STUDENTS’ ATTITUDE TOWARDS EDUCATION LOANS FOR

STUDENTS’ ATTITUDE TOWARDS EDUCATION LOANS FOR

PROFESSIONAL COURSES: A CONFIRMATORY FACTOR MODEL

RAJINDER KAUR 1 AND MANJIT SINGH 2

1MIMIT, Malout, India. E-mail: [email protected]

2School of Applied Management, Punjabi University Patiala, India. E-mail: [email protected]

ABSTRACT

Education loan schemes of various public and private sector banks in India have created vast

opportunities for financially constrained students to pursue higher studies. 'Education loan' has helped a

large number of students across the world to realize their career goals and dreams. These loans are

basically, offered to students to enable them to meet the costs of a professional program viz. MBA,

MCA, MS, LLB, MBBS, B.Tech, and PhD. This research is based on both primary and secondary data.

The secondary data is presented regarding education loan in India. The primary data is used to

empirically investigate the students’ attitude towards education loan for professional courses. The

technique of factor analysis is used to group the items/statements. Further, confirmatory factor analysis

has been used to test and validate the hypothesis. This study proves that H1: Students’ attitude towards

HE loan is affected by constraints on decision making to borrow; H2: Students possess positive attitude

towards education loan; H3: Students’ attitude towards education loan is affected by their perception of

life after loan; H4: Students’ attitude is affected by their decision making skills to borrow; H5: Students

understand the relationship between loan burden and its benefits.

Keywords: Higher education Finance, Student loan schemes, Professional courses and higher studies,

Structural equation modeling, Students’ attitude, Factor analysis

INTRODUCTION

Education loans have helped a large number of students across the world to realize their career goals and

dreams. Few years ago, the scope of higher education, especially study abroad, was restricted to a

selected group of students who belonged to the upper income strata. As a result, many industrious and

capable students were denied higher education opportunities because of the financial constraints.

Moreover, chances of getting scholarships or governmental grants were very few and limited, nearly

impossible for many needy and deserving students. This made the overall situation gloomier for the

deserving but needy students. However, times changed and in the year 2004, GOI issued new credit

guidelines to the public sector banks regarding education loans. This brought a light of hope to the lives

of many students in India. Today, there are several public, private and foreign sector banks which offer

different kinds of education loans to students for pursuing professional studies. It has successfully

boosted the morale of many students in the country and the number of students opting for education

International Journal of Business Management & Research (IJBMR) ISSN : 2249-6920 Vol.2, Issue 1 Mar 2012 67-87 © TJPRC Pvt. Ltd.,

Rajinder Kaur & Manjit Singh 68

loans has increased dramatically in the last couple of years. In fact, Banks are now having a direct tie-up

with the educational institutions to cash in on the opportunity. Major objectives of education loan

schemes are; cost recovery, greater participation or enrollment in HE, access and equity amongst weaker

sections of the society.

This paper is organized in three parts. The first part focuses on literature survey. Here, we have

discussed education loan scenarios in India along with students’ attitude towards HE loans. The second

part focuses on research methodology to clearly define steps for statistical analysis of primary data

collected with the help of questionnaire for students’ attitude towards HE loan. This part is focused on

discussion, suggestions and scope for future research. In this research we have proved that H1: Students’

attitude towards HE loan is affected by constraints on decision making to borrow; H2: Students’ possess

positive attitude towards study loan; H3: Students’ attitude towards study loan is affected by perceptions

of life after loan; H4: Students’ attitude is affected by decision making skills to borrow; H5: They

understand the relationship between loan burden and benefits. The research findings will help Higher

Education Finance Industry to understand student borrowers’ attitude and perceptions towards education

loans. This study will help banking sector to gain a perspective on the current situation based on the

responses of student loan borrowers. Further, the commercial banks may come up with better loan

products for students.

STUDENT LOAN SCHEME IN INDIA

With a gradual reduction in government subsidies higher education is getting more and more costly

and hence the need is felt for institutional funding in this area. Development of human capital is a

national priority. So, it should be ensured that no deserving student is denied opportunity to pursue

higher education for want of financial support. Loans for education should be seen as an investment for

economic development and prosperity. IBA prepared a Model Educational Loan Scheme in the year

2001. RBI instructed various commercial banks to implement the same to help the capable and needy

students.

