The Worrying Trend of Non-performing Loans in Higher Education
The rate of education loans is on the rise in both developed and developing countries, whereby an increasing number of middle and upper middle-income families are resorting to bank loans to send their children to pursue higher education. The accessibility of education is among the Sustainable Development Goals (SDG) of the United Nations, listed as SDG Goal 4. Accordingly, economies around the world are promoting higher education, in spite of the high costs. Hence a bank loan becomes an inevitable part of the equation for most individuals who wish to pursue higher education. However, the rising crisis of non-performing education loans is a worrying international trend. Non-performing education loans are categorised as Non-Performing Assets (NPA) in the Indian Banking System. This paper attempts to study the root cause of this rising crisis and subsequently develop a model utilising the variables from an education loan application form, which can be used to predict potential defaults on higher education loans. Further, the study also attempts to explore whether the institutions which offer higher education have any significant impact on a loan becoming non-performing. Statistical tools including the T test, Chi-square test and Linear Discriminant Function were used to analyse the primary data gathered from banks. The results from the study imply that the annual income and net worth of the loan applicant's parents exhibits a significant relationship with default and non-default on educational loans. This result is connected in turn with the quality of education the candidates receive and the employability of the candidates which various educational institutions produce. Based on the significant findings, the study proposes recommendations which includes advice to banks on being vigilant as regards the repayment ability of the applicant based on certain profiling of the individual, as well as the ability of the education institution and its reputation which affects the employability of the students. (original abstract)
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