loan- meaning pay regular EMIs, you can face immense problems. These may prove detrimental to futures of family and student.
A poor credit score

Nowadays banks, lenders look at credit ratings of individuals before advancing a loan. Education loan dents your credit ratings by some degree. Your prospects of a future loan to buy office or home can be severely marred.
Heavy penal interest

A missed EMI also attracts interest. You may end up paying much higher in repayment to the lender than initially planned, adding to overall cost of education.
Financial hardships

Your parents may be forced to cough up stiff EMI amounts should you fail to get a job that buffers this monthly expense. While education loans are availed for a good purpose, they can soon become a bane.
Dropping out

The bank reserves the right to charge you interest for the full loan amount. Should you drop out of a college or university- lenders will levy service charges and other fees for cancelling the loan.
Abrogation of the loan

Several genuine reasons may force you to default on the loan. The bank reserves rights to cancel your loan and seek full and immediate repayment of the outstanding amount.
Inability to buy essential goods

Educational loan may force you to postpone or abandon plans to buy a bike or vehicle that could be essential to commute between home and college.
Bad rating of college/ university

Your education loan may go waste if the degree earned has no standing in employment market. As pointed out earlier, some universities are “mere degree granting portals.”
Inability to change course

Education loans are given to study at specific universities. Options to change university or course, becomes restricted when studying on education loan.
Options to avoid education loans

Several available options can be exercised to avoid taking education loans.

Scholarship: Higher education colleges and universities offer full or partial scholarships to meritorious students. This helps you to study almost free. Apply for these before approaching a bank for education loan.
Government grants: Central and state governments of India offer several grants and schemes that waive fees or help students pay lesser.
Community schemes: Organizations of various ethnic communities provide scholarships and grants to students from their clan. These all-inclusive scholarships are a great way to avoid education loans.
Earn and learn: Earning and paying for your studies is an option offered by several educational institutes. They offer evening and night classes for such students.

Earning for EMIs

When taking education loan becomes imminent, you can help buffer the EMI burden by working. This enables you to settle a major chunk of the borrowed amount before completing the course.

Proper loan servicing results in great credit ratings.It also helps circumvent any financial hardships you may face later. Working also helps acquire soft skills vital to study or future profession.

The flip side however is, your job may take precedence over studies, leaving you little time to earn the coveted degree.
Physical and mental health

Studies indicate, education loans play havoc on student’s physical and mental health for various reasons. EMIs also mean your family cuts expenses on certain things. This causes a cascade effect on students and their family.

The family comes under financial duress. Students are driven to score high at exams- either through genuine studies or stressful memorizing only to pass.
Posted in Education and tagged education loAN.

Higher education in India: Issues and Challenges

Higher education in India: Issues and Challenges

If India has to become an economic power then it has to focus on education.

Government has to focus on both form of education higher and primary.

In this article we are focusing on Higher Education.

higher-education-india

However focusing on higher education does not mean I am belittling the need of primary education.

Both are relevant and both have importance if country has to be changed holistically.

In coming paragraph we will be debating the difference between higher education and primary education.

How both are different and one can’t replace each other. Later we talk about issues and challenges related to Higher Education only.
Higher Education Vs Primary Education

Before we debate about issues and challenges related to higher education we need to understand primary education is more important than higher education.

Why am I saying so?

India’s number one challenge is poverty, we have to lift millions of people out of poverty and we can’t do it unless we focus on primary education.

Primary education starts from Class 1st when child is 5 years old. Primary education does not only mean a classroom, books and a teacher (that is bare minimum) but nutrition, clothes and creating an environment where a child can learn new things every day, an environment that can help in bringing out best within a child.

Infrastructure like chair, table, books, stationery, a classroom and teachers is bare minimum that any government could provide.

They need to do more than that like teaching children how they can imagine and bring out their inner talent that they can use later in their life.

If we have to bring people out of poverty then we need social mobility and social mobility can’t be achieved unless we focus on primary education and health.

However on the other hand higher education does not solve this problem.

Higher education starts when you come out of high school or 10+2.

So if child is 5 years old and live in a family which is below poverty line then the child needs primary education not higher education.

Therefore if government is spending only on higher education that is not going to change the status of child because higher education is all about colleges. And by the time the child living in a family below poverty line reaches the age of 16 his or her mind has already been shaped.

So it is of no use if the government is spending on higher education.

That is the difference between importance of higher and primary education.
State of Higher Education in India

State of Higher education in India is in between good and bad. I mean in a nutshell to say neither it is good nor it is that bad.

So in this paragraph we shall talk about number of universities, colleges, number of teachers & professors and students enrolled.

In the year 2014 India has over 670 universities, at least 38,000 colleges, 817000 professors and teachers and over 28000,000 students enrolled.

There is growth in numbers of colleges, universities, students and teachers year after year.

Different students apply for different courses. Like there are over 14,000,0000 students applied for graduates courses all over the country.

For post graduate there are over 20490000 students enrolled.

For research around 1370000 and for diploma over 1710000 students enrolled in the year 2014.

Now we should also look at the budget issue. How much government of India is allocating for education.

In the year 2014 the government of India spent over Rs 65,000 Crore. This amount is 17% more than the last in 2013.

The department of Higher education has allocated Over Rs 16,000 crore which is 20% hike from last year.

Similarly government has allocated Rs 24,00 Crore for IITs, Rs 1300 for NIT’s, and Rs 350 Crore to IIM’s this year.

So this sums up the state of higher education in India.
Issues with Higher Education in India

Let us talk about some of the issues related to higher education in India.
Teaching Qualityquality_teaching

The first issue that higher education in India is facing is decreasing teaching quality. Teachers are not well trained and qualified for the job they are assigned to.

Some colleges recruit young graduates as professors who have no experience or knowledge. So this is a big problem.
FinancingFinancing

Financing is also an issue with higher education in India. Yes India is already spending very much on higher education and it can’t spend more.

However if the quality of higher education has to be improved then more financing is needed.
Privatization

Privatization is also a big problem that higher education faces.

Privatization

Privatization of higher education is the way to go. However just privatization is not going to solve the problem.

You need to foster the culture of creativity, imagination and learning new skills in young students.
Quota System

Debating quota system is very controversial. But if you are being honest then I must tell you quota is not good for the quality of higher education.