Benefits of educational loan scheme

With the mounting fee structure of educational institutions it has become really difficult for students,

belonging to average income class, to enroll themselves for higher studies/professional courses due to

cash crunch. The following are some of the benefits of taking education loans:

• Financial support is being offered for pursuing the expensive professional courses i.e. BTech,

MBBS, MBA, MCA and LLB

• Loans are being offered at reasonable interest rates

• Easier and flexible repayment period

• Loans are also available for study in abroad

Students’ Attitude Towards Education Loans for Professional Courses: A Confirmatory Factor Model 69

• Loan amount varies from Rs. 4 lacs to Rs. 10 lacs for study in India and upto Rs. 20 lacs for

study in abroad

• Expenses covered under loan includes tuition fee, hostel charges and other college charges

• Loans upto Rs. 4 lacs are available without security and upto Rs. 20 lacs with security

LIMITATIONS OF EDUCATION LOAN SCHEMES

Student loans undeniably have many advantages, but in some cases, the disadvantages often remain

undisclosed. These are discussed below:

• Sometimes, bank norms regarding securities i.e. collateral and guarantee are not presented very

precisely. Due lack of clarity, applicants find it difficult to understand the loan schemes and overall

risks involved in availing the credit

• Many times, borrowers may not be able to analyze the long run suitability and implications of the

loan beforehand. Hence sometimes repaying loan as per schedule leads to an unexpected and

unavoidable situation in future

• No proper assistance is provided to the borrowers who face a tough time during repayments.

borrowers are not ensured any rights and remedies by the banks if caught in unaffordable loans or

debt trap

• In case of unemployment or underemployment, students find it difficult to meet the payment

schedules. Many banks start putting late fee, and other charges for delayed payments, further

increasing the overall cost of loan

Relevance of student loan schemes

The student loan schemes should benefit the students in masses. Many banks have diversified their

retail loan portfolios to include education loan. The main important aspects covered are given below:

Objectives of subsidized income contingent loans: Cost sharing remains the main objective of

subsidized education loan schemes. Today, higher education is more costly than ever. The negative

effects of increased tuition fees i.e. increased dropout rate and low enrollment can be offset, to some

extent by student support schemes like the grants and scholarships. But for facilitating greater access,

such measures need to be introduced on a fairly large scale; and this may rather prove to be an overly

expensive affair. Hence student loan schemes seems to be a more affordable alternative, because loans

can make student borrowers to avoid up-front payments for higher education (tuition fees and other

living or college expenses) by delaying payments which will be recovered in manageable installments on

completion of course (Ziderman, 2005). Subsidized loan schemes also lead to greater access of the poor

to institutions of higher education, leading to greater social equity.

Growth of higher education and increased enrollment for professional courses: India's higher

education system is the third largest in the world, after China and the United States. India is today one of


the fastest developing economies of the world with the annual growth rate of nearly 9%. In order to

sustain with this pace, there is need to increase the number of institutes and also to improve the quality of

higher education in India. Therefore, the Prime Minister of India has announced the establishment of

eight IITs, seven IIMs and five Indian Institutes of Science, Education and Research (IISERs) and thirty

Central Universities in his speech to the nation on the 60th Independence Day. The total expenditure for

education during the 11th Five Year Plan, which runs from the current fiscal year 2012-13, represents a

four-fold increase over the previous plan and stands at Rs 2500 billion. There is greater need to increase

student enrollments in higher education in order to maintain current economic growth. Increased

enrollment will have a spiral impact and may lead to more demand for education loans by students.

Table1 compares the growth of higher education during various years from 1950 to 2009.

The Eleventh Five Year Plan envisages increase in the Gross Enrolment Ratio (GER) in higher

education to 15 per cent of the population in the age group of 18-24 years by 2011-12. The increased

focus on higher education is yielding dividends. Allocation to higher education has been increased in the

11th Plan. From Rs 4,000 crore in 10th Plan, there is a whopping increase in the allocation to Rs 48,000

crore in the 11th Plan. Around 30% of Eleventh Plan outlay is for higher education (including technical

education). Increased enrollment in institutes of higher and technical education, results in