When it comes to how education is viewed in the West and in India, the situation in the two regions is about as similar as hawk ‘n geese. (We didn’t say “chalk ‘n cheese” since Indians don’t like cheese much, do they?)
So if the role of education in society is so dissimilar in India and the West, can education loans be far behind?
India and education
Indians love comparing their kids to other kids. Sharmaji’s daughter getting more marks than their son becomes a matter of reputation. Mothers are always trying to find out how many hours the other kids study and just as diligently, wake their kid up at 3 am and keep supplying mugs of coffee to keep them awake. After all, Saraswati or no Saraswati, good marks are absolutely necessary. Sharmaji kya kahenge?
Even a difference of 0.2% is frowned upon. Competition is tough, and sometimes, so is the caning for not studying. In India, if there’s something mightier than the pen, it’s the humble chalk in an edgy teacher’s hand.
In other parts of the world, education is seen as a means to financial security and a better life. It is the rich man’s afterthought and a poor man’s wet dream in the West. If that sounds cheesy, it probably is. Probably why Americans love cheese.
Rising costs: The rising cost of education is common across the world. In most of the countries, higher education is very expensive. A good degree from a reputed institution can set you back by $50,000 – $150,000. Add to this, the cost of living and other expenses. Hence, people are increasingly looking towards availing education loan facilities.
How we think and they think: In India, parents push their children to apply to prestigious, reputed institutions in the country and abroad. Having an Ivy League Degree is a common dream for the children and the parents. It is the norm for parents to pay for educating their kid throughout. Education is considered the parents’ responsibility and often times, they take the burden of a loan upon themselves as well.
People in the West often don’t think twice before seeking out a loan. For them, it is only a means to their goals. Students take the call based on their requirements and repay the loan once they get a job.
Accessibility: In India, education loans haven’t found a solid perch yet. Many banks offer them as a product, but lack penetration in smaller cities and rural India.
Even though all nationalized banks (not private banks) offer education loans in small towns, many Indians prefer personal loans, liquidating FDs or borrowing from friends or relatives to fund education. Personal loans are advertised more than education loans, and turn out more expensive as well.
Accessibility to loans in developed financial markets is fairly easy. In fact, an education loan is a very popular product in many developed countries like the US.
Interest Rates: In India, interest rates are offered from above 10% – 16%. The rates are usually fixed and don’t vary with courses or universities. However, some discounts are available on loans for esteemed institutions. In most cases collaterals and personal guarantors are a requirement for education loans, making it difficult to avail. There are possibilities of interest discounts if a moratorium period (holiday period for repayment) is not opted for. In order to get the discount, the parents start paying off the loan while the kid studies.
Education loans have been around for a very long time in the US and are just as popular. The average interest rates there vary from 4%-10%. Further discounted rates can be availed with collaterals and co-signees.
So there you are – the Western cheese and the Indian chalk – never shall they meet!