Talent and merit is more important than your identity. However quota system is still a challenge.
Political Factor

Political influence is also a bad thing and an issue with higher education. Governing bodies do not want any political influence or interference in their affairs.
Moral Issues

Younger generation is not interested in serving their country and they are more interested in just taking up a job and a hefty pay package.
Problems with Higher Education in India

So above we discussed issues that higher education is facing. Now we shall debate about some of the serious challenges that higher education is facing.
1. Gap in Supply and Demand

India’s gross enrollment rate (GER) is just 19% which is not good. GER is 6% below the world average and at least 50% lesser than developed world like Australia and US.

This has to change if we have to really improve state of higher education in India.
2. Mushrooming of Low Quality Institutes

Mushrooming of low quality institutes all over the country is not good for higher education. These new colleges lack capacity and they are all about fleecing money from students and their parents.

There is too much glamour and less quality of education.
3. No Project Based Learning

Higher education lack project based learning. Young graduates need to learn new skills especially vocational skills that can give them job.

So we are not focusing on project based learning at all. Just theory is not enough, we also need practical knowledge is also.
4. No Strategy

There is no strategy for higher education in India. We don’t have foreign students coming to the country and studying here.

Government has no plan for this and this is a big challenge.
5. Why Only Servicing Industry?

We are obsessed with servicing industry. We all want to get selected in campus selection so we love jobs in servicing sector only.

However higher education does not solve the problem when it comes to creating jobs in manufacturing sector. That is a big problem.
Conclusion

Finally I will conclude by saying for any country both primary and higher education are needed.

Primary education has its own importance just like higher education has its own importance.

However higher education is very important for growing our economy. Higher education in India has many challenges and issues.

We need to talk about them and highlight so that government can resolve such issues.

Concise guide for educational loan in India

A Concise Guid
SureJob
A Concise Guide for a Education Loan for Students in India
December 1, 2014 | 0

Higher education in India is getting very expensive. If you want to do medical or engineering from a decent college then you need a huge amount of money.

For example a five years MBBS course could cost you over Rs 1 Crore, similarly engineering for one semester it is around Rs 70,000 or more.

It is quite possible that many parents in India cannot afford this luxury. They simply do not have money to pay for. Hence, they have no choice but go for an education loan.

In this article we shall look at how you can get education loan to complete your higher education.
What is an Education Loan and Why You Need Them?

Education loan is a special purpose loan that covers special charges related to funding your higher education by a bank.

Education Loan India

Following things an education loan can cover for your higher education.

A Payable Fees to College and Hostel
Examination Fees
Laboratory Fees
Caution and Refundable Deposits
Books, Uniforms, Instruments and other Equipments
Travel Expenses
Computers and other Gadgets
Study Tour, Project Work etc

So these were few expenses that an education loan can pay for. Although there are many others but we mentioned important one.

Eligibility Criteria for Getting a Loan in India

Here in this section we shall debate about basic eligibility criteria for getting an education loan.

Age Criteria: If you are over 16 years and less than 30 years old then you could be eligible for educational loan in India.

Loan Amount: Loan amount could differ because of various factors like kind of courses you choose and you are studying in India or abroad.

Kinds of Courses: If you are going for management courses like MBA, engineering, medical etc then you need higher amount because cost of the course is high and chance of employability is greater. Other hand courses like MA, BA, or B.Sc cost less.

India or Abroad: If you want to study in India then loan amount is less but if you want to study abroad the expenditure is higher.
Loan Amount

Loan Amount in India could be Rs 10 to 12 lakhs and the loan Amount for studying abroad can be Rs 20 to Rs 50 lakhs depending upon course.
What You Need to Get Education Loans?

In this section we will see what all you need to get an education loan. We look at things like courses, Institutes, documents, assets and other things.

Let us see them one by one.

Courses: You must go for certain courses if you want a loan.

Graduation Courses: BA, B.Com, B.SC, M.SC, MA etc
Post Graduation Courses: Masters and PhD
Professional Courses: Medical, Management, Engineering, Agriculture, Law, Dental, Computers etc.

Institutes: You must be studying in following institutes.

Courses offered in Institutes must be certified or approved by UGC university grants commission, AICTE, AIMBS and ICMR
Courses must be offered in Institutes like IIT, IIM, IISc, NIFT, Regional Institutes etc.

Documents Required for Getting an Education Loan: Now you know about the courses and institutes that you need to study in it is time to collect all the documents required for getting a quick loan. You need to submit these documents in the bank.

1. Mark Sheet of the last examination you qualified like 10+2. For proof of age you need matriculation certificate.

2. Admission letter from the University or Institute you want to study

3. Now you need a letter from your university mentioning the tuition fees, semester or year wise, cost of living like hostel and number of years you want to study.

4. You need two passport size photos

5. Bank Account statement for at least 6 months.

6. Income Tax Record for last 2 years

So these were some documents you need. For security you need other documents related to your assets. We discuss this in next paragraph.

For Security Tell Your Assets: Now for loan you need to submit liabilities and assets as security. For statement of liabilities and assets you need.

1. Land Agreement of the House, valuation report of the house

2. Legal Opinion to show that your property has no legal issues

3. Any other asset equal to loan amount, documents must be submitted to banks.

4. Up To 4 Lakhs – No Security, Above 4 Lakhs and Less than 7.5 Lakhs – Collateral in the form of third party, Above 7.5 Lakhs – Obligation of parents, third party guarantee.

So for collateral or security you need to have documents mentioned above.

Transferring Amount to the University: After submitting your security and other statements bank may approve the loan amount.

You can ask your bank to transfer the money to your university account or ask the bank to give a Demand Draft in favor of your college.

You need to ask for two demand drafts.

1. First one is for the college fees in favor of your university.

2. Second is for your personal expenses like hostel fees etc

If they give one Demand Draft then it becomes very difficult for students because they do not get their part of money other than college fees. Hence always ask for two separate DDs or traveller check.

How do you Repay Your Loans to the Bank?

Now your loan amount is sanctioned by the bank and you have also deposited to your college. Now you need to complete the college and repay your entire amount with the interest rates.

Usually repayment of loans starts after 1 year or six months of your course completion once you are employed.
The time period for repaying your college amount can be 6 to 7 years and in some cases banks are generous to increase the tenure.
The repayment tenure also comes with a moratorium period.

