Student debt crisis: exploring solutions to alleviate the burden on graduates

Picture yourself being fresh out of college and eager to pursue your dreams and ambitions. But rather than feeling excited, you feel as though you are drowning in debt. For millions of Indian students today, this is the reality. Higher education is becoming incredibly expensive! 

Students rely on bank loans to finance their education in order to attend the best schools/universities, avail themselves of popular courses, buy a digital device such as a laptop or camera etc. It might take them years to repay the debt, which puts a significant barrier in the way of students pursuing any new endeavour, or even doing something as simple as shopping or living a certain lifestyle. 

Studies show that more and more students are relying on loans because of their preferred college, course, and study destination. In August 2022, the Reserve Bank of India (RBI) reported that the total student debt in India was a whopping Rs 145,785 crore (about $17.6 billion). 

In such a scenario, planning higher education finances early on becomes paramount for every student.

Refinancing loan can make wonders

A student loan is a necessary financial expense but there are many ways to execute and manage it. A general way is to pay an affordable monthly amount depending on one’s income. In this kind of plan, one must allocate payments depending on their monthly income. 

This means that even if a person does not have a high-paying job (does not get a high salary), he or she can still pay the loan. It is not enough to have knowledge of this type of programme, but one must also know how to apply it. 

Another convenient option for direct credit repayment is loan refinancing. Refinancing loan is the activity of replacing your current loan with a new one for the purpose of enjoying a lower interest rate. It can be an optimal choice to save a lot in the long run. 

Financial literacy is key

Students must have the requisite skills to manage the debt efficiently, which necessitates the importance of financial literacy. This implies being aware of saving money, paying off loans, making investments, and planning for the future.

 A framework of training programmes for financial literacy can be designed to target Indian students. This can come from schools, banks, organisations, and government agencies.

Through financial literacy, college students can benefit in the long run and develop an important life skill. With the right resources, training and education by the universities, students would be able to achieve financial independence and stability.

Importance of repayment support 

Repayment of loans becomes a matter of huge concern for most of the students. NPAs for education loans stood at 7.61% in FY20, according to the union government. This means the borrowers are having trouble repaying. 

Another study states that most students do not end up getting a well-paid job, which makes the debt burden even worse. 

It’s important to offer strong financial advice and a support system to the borrowers who are facing financial obstacles. This could include income-driven repayment plans, credit counselling programmes, and financial advice. These services may help borrowers manage their debt and help prevent defaults. 

Interest rate regulation

With an aim to simplify the application and approval process for education loans of students, the RBI has asked banks and financial institutions to provide clear and transparent information about terms and conditions, eligibility criteria, and documentation requirements for availing of a student loan. 

As per the latest RBI guidelines, the repayment tenure of education loans has been extended from 5-7 years to 10-15 years.

Coming up with a togetherness strategy

Support should come in from all sources, including the government, universities and training institutions, commercial banks, and employers to grapple with the problem of student loan.

Here are some suggestions:

• Employer-supported loan repayment programmes: Employers can have plans aimed at aiding their employees to pay their student loan debt.

• Public-private partnerships for education financing: The government and the private sector can join forces for education financing.

• Skill development programmes: Through funding special courses that focus on updating current demands like vocational skills, we ensure that students have better jobs that help them repay their loans.

A brighter future for education

The student debt crisis can be resolved with concrete measures such as employer-subsidised loan payment programmes, public-private partnerships in education financing, and skill development projects. The aim is to develop a higher education sector based on the strong principles of student centricity, inclusivity, integrity, sustainability and excellence. 

Supporting students with the required financial knowledge can stimulate our country with respect to the social and economic aspects. Let’s develop a sustainable system by giving our students the opportunity to work on their dream rather than worry about their debts. 

The author is Director - Admissions & Student Facilitation Centre, Manav Rachna Educational Institutions.