New Delhi: Noting an increase in the number of education loan defaulters, imparting of education loans to students might have been a herculean task for the banks currently, but the Centre is in no mood to give up its stance. The government has instead extended the repayment period of education loans from 5-7 years now to up to 10 years to facilitate repayment and reduce the probability of default.

Centre is also mulling tightening the noose around defaulters by announcing new rigorous schemes that include tracking the student and creating a special credit guarantee fund for the education loan, besides stamping the certificate.

The government has also proposed to make security mandatory for loans given to those students securing admission not on merit but through recommendations or through  hefty donations.
Meanwhile, the government may give the banks a breather by giving them the liberty of not providing loans to those institutions whose students turn out to be defaulters.

According to sources, the Indian Banks' Association (IBA) is considering such a proposal to announce new set of rules to bring change in the structure of education loans. It is planning to increase the payback time of these loans to the students by at least 10 years. It may be noted that the current default time is seven years.

The IBA is not ready to consider the five years recommendation of banks on the ground of maturity level of students.

Recently, in a meeting with Finance Minister Pranab Mukherjee, the banks have unanimously raised the high rate of education loans turning into non-performing assets (NPAs).

The move is triggered by an almost 45% rise in bad loans in fiscal 2011 to around Rs.1600 crore. Total outstanding educational loans rose to Rs 43,047 crore given to 2.2 million students in March; around 4% of such loans are bad. In 2009, Rs 35628 loan was given.

Hence, banks wanted the Finance Minister to reduce the burden of loss on them due to education loans.

However, Pranab Mukherjee said that government plans to impart high quality education to three crore people over the next few years, which is not possible without education loans. He however assured the banks to ease the norms.