You need to get a good job in case you want to pay your college debt or loan.

So this was a concise guide for educational loan in India.

Inclusive Education in North East India

Inclusive Education in North East India
With the adoption of the Salamanca Statement in 1994 (UNESCO) a large number of developing countries have reformulated their policies to promote the inclusion of Child with Special Needs (CWSN) into mainstream schools.
Though a large number of developed countries like USA, Canada. Australia, have policies/laws for promotion of “inclusive education,” despite developing countries like India continue to provide educa­tion to CWSN in “segregated schools” till recent times.
Inclusive Education India
Background of Inclusive Education in India:
The Kothari Commission, 1964, recommended for sending the CWSN in the mainstream school. Through the Integrated Education of Disabled Child (IEDC) Scheme, Government of India made an attempt for “integrated education” of CWSN in 1974.
Thus the rights of the children between the ages of 6-14 for the edu­cation were ensured. The IEDC Scheme was designed to promote the integration of students with mild to moderate disabilities into reg­ular schools.
Further it stressed for the retention of CWSN in the regular school system. The National Policy on Education 1986 continued the spir­it of IEDC Scheme and stated” mild disabilities should be included in the mainstream classroom”.
However the IEDC scheme was to be revised in 1992 due to some shortcomings in the scheme. Under the revised scheme. 100% assistance was made available to schools involved in the “integra­tion” of students with disabilities.
Further section 26 of the Person with Disabilities (Equal Opportunities, Protection of Rights & Full Participation) Act, 1995 suggested for providing free education to CWSN and thus made an another attempt to promote for their inclusive educa­tion.
The Scheme of Inclusive Education for Disabled at Secondary Stage (IEDSS) was launched in 2009-2010 by Government of India enabling all students with disabilities for completing sec­ondary schooling (classes IX to XII) in an inclusive environment. This scheme replaced the IEDC Scheme. However the IEDSS was subsumed under Rastriya Madhyamik Sikshya Abhiyan (RMSA) since 2013.
Present scenario of Inclusive Education in North East India:
There are 2, 68. 10.557 Persons with Disabilities (PWDs) in India as per census 2011, constituting 2.21% of total population. The enrolment of CWSN in the mainstream schools of North Eastern region is as follows:
SI. No. Name of the State PWD of Age Group 5-9 years PWD of Age Group 10-19 years No.  of schools for Inclusive Education Enrolment of PWD by 2013-2014
1 Assam 35.211 76.681 1.256 5.030
2 Arunachal Pradesh 2.082 5.026 92 598
3 Nagaland 1,937 4.631 58 322
4 Manipur 3,973 9,107 147 560
5 Mizoram 988 2219 216 809
6 Tripura 4,114 9.764 287 708
7 Meghalaya 4,459 9,624 65 148
8 Sikkim 716 2,014 34 68
Sources: Census Report 2011 & RMSA. Ministry of Human Resources. Govt. of India Reports.
The Government of India has approved to cover 2.11.616 CWSN under the IEDSS Scheme in the year 2014-2015 out of which 46.122
from North East. Since the PWD Act 1995 advocates for free education of CWSN up-to the age of 18 years hence the age groups from 5-9 and 10-19 have been considered in this write up.
The non-availability of sufficient qualified professionals for the evaluation of PWDs in North East has badly effected the enu­meration of PWDs in the region. Thus it has become very difficult to quantify how many PWDs in the age groups of 5-9 years and 10- 19 years are actually mild, moderate or profound.
Challenges to the inclusive education system:
Lack of trained personnel and of flexi curriculum: The majority of school employees are not trained to design and implement educational programs for CWSN in regular schools. Evidences reveal that all the states of North East do not have sufficient trained/qualified person­nel to teach CWSN. Further the non-flexi “curriculum and evaluation method” is also found to be a challenge to the system.
Removal of architectural barrier: Though provisions have been made under the PWD Act 1995 for creation of architectural barrier free environment for the PWDs. those are hardly executed in full in most part and it has adverse affect on the integration of CWSN in the regular education system.
Poverty: A large number of CWSN live in families with income below poverty. The combination of poverty and disability results in a condition of Immediate deprivation” which sets up challenges to the participation of CWSN in regular schooling.
Attitudes: The prejudice mind setup of the parents of the non-disabled Childs that disability is disease and it can be spread to their child if mix up with CWSN is a major hurdle in the process.
How to overcome these challenges
Training of teachers: Effective training on disabilities has to be provided to the teachers to make the inclusive education system success. The Rehabilitation Council of India (RCI) who is responsible for the cre­ation of human resources in the field of dis­abilities needs to adopt a policy for training of at least one teacher from each school. The provision for appointment of Special Educators in the ratio of 1: 5 under IEDSS should be implemented soon.
Collaboration between different min­istries: As different ministries are entrust­ed with the responsibilities of implement­ing different schemes/policies hence a better coordination among the different ministries will certainly help in achieving desired goals.
Channelizing NGO’s in implementing inclusive education programs: Government departments has limitations in execution of certain programs under certain conditions. The involvement of
NGOs will certainly be very instrumental in such situation.
Role of university: Universities may be used in designing curriculums which may help in changing the attitudes of people towards PWDs. As a large number of teachers will be required to make the pro­grams success, distance mode of education may be used. Further flexi “curriculum and evaluation” system may be designed con­sidering the needs of CWSN.
Conclusion
With the implementation of The Persons with Disabilities Act in 1995, Rights of Children to Free and Compulsory Education (RTE) Act 2009 and the adop­tion of National Policies for Person with disabilities, 2006 and the National Policy for Children 2013, the inclusive education has started gaining momentum. However the success of the inclusive education system will depend on how educators and educational systems work together.

Top 5 Challenges in Primary Education in India

Top 5 Challenges in Primary Education in India

In India major challenges in education sector lies in the rural areas. Still Indian rural areas don’t get the high quality primary education and they lack many further opportunities.

After 60 years of independence still the quality of Indian education is not changed. 70% of Indians stay in rural areas and are still unaware about the importance of the education. India has lower literacy rate than the other countries.

According to Annual Status of Education Report (ASER) 2012 only half of the children of class fifth can read the text of class second.

