The Impact of the Union Budget on the Education Loans and Its Applicants

The Union Budget 2015 was a much anticipated event and with good reason. The majority mandate of the last year’s general election brought in great expectations of growth an impetus to the industry. Being the first “full” budget of the Modi Government, the Union Budget 2015 brought in hopes and dreams and aspirations to the front foot. And while some claimed it to be a moderate budget and others show promises of a reformative budget, to a common man, the jargon is more or less a series of numbers put in random. For a student, it is perhaps more so.

While the Indian Student has been made promises of a better infrastructure and facilities, the question looms over the heads of the students – how does the Union Budge affect my plans for an Education Loan? Is it costlier? Is it cheaper? We try to simplify the Union Budget 2015 for you and what it implies to the students, including the impact on student loans.

Noteworthy Recommendations: Total Spend of Education Sector Shifted from Primary to Tertiary Education

To begin with, let us understand what all the Union Budget proposed for the financial year 2015-16 vis-a-vis the education sector. Basic verdict, there are promises for the Education Sector at large. Though overall, the spend on education has decreased in this budget from INR 70,505 crore last fiscal to INR 69,074.76 in this fiscal, the overall spend on higher education has received a boost. As against an allocated share of INR 13,000 crore in the revised budget for 2014-15, the budget for 2015-16 proposes an allocation of INR 15,855.26 crore. This is a 22 percent increase in the planned spend on higher education.

Implications:

Its implications per say are multi-fold. The first and foremost is the important shift of focus from primary education to building skilled workforce for the country by means of providing effective education avenues. The increased spend would go towards building up of necessary infrastructure and providing opportunities for developing the required skill set.

Noteworthy Recommendations: More IIT’s and IIMs for the youth of the country

Another important aspect of the Union Budget was the announcement of more IIT’s and IIM’s in the country. The Finance Minister, Arun Jaitley announced the setting up of 2 IIM’s and 2 IITs. One IIT was proposed for the state of Karnataka and another was the proposal of an upgrade of Indian School of Mines (ISM), Dhanbad to an IIT. (This is on similar lines of upgrade of Banaras Hindu University to an IIT). The school, already seeking its students on the bases of Joint Entrance Examinations, would add more skill to the country and open up the institutes of excellence.

Similarly, the two IIMs are proposed for the states of Jammu and Kashmir as well as Arunachal Pradesh. This is an important step and would add greatly to the Indian economy. Talking specifically, it is planned by the IITs to set up new IITs and management institutes. For this a budget of Rs.1, 835 crore is allocated and an extra amount of Rs.1,000 crore. The measure is to make some of these institutes functional in this year.

Furthermore, the budget also proposes and promises to help the state of Andhra Pradesh with an additional sum of Rs.205 crore. The state of Andhra Pradesh would include INR 40 crore each for setting up of an IIT, an IIM, an NIT (National Institute of Technology), and a IISER (Indian Institute of Science Education and Research).

And finally, the budget spoke about promoting higher education and making education loans easier and more accessible to the youth of the country. In his speech for the Union Budget 2015, the Finance Minister further laid emphasis on ensuring availability of funds to the youth of the country which would in turn further help with improving the higher education in the country. This is proposed by the setting up of a fully IT based Student Financial Aid Authority to administer and monitor scholarships as well Educational Loan schemes, by means of special scheme like the ‘Pradhan MantriVidya Lakshmi Karyakram’. 

Implications:

Now to the implications of these measures defined by the finance minister and also or rather more importantly the impact on education loan. It can be simply put that the students can look at no rise in Interest rates in this fiscal and cal also expect perhaps a rate cut towards the end of this fiscal. To further understand this, we need to understand how the rates are subjected on a loan.

To begin with, the Union Budget is a Fiscal exercise and is more related to taxes as against the rate of interest. The latter is decided by the monetary policy of the country, decided and released by the central bank, which is the Reserve Bank of India. The Reserve Bank, takes guidance from the Fiscal Policy, determines the mood of the economy and accordingly decided on the interest rate. Now, with the Union Budget 2015, laying emphasis on higher education and proposing setting up of new IITs and IIMs, it can be safely said that higher education would get a suggestive push.

Furthermore, the improvement of the Indian Economy at large would add more value to the education system, driving more youth towards seeking better education to partake with the increased opportunities. An IT based system, would further make taking loans easier. In total, the demand for education loans is set to increases. Ease and Accessibility would add to the market incentives. As such, with a dip in inflation and suggested growth rate of the economy, it can be said that the outlook is positive. Going as per the plans, the increase in demand is sure to surge the interest rates but on the other hand, stable economy would maintain the interest rates and can even pull them down.

It is important to note that the Union Budget cannot and does not decide on interest rates on any loan instruments, but by marking key areas of growth and focus, it gives a roadmap to the RBI, which in turn uses it to determine the rates. Hence, while personal loans might become dearer, education loans can be safely said to maintain stable and unchanged interest rates for this fiscal. Finally, the budget has not made any changes to Section 80E and the deductions on Education Loan remain intact. Overall, the verdict is positive outlook, better and ease of getting education loans but no additional benefits.