Worried over a rise in default on repayment of education loans, the Indian Banks’ Association (IBA) today asked lenders to impose stricter terms on loans given to students getting admission under the management quota.

“Any loan considered by banks for students getting admission under the management quota would be outside the model scheme. Banks may fix appropriate terms and conditions for such loans,” IBA said in guidance note.

IBA expressed concerns that loans given to such students under the model education loan scheme could turn bad as their employment potential is relatively less.

“Banks have reported certain cases where the employment potential would not justify the fee structure for management seats from the point of repayment of the loan being sought,” it said.

Non-performing assets in education loans are as high as 6 per cent. To bring down NPA in education loan, the government is also considering the option of setting up of credit guarantee trust.

As per the model scheme, the banks are not allowed to look at the financial position of parents while evaluating loan to a meritorious student.

It is aimed at meeting all genuine study expenses of a student required to complete the study undertaken. The fee structure varies with type of college or institution within the same state for a given course.

Under management seats, the only requirement is passing the qualifying examination with certain minimum stipulated marks, it said, adding, it is logical to interpret that these seats do not qualify for being called meritorious.

Management seats or management quota refers to the seats in private education institutions for which the management has the discretion to give admission on factors other than merit.

Related Topics