According to census 2011 India’s literacy level has reached 74.04% in past 10 years.

Here are some of the Top 5 Challenges in Primary Education in India
Inadequate inputs:

The biggest challenge Indian Schools is facing of inadequate inputs. In most of the states, there is a shortage of quality teachers. Even the teacher are lacking for the professional training programs. If the teachers are properly trained then they can help students also.

The less qualified teachers affect the level of teaching. Teaching profession in India is less attracted, either people with less education, living below poverty line or some having it as a hobby take the teaching profession.

The demand for teachers is more and the supply less. Still many schools face the problem of lack of infrastructure. Even today Indian schools are not maintaining the standard of education.

Teacher comes to class, teaches student the curriculum, the bright students are able to understand the subject. But what about the students who just comes to school and pick up the teachers level of teaching.

They remain back and continue twice or thrice or leave the school forever. The rate of dropout students is also high they leave the school before completing their primary education. School should take some initiatives for the students who require extra help.
Higher Education cost

Some parent can’t afford the school education fees even if they are living in the remote area or in city. 70% Indians live in rural areas and find it difficult to afford the education fees. Many Indians are living below the poverty line.
Quality of Education

All over India the quality of primary education is not maintained. There is lack of discipline, punctuality and motivation in primary education.

Students don’t get proper & complete education from schools so parents opt for the private tuition and this puts more pressure on the students.

Students in fourth grade are hardly able to read the paragraph and they are not up to their school level.
Literacy Rate

In India every state has different languages, different customs and different culture. In some societies education for the women is not considered as an important.

This keeps the children also away from the benefits of education. If the mother is educated definitely the children also gets the proper education. Children get less motivation from the illiterate parents and they remain back.

People living below the poverty line take their children to their work place so that they can earn daily wages for their parents. Indian schools should start some initiatives to teach the illiterate adults also.
Language issue

There are 1500 languages in India and it’s a difficult task for a teacher to teach every student in their own language. In urban areas parents prefer English medium for their children’s education, also now a days in remote areas English medium is preferred.

This is big challenge for the teachers to teach and to students to grasp the knowledge. Due to this the parents and children’s fail to understand.

Many Educational Instructors think that if an education is given in mother tongue to every student it benefits the students.

To achieve complete literacy in India government should take some more initiative. Government should generate more awareness among people about the importance of education. Then only India will have a different face.

Future of Online Education in India

The advanced technology is playing an important role in every field. This advanced technology has also changed the way of education. Online Education is better than the traditional classroom teaching. The future of online education is very bright in India.

People in India are moving towards the online education due to the convenience, affordable cost and the quality education and also now government is promoting the online education. In coming years still there will be a growth in the online education market.

future of online education

Indians are accepting this new medium of learning. Online education is also known as e-learning. Online education has a great scope and all those having time limitations are turning towards it. Many top universities, organizations and the colleges are accepting the online education system.

Refer – Advantages and Disadvantages of Distance Education

Online Education is affordable for students and also flexible as they can learn from their comfort place. Online education has no age bar and anyone can do the course from anywhere.

According to the recent survey after United States, India is the second highest country for the online enrolment courses all over the world. Online education in Indian schools can enhance the quality of the education.

United States have started providing the online education to the Secondary School and they are finding it as effective. Many foreign universities are offering the online degrees so no need to go to the abroad for further education.

Many top Indian universities like Sikkim Manipal, Symbiosis, IIM, IGNOU and Annamalai University are offering online distance education. They offer courses like MCA, MBA, MSc, BA (Hons),

Retail & Digital Marketing, BBA etc. The fees of these online courses are affordable for students. Online education saves money on the lectures & conferences. Also they conduct online exams time to time.

Classroom education is not suitable for everyone as in classroom there are some students whose grasping power is high and there are some who are always back. Also some students require more detailed information in classroom education, but not possible.

But in online education students can get more detailed information and also can concentrate. In classroom education teacher can’t give personal attention to each and every student. In classroom education not all students are active, some are energetic but some just sit back.

Classroom education has a limitation on the number of students, but for online education thousands can enroll for a course. For online education there is no need to stand in a queue to get an admission.

All those working professionals or a business professional who wants to do a professional course or wants to study further to improve their skills can enroll for the online education.

Online education is getting more popular in the working professional as they don’t have the time to attend the regular classes. It’s best option for them. They can enroll for online course for any time of the day.

Advantages of Online Education

Advanced teaching techniques are used to teach
Convenient
Affordable fees
Can choose the class timing as per your timing
More Revision
Saves Time & Saves Money [ No Travelling] More concentration and less disturbances
Video presentations helps students to understand quickly
From last 2 to 3 years the online education has changed the quality of education and is far better than earlier. There are some online education service providers in market who are providing the education at free of cost.

Seeing the increasing demand for the online education, many business competitors are entering this market. But all those providing the quality education will only survive in future.

Also there may be still more various courses in online education and with lots of options. The demand of the online education will create more employment for the lecturers in the future.

Still Indian parents are not finding the online education as more important than the classroom education. Government should create more awareness to change the trend.

How Much is the Cost of Education in India

How Much is the Cost of Education in India

Do you want your child’s admission in kinder garden? Or You have a child waiting to go Primary or Secondary school? Or He/she is young enough to join a bachelor degree course in a College. You might be a parent of any these aforementioned child or children. So what you have to consider first when you have a child ready to get admitted in a school or a college?

Well! I can surely say that it would be the cost of admission. Both the monthly fees and other miscellaneous expenditure related to it. Thus, in this article we will talk about issues related to education in India.

cost_of_education_in_India

How Parents Think Regarding Their Child’s Education?
Before I talk about the cost of education in India, let us first debate what parents think regarding their child’s education particularly in India. I mean, how they take education of their children. According to my personal experience, normally parents are very serious when it comes to education and career of their children.

It is a fact that most of parents in India take education as their first priority. Parents would spend less on everything else but they would never comprise on child’s education. Many parents even go to an extent that they would go hungry but still pay the monthly fees for the child. Hence, we can conclude that parents in India are really serious about their child’s future.

Why Cost is So High in India?
We all know cost of education in India is very high and it is soaring. It is a fact that still a large number of populations in our country cannot afford even primary education. Forget about the higher education.

