In order to assist the borrowers to cope up with the current economic downturn, banks are considering an alteration in the repayment term of their education loans.

The self-regulatory body for banks, Indian Banks Association (IBA) has sent a proposal to banks regarding the expansion of the moratorium period from 1 year to 2 years and loan tenure from 5-7 years to 7-10 years.

If the banks agree on the proposal, it would be a relief to thousands of students who have taken education loans but are now finding it hard to repay due to the ongoing recession. Students are not able to find jobs for themselves and even if some of them are managing to get a job, the salary is not sufficient to support their loan repayment.

At the same time, the borrowers who had been regular on their education loan EMIs have started defaulting in the recent past as a result of the job losses or salary cuts. "The situation has not yet assumed alarming proportions. But then the ripple effect of the global economic turmoil will definitely be felt by Indian companies, which, in turn, will force them to take cost rationalisation measures. As a natural corollary, one can expect Indian companies to freeze recruitments, announce pay cuts, and right-size. Anticipating these developments, we are considering measures to alleviate the problems of borrowers who have availed themselves of education loans," said a senior official with a PSU bank.

Further the official pointed that the model education scheme proposed by the IBA for pursuing higher education in India and abroad may be altered so as to meet the new ground realities. As higher education in the country is increasingly moving into the private domain, IBA came out with its model scheme in 2001 that facilitated financial support from the banks to the deserving students who want to pursue higher studies in India or abroad.

The institutional funding in the segment was introduced to ensure that no deserving student who wants to pursue higher education is denied the opportunity because of the lack of funds.

Banks extend educations loans up to Rs 10 lakh for studies in India and Rs 20 lakh for studies in abroad. The education loan rates charged vary from lender to lender. Further a repayment holiday or moratorium of one year is provided after the completion of the course or six months after getting a job, whichever is earlier, on these loans. The loan repayment period stretches from 5 to 7 years after the repayment starts. But due to the slowdown, banks are considering to increase this repayment period.