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BANKING

Student loan, not so

Sajjaduh Rahman
A Dhaka University student, who intends to go abroad for higher studies, expresses anguish after visiting a few private commercial and foreign banks for loans. It depresses him to see banks making a special offer, called 'student loan', but the service is actually tailored to the income capacities of their parents.
Students flock to banks at regular intervals to inquire about the student or study loans. Parents also accompany the interested students, trying to find options for their children.
"The student's guardian needs to have either a security deposit or a fixed income of at least Tk 25,000 a month to obtain a credit service named the student loan,” said Mahmudul Haq, who wants to enroll her daughter in a private university in Dhaka.
He says banks want security from the parents, after examining a student's eligibility ‘
“The amount that a student can receive depends on the parent's income," Haq says.
People believe education or student loans will be issued to a student on the understanding that it will be repaid upon completion of the student's studies. The merit of the student should be considered a factor for eligibility.
But the reality is bitter.
"Student loans being offered by banks are nothing but personal or consumer loan products," a BRAC Bank official says. "Students are offered loans against their parents' income, not based on their merit or their future prospects," he admits.
BRAC Bank is one of the 30 local private banks operating in Bangladesh, but not everyone offers student loans. About five banks offer this loan. Eastern Bank Limited (EBL) and BRAC Bank come on top. Among the nine foreign banks in the country, Standard Chartered Bank and HSBC have this product, according to bank officials.
"Education loan is like a car loan or any other personal loan product. It needs collateral or a fixed monthly income," an IFIC Bank official says. IFIC Bank offers education loans named 'Parua'.
The education loan is a new product in Bangladesh. It has become a profit-making product with the mushrooming of expensive private universities and limited scope in public universities.
A total of 4,66,570 out of 6,20,008 students passed the Higher Secondary Certificate Examinations in 2008. Public universities cannot accommodate even half
of them. Some 20,000 students, who achieved GPA 5, will not be able to get admitted into medical, engineering and good public universities.
To make use of such opportunities, private universities have flourished rapidly. The number of these universities would not be less than 60, at the moment. Even still, hundreds of students are flying to the US, EU, Asian countries and many African coun-tries for higher studies.
Every parent wants his or her children to study in a reputed institution, be it a local or foreign university.
But attending private universities requires financial commitments that many Bangladeshi students, especially those coming from the middle and lower middle class, cannot bear. So many students fund their education by borrowing from relatives and family friends, while some even discon • tinue studies, failing to meet the obliga tions.
Is there a way out? It seems, not.
Banks, whose business is to make money by lending to potential customers, have come up with loan packages for the students. Banks say they offer both secured and unsecured loan products for the students. The number of loan recipients is rising rapidly.
Eastern Bank is one of the few private commercial banks that offer loans for students under different names.
"Compared to the previous year, our student clients doubled in 2008,” the EBL official says. The bank introduced education loans in 2007.
"We are getting a good response from students who want to enroll in foreign universities," the EBLofficial says.
The EBL Education Finance package comprises mainly of two products loan without a security deposit and loan with a security deposit.
The maximum amount for a loan without a security deposit is Tk 10 lakh or 10 times the gross monthly income of the parent. Interest rate for this loan is 18 percent and the repayment period is 12 to 60 months.
There are no basic differences between the unsecured student loans and other personal loans, according to bank officials.
The loan amount can be up to 80 percent of a summation of the admission fee, tuition fee, semester fee, and other fees stated by the educational institutions, such as liv-ing/lodging expenses and travelling expenses and the bank gives it But the applicant must submit an estimation of the
total expenses, with supporting documents. The processing fee for this type of a loan is 1.5 percent of the loan amount.
Under the education loan with security deposits, 95 percent of the deposit is given at the fixed deposit rate, plus an interest rate of three percent. But the processing fee is one percent of the loan amount, or Tk 10,000, whichever is higher.
The EBL has another product named 'EduLine', which refers to a credit facility against a security deposit. An interesting feature of the product is that interests will be incurred only against utilisation. The processing fee amounts to one percent of the loan amount, or Tk 2,000, whichever is higher. The interest rate is the fixed deposit rate plus three percent.
“All these products are called secured overdrafts, in banking terms, not study or student loans," the BRAC Bank official remarks.
BRAC Bank, considered the fastest growing consumer bank in the country, has also introduced some student loan products.
The bank lends to the parents or financial guarantors of the students pursuing higher education, locally or abroad. The monthly income of the parent must be at least Tk 25,000 and the bank will lend an amount that is 15 times of the parent's gross monthly income. The loan is repayable in small monthly installments.
Standard Chartered Bank introduces
"Graduate Account ', a specialised banking solution for students, officials say. It is a customised savings account for the ongoing graduate and post-graduate students, who are at least 18 years old. The account offers a competitive interest rate.
The bank also has an interest bearing savings account that gives students regular returns. Interest is accrued on a daily basis and credited to the account on a half-yearly basis, officials say.
It is a must for a student to open a file with a bank, prior to going abroad for education. A student must pay his/her initial admission fee and semester/tuition fees directly to the institution, via a' Pay Order'.
These banks have student file service facilities. Most private and foreign banks provide this services to students in exchange of a service charge.
“These are more or less risk-free products. Default rate is almost nil,” the EBL official says.
“My father died five years ago. My elder brother works in a private company and his income doesn't support me in obtaining a bank loan," says a graduate from Dhaka University, who intends to go abroad for higher education.
He says banks should now consider issuing loans directly to the students, against their merit alone.
sajjad@thedailystar.net