The reason for this is very simple. Government still lacks a policy where it can regulate the private schools and colleges in a way that would guarantee that every child in India gets free and quality education. Moreover, there has been little done when it comes to physical and intellectual infrastructure.

Physical means lack of spacious classrooms and inadequate furniture. Children have to sit on ground. Intellectual means manpower to teach our children. A teacher to student’s ratio is very high and teachers are also not well trained. Then in government schools we see a trend that teachers do not teach in their regular classes and take tuition after the school is over.

Hence it means if you want to get quality teaching then you have to pay an extra money for tuition along with school fees. These things make education high in India.

Education in Private Sector vs. Government Sector
If we compare both, education given in private sector versus education in government sector then which one is good for you. Education in private schools is normally good but they are very costly.

Even fees for kinder garden are so high then you can imagine for higher education in private colleges. On the other hand, in government schools and colleges fees are very less but quality of education is surely comprised.

You will find teachers do not come to their classes because there is no accountability. Therefore, it simply means if parents have money then they opt for private schools for education and if they do not then they have no choice and send children to a nearby government school.

Cost for Primary, Secondary and Higher Education in India
Here, let me give you some figures. First is cost of getting admission in kinder garden and primary school. A private school can cost you around Rs 1500/- to Rs 2000/- per month for a child. You have to pay extra for initial deposit and it could run into lakhs of rupees.

In government school monthly fees could be 6 to 7 times less than a private school. Second is for secondary and high school. Again in private school a child can cost Rs 3000/ to Rs 4000/- per month. In a government school it could be Rs 1000/- to Rs 1500/-. Third is higher education for colleges.

Well! It could cover many disciplines like Medical, Engineering, dental, MBA etc. An engineering college course for one semester could cost Rs 50,000/- to Rs 70,000/-. A MBBS degree can cost Rs 10, 00000 to Rs 2000000/- Similarly, post graduation course like MBA could also cost in lakhs. Higher education is normally given in private institutes. There are few such government institutes where fees are relatively less.

Cost of Education in India Compared to Abroad
When we compare cost of education in India and abroad then it depends upon the courses you choose. Some courses which not available in India could cost you huge amount of money in countries like USA and UK. Courses which are readily available here do not cost much abroad because students would not like to go there.

Hence it depends upon availability of course by course. But one advantage in studying here is that you do not have to work while going to college. Abroad, you have to work because you do not have enough money to pay fees and your monthly expenditures. Hence, overall cost of education in India is less than compared to abroad.

What are Options to cut-down the Cost of Education?
As a parent your main concern should be how you can cut-down the cost of education for your child. The best way to cut-down education cost could be taking loans.

Today many banks whether government or private offer plans and scheme for child’s education. Private Banks like HDFC, ICICI etc have some great packages for child loans. You can go to their website and start learning about various loans.

As a parent you should prepare from now on if you want to give your child best education.

How to Shape Your Future Without Much of Formal Education
Finally, there is a way out if you really cannot afford education for your child. Schools and colleges are ways to impart formal education in your children. You could prepare your child for a future where he or she would require less of a formal education.

I simply mean to say starting something on your own. It could be a small business where formal education does not play any role. Here your child would need more of a real life experience rather formal education.

Hence, you could choose a career for a child that does not require much of a formal education so that you could save lakhs of rupees from spending on higher education.

Warning: Parents with 2+ children who’ll go to uni, SAVE NOW, the system’s biased against you

The entire premise of our current student finance system is supposed to be “you don’t need cash to pay upfront to go to university!” Yet these days that’s simply not true.  Many parents, especially those with more than one child, will need a war chest of possibly £10,000s.

This isn’t about tuition fees. University fees are automatically paid for you by The Student Loans Company – and you only repay once you leave, and then only provided you earn enough.

In practical terms they works less like a debt, more like a tax, as after graduation most simply repay 9% of everything earned above £21,000 (soon to rise to £25,000) for 30 years. This is supposed to be, financially at least, a no-win-no-fee higher education. For a full explanation see my 20+ Student Loan Mythbusters guide.

So tuition costs aren’t a practical barrier for students, they’re a cost for graduates. The real practical problem is the university costs the State won’t cover – and especially how that impacts parents with more than one child.

To understand the problem with having more than one child at uni, you need to understand the basics first, so let me speedily bash out a step-by-step …

Problem 1: Living loans are now heavily means tested

Student are entitled to a maintenance loan to cover living costs – which is then added together with the tuition fee loan – and all are repaid on the same terms as above.
Yet while every first time UK undergraduate is entitled to the full tuition fee loan, the amount given for maintenance is means tested – and the means tested proportion has increased substantially in recent years from a third to over a half.

Problem 2: The means testing usually depends on parental income 

Even though they are adults, old enough to vote, get married or even fight and die for our country, most under 25s are considered ‘dependent’. So means testing is based on household, in other words parental, income.

This means testing start for those with family income of just £25,000 – way less than average income for a family with two working adults. And it maxes out on earnings of roughly £60,000 to £70,000 depending whether the student lives at home or away – at that point the amount of loan given is roughly halved.

Problem 3: The missing amount is the parental contribution – but parents aren’t told

The gap between the full loan and what the student receive is the ‘parental contribution’ (not officially – but as it solely dependent on parental means testing – it’s self-evident).  Yet disgracefully this is never spelled out to parents.

wrote to the University Minister asking it to be transparent and communicate this properly, but he replied and said no. And repeated that again when I publically debated him on it a few days ago. So as the government won’t help, you’ll need to work it out yourself. The maximum annual living loans for this year’s NEW starters are…

– Living at home: £7,097
– Living away from home: £8,430
– Living away from home (London): £11,002.

To work out your parental contribution subtract the loan you get from this. See my full parental contribution guide for full help and numbers on previous years.

Of course knowing the parental contribution doesn’t make it affordable – but at least you’re aware of the gap. And ‘dependent’ students should ensure they at least have the discussion with their parents.

If parents can’t or won’t cough up, their offspring have no way to force their parents to contribute. You can only be assessed independently if you’re over 25 or have financially supported yourself for 3+ years, have no living parents or are caring for a child.

Problem 4: Even the maximum loan isn’t enough

Often parents come up to me on my TV roadshows and say “it’s outrageous my daughter’s halls cost alone is £7,000 and her loan is only £6,000!” The first thing I do is explain the hidden parental contribution system and they’re surprised.

Yet even then, at the level of the full loan, I hear more and more reports that the living allowance simply doesn’t cover basic costs. And that means those on courses with long hours, who can’t work, are in trouble.

So with the cost of living increasing, bizarrely the biggest practical problem with student loans isn’t what you often hear, that they’re too big, it’s that they’re not big enough.

Problem 5 – It’s far worse the more children you have

The means testing of maintenance loans in strict terms depends on what’s called household ‘residual’ income. This is defined as income…

  • Before tax
  • After any pension contributions
  • After allowances for other dependent children

To find the key info of what allowances are made for dependent children, you need to go to page 10 of Student Loan Company’s ‘How you’re assessed and paid guide’ where it says: “We’ll ignore £1,130 for any child other than you who is totally or mainly financially dependent on them [parents].”

In other words if you’ve two or more children at university consecutively, the only concession is that your income for assessment is mildly reduced. Or to put it more plainly…

Even if you need to shell out £5,000 for your other child, the system only counts that you’re paying out £1,130

This isn’t a niche problem.  Most parents have children who are relatively close in age, so are likely to be at university at some overlapping point. To test this I did an indicative poll on Twitter.

It shows well over 50% of parents have children who could overlap. And that can be incredibly expensive – just imagine someone with triplets!   To play this out practically here’s an example…. (I’ve ignored loan size changes each year for simplicity)…

The Medium family have two children. Mrs Medium lives in Manchester and earns £37,000/yr and Mr Medium part-time work pays £15,000. Together their family income, after £2,000 of pension contributions is £50,000.

Child 1: Their eldest child, Erma Medium goes to Newcastle Uni. Her family income is calculated at £48,900 (slightly reduced as her younger brother’s a dependent child living at home). This means rather than the full £8,430 living loan, means testing reduces it to £5,540, leaving a needed parental contribution of £2,890 a year.

Child 2: Erma’s brother Ivor is 20 months younger, and starts at London University the following year. The fact that his sister is dependent means rather than the full £11,000 loan, he gets £8,060, leaving a needed parental contribution of £2,940 a year.

So when they have two children at university the total parental contribution is £5,830 a year.

Just to stretch the point, compare that to what the parental contribution would be if there’d been only children from separate families (on the same income). Erma family would’ve had a parental contribution of £3,030 and Ivor £3,080. So only an extra £140 needed from two families.

The parental contribution ready reckoner for those with multiple children at Uni

To help I’ve drawn up this quick table that sets out for you, as the system currently is, how much the parental contribution is likely to be each year.

Annual parental contribution. Student(s) living at home
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £600 £920 £980
£40,000 £1,800 £3,320 £4,570
£50,000 £2,990 £5,710 £8,160
£60,000+ £3,970 £7,950 £11,750
Annual parental contribution. Student(s) living away (outside London)
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £610 £940 £990
£40,000 £1,820 £3,360 £4,630
£50,000 £3,030 £5,780 £8,260
£60,000 £4,240 £8,200 £11,890
Annual parental contribution. Student(s) living away (in London)
Parental Income 1 child at Uni 2 at Uni 3 at Uni
£25,000 or less £0 £0 £0
£30,000 £610 £950 £1,010
£40,000 £1,850 £3,420 £4,710
£50,000 £3,080 £5,880 £8,400
£60,000 £4,310 £8,340 £12,100

PS Obviously I’ve not covered every eventuality here. You may have one child living at home and one away, but hopefully these tables give you a rough indication of how it works.

Will some feel the need to ‘pick’ which child can go to Uni?

As you can see at the extreme level some parents will need to fork out over £12,000 a year. My concern is it means some families will need to ‘pick’ which child goes to university – denying the other. Do let me know if that’s you feel pressured to do that in the discussion below.

For most, prioritising one child would be on academic or career merit. Yet even worse there are still likely some in society who value girl’s education less than a boys, and we could be going back to the dark ages.

What can prospective parents and students do about it?

While many editorials are about the size of student debt – the complaints I hear most from parents and students are all about living costs. Yet many only learn this once they get to university as the debate is so skewed towards “debt”.

Until more understand our misnamed system (I’ve campaigned for it to be renamed a graduate contribution system not a debt) genuine practical problems like this will continue to be missed. From a political perspective talk to your local MP, and other parents so many more are prepared. It’d be nice to think things will change, but I see little appetite for that at the moment.

So in practical terms, while I’ve always argued don’t pay tuition fees upfront, unless things change parents will need to save up to ensure you’ve cash set aside to support your child’s living costs while at uni.

I’d love to hear your views, whether you knew about it, and if you’ve been impacted how you dealt with it…

Are student loans broken? What I told Uni Minister Jo Johnson

If you read the papers you’d think the answer is a clear cut yes. I too agree, to an extent. Yet the most commonly quoted problems tend not to be what worries me most, and the things least mentioned can hurt.   

On Tuesday, MSE organised an event at the Tory party conference, where I debated this subject with University Minister Jo Johnson, chaired by Nick Hillman, Director, Higher Education Policy Institute.

My core aim was to try and push that if this scheme is to continue it needs renaming and reshaping. That was picked up by The Times Higher that reported Minister agrees student loans should be renamed as did The Telegraph. While the tabloids focused on Tory minister tells students to live frugally – though to be fair what he actually said is that some students want to do that, rather than all should.

This was an important debate, so I thought, as we weren’t allowed to broadcast it, it’s worth noting down for posterity my opening remarks (it’s up to the minister if he chooses to publish his). Below is a transcript (edited to make it a bit easier to read and with added sections), though I speak freehand and sometimes with venom, so it’s not the easiest transcript to scan as it misses that tone.

—————————-

The Chair opened by asking me what I thought of the announcement a few days before, that the student loan repayment threshold was to be increased to £25,000 u-turning the prior decision to freeze it (read why the student loan repayment U-turn is so important).

I think as somebody who has called the Government liars, backtracking, sold out a generation of students on behalf of freezing the threshold, hired lawyers to investigate trying to overturn it you could say I’m a little bit pleased at the U-turn this week.

So, yeah, absolutely the right move, important to say that I am not opposed to cutting interest rates at all. I just think if you’ve got a block of money the first place to put it is in increasing the repayment threshold. Cutting interest rates, increasing maintenance loans are very important too. But if you’ve got one block of money, start with increasing the threshold, that retrospective change was bad, but I’ll come on to that formally in a second.

First, I’d like to frame exactly what I’m going to talk about today.

Today’s debate is about how we reshape the current system

Clearly, the landscape in student finance has changed, the Labour Party are talking about no tuition fees, so they are saying the cost of their education should be met through general taxation – a perfectly valid and honest theory and philosophy.

But we are here at the Conservative Party Conference and rather than going through that bigger debate, which frankly is not going to wash with the Minister. So I want to be practical, if we accept that the individual is going to have to contribute to the cost of their higher education, is the structure of the way we do that right now correct or not? And that is what I am going to be talking about, but don’t take that as a reading that I discount the Labour view.

Marketisation – fail

The idea that each university is going to be able to charge different fees, that gives the individual a choice of how much they want to pay for their education, has been a robust and absolute unmitigated failure.

Almost every institution charges the same amount. It hasn’t worked, it should be scrapped. And it is rather ironic that one of the prime reasons it is a failure, is because it should have been a failure.

The way we have set up the repayment of student finance which says you repay 9% of everything above a threshold, currently £21,000 (but going up to £25,000) for 30 years before it wipes means for the vast majority of graduates higher tuition fees won’t cost them much more.

Only higher earning graduates would repay more on a £9,000 course than a £6,000 course (the original range) once you incorporate the maintenance loan. So, my advice from day one to students was to choose the right course and ignore the tuition fees, because you will only have to repay more if you earn a shed load of money once you leave – in which case chose the right course to hope that happens.

So it would be counter logical for marketisation to have worked in any way. So I think we really need think about how that one is affected and I think part of the problem of that I am going to come onto later is the naming of the way that we do the system. Now let’s move on to that retrospective change.

Retrospective Change: Lack of faith isn’t fixed by a U-turn

Note this refers to the Governements freezing of the student loan repayment threshold at £21,000. It was supposed to go up with average earnings from 2017. 

This was disastrous, and the fact there has been a u-turn hasn’t stopped the disaster. The disaster is very plain.

When a student and their parents, grandparents make the decision to go to university they are weighing in many factors. We hope they are looking at the finance. It is over a very long period. And what they want to know is what I am signing up to is what I will get.

In the past we had never seen a substantial retrospective change to the terms and conditions of going to university. We got it for 2012 starters. The breach of the very loud promise made by David Willets – and I have letters written by David Willets to parents that say from 2017 the threshold will go up, with no caveats, no mention of terms and conditions.

There is no commercial company who has a loan based system who would have been allowed to make that change, even though it wasn’t in the small print when the FCA regulates loans. It says your core marketing terms must be honoured even if they’re not in the small print, same with mortgages, go check it out – we’ve had this before. They would not have been allowed to do that. The Government have done it.

That breach of promise does two things. First of all, it has knocked the faith of students in the student loan system we have. How can you trust it when there was a change to the terms?  “I signed a contract and you have unilaterally changed the terms – that was wrong.”

The second thing, it has knocked the faith of students in the entire political system because the political classes, and lets be straight as we are sitting here, the conservative political classes, primarily, lied to them and misled them. And while the u-turn is welcome in practical terms, the shaking in the faith has not been fixed.

As someone who put myself out there because I believe my own political view should be secondary to making sure there isn’t one young person in this country who is put off going to university for the wrong financial reasons. The biggest questions I get is what if they change the rules. And that retrospective hike has knocked that forever and that hasn’t fixed it.

We have to ensure that every student knows what the terms and conditions are when they start and there wouldn’t be any retrospective changes. This is crucially important and should be locked into statute or at the very least if we are going to have variable rates and conditions within the student loan that need to be overtly declared and transparent.

For example you could say, “We will never change the 30 year limit. That is locked into statute. We may change your interest rate. We may change your repayment threshold.”  Not in the small print. If we are going to have to explain it, let’s be upfront.

One of the misunderstandings out there this year is that the Government has increased the interest rate. No, the interest rate is unchanged, the rate of inflation changed, and the interest rate is based on the rate of inflation. I’ve been out there defending on that, because it is unfair to accuse the Government of changing interest rates.

You can have terms that are changeable but you must declare them and be open and transparent about them. That has been breached and as always when you breach a rule, putting it right a year and a half later doesn’t put you back to where you were. Faith has gone.

It is no longer true that there’s no need to pay upfront to go to university

I will be publishing a further blog on this next week

This isn’t about tuition fees. This is about the most import and biggest practical problem that students face at university. Affording to live.

[Pause for a cheer, including from the President of the National Union of Students]

Quite simply, we have increased the means testing. We have mislead parents. On my roadshows, parents come up to me and say my kids are given £5,000 and their hall fees are £6,000 why don’t they get more? And I say to them, how much do you earn and they tell me £50,000 and I say you do realise that the full loan they would have got is, let’s say £9,000 and there is a parental contribution of £4,000 and they say, no.

There is an official parental contribution on the maintenance loan.  I wrote to the Minister, he will remember it, asking that in the loan letter, instead of telling parents “your child’s loan is £5,000”, it is changed to say “the full loan for your child is £9,000 because of means testing your child will only receive £5,000 therefore, there is a parental contribution of £4,000 to be had”. Though I would accept “there is an extra £4,000 gap that you need to make up”. That level of transparency is crucial.

It isn’t that the loan isn’t big enough for those parents, it’s that they have been means tested and don’t get the full loan but we hide it and it is somewhere like page 32 in the small print of the student loan literature. It is absolutely unfair and what we are doing now is knocking the faith of people in this system and meaning students cannot afford to go to university because the truth is your parents will need to give you money, they will need to save up and if you’ve got two kids at university which over 60% of parents have two kids within a 4 year gap.

Two kids at university at the same time, even though you are having to contribute £5,000 to your first kid they only reduce the residual income by £1,130 in other words, if you’ve got triplets you’re really screwed because it’s not taken into account. So, what we have here is a real practical problem for middle class parents. Lower income parents get the full loan.

Middle class parents struggling to find the money to send their kids to university and their children don’t have the cash, nobody tells them about this and their children have no way of forcing them to give them the money.  The biggest problem with student loans if we keep the current system is that the loans aren’t big enough, not that they are too big.

The language of debt is psychologically damaging – it should not be called a debt

This is all about changing the name to a graduate contribution system see my student loans aren’t a debt blog for more info.

For over 20 years we have educated our youth into what we call a debt and we have never educated them about debt properly. Even though financial education is now on the national curriculum – I campaigned for it – it is a pyrrhic victory, we’ve not put any resources into it. But secondly what we’ve done is we’ve inured an entire generation into borrowing, because if we say you’ve got to get a debt to go to university then they go on and get their credit cards and their payday loans, it has been tremendously damaging.

The language of debt is misleading. I can’t explain the system, because everyone says, I am going to have this debt hanging over me that I am going to have to repay. No, this is a contribution system in proportion to your financial success after university. By calling it a debt it makes it more difficult to explain. That is why people call to have the interest rate cut rather than raising the repayment threshold. They don’t understand it. If you change the name it will be closer.

So my big ask, if you want to fix this, you are going to stick with this system then get rid of the name of debt. Get rid of the word interest, call it an uprating. This in every other country is called a graduate contribution system. That’s effectively a graduate tax, but technically you can’t call it that because you can’t hypothecate it and you can’t tax people abroad.

Wrapping up (at speed due to time constraint on speakers)

The system is a graduate contribution system and should be called so, but don’t do that in isolation. Give people a guarantee of what can change and what can’t change.

You want to make changes, fair enough. That’s politician’s remit, but be really up front for example – it will be wiped after 30 years, the interest will be related to inflation but we might change it exactly the proportion it relates to inflation. You will repay 9% above the set threshold but we may change the threshold.

Call it a contribution system, lock it in, give people respect so they know exactly what they’ll sign up to. People might understand it better, might respect it better and might start to understand your argument a little bit better about it being shared between the individual and the tax payer. Right now the system is broken cos it aint a loan, and we call it one. 

If you managed to read through all of this, well done, its not easy in the transcript form. After that, then as well as the Ministers statement there was 40 minutes of often robust Q&A and debate, hopefully it did some good. 

 

Why cutting the student loan interest rate will only help richer graduates…

This weekend the papers have been mooting that Theresa May’s Government is looking to cut the English and Welsh student loan interest rate – now at a 6.1% headline rate for those who began uni in or after 2012 – in order to appeal to the youth vote.

I find this frustrating. Not because I object; I’ve always believed on principle that student loan interest shouldn’t be higher than inflation – charging students for their education is one thing, charging them for the financing of their education is a step too far.

Yet if the Exchequer has limited resources to finally shell out something to relieve student loan pressures, cutting the interest rate is far from a priority – in fact, it’s poorly targeted.

Student loan interest rates change every September, based on the RPI rate of inflation the prior March. For this 2017/18 academic year, the rates are as follows:

– While studying: Interest is charged at RPI + 3% (= 6.1% for this academic year)
– From the April after leaving: Then the rate is RPI (3.1%) for those earning under £21,000 and RPI + 3% (6.1%) for those earning over £41,000. Those in between are charged on a sliding scale.

Do note I write students are CHARGED interest, not students PAY it.

That’s because student loan repayments solely depend on what you earn, not what you owe.

Graduates repay 9% of everything earned above £21,000 for the shorter of 30 years from the April after they graduate, or until they clear what they borrow (see my five things every student and parent should know blog).

So if someone earns, for easy maths, £31,000 (ie, £10,000 above the threshold), they repay £900 a year, regardless of whether they owe £10,000 or even if they (absurdly) owed £1,000,000. The same is true of the interest rate: at £31,000 earnings, people repay £900 a year regardless of whether the interest is 3.1% or 500%.

In other words, what you borrow and the interest rate have no impact on annual repayments. Instead, all it changes is whether or not you’d clear the loan plus interest within the 30 years.

Who would cutting the interest rate would actually help.

According to the Institute for Fiscal Studies, it’s currently likely only the highest earning 23% of graduates will clear their debt within the 30 years.

So they would definitely save money from an interest rate cut (as would some who earn a little less than them as they’d now join the club of those who’d ‘clear within the 30 years’.)

Yet those who earn less will feel no change whatsoever from a lower interest rate. In other words, cutting the interest rate ONLY HELPS THE HIGHEST EARNING GRADUATES. Lower/middle-earning graduates are unlikely to gain as they won’t clear much more than their actual borrowing – never mind the interest – within the 30 years.

In fact, for a good percentage of lower-earning graduates, student loans are interest-free (full info on this in my Will you really pay 6.1% interest? guide).

The real horror is the freezing of the repayment threshold.

Contrast that to the Government’s real student loan horror this year – the April 2017 freezing of the repayment threshold at £21,000 until at least 2021 – when it was supposed to rise with average earnings.

All students earning over the threshold will repay more each year than they would’ve done – a real hit especially for lower and middle-earning graduates. And in the long-run that hurts almost every graduate EXCEPT higher earners (see why high earners gain).

The problem here is one of psychology. The interest rate seems scary so we hear large cries – even though in practice it doesn’t affect most. Freezing the repayment threshold is complex so we hear little – but it affects millions. Reversing that is a far greater priority for graduates.

To make policy just to appease fundamental misunderstandings is wrong. The sooner student loans are renamed a graduate contribution system, the sooner we can start to be rational and protect young people who need help, rather than illogically prioritising helping those who don’t.

So to summarise, cutting interest rates – while not bad – should be far from top of the priority tree.

For graduates, unfreezing the repayment threshold is a priority. For current students, interest rates have no practical impact – what does is the fact that many don’t have enough money to live off.

The priority there should be money to give bigger, fairer loans for living and to clear up the poorly operating hidden parental contribution system.

PS: I originally bashed out a slightly shorter version than this on social media over the weekend, in case you think you’ve seen it before.

Related past blogs: 

Is your student loan being sold? The answers we must get from Government

Scrapping of student grants – what it means & how bad is it?

Labour’s plan to cut tuition fees to £6,000 is financially illiterate

Panicked about interest on your student loan statement? For many, it’s nonsense!

Viral letter about mis-sold student loans due to retrospective interest hikes is well meaning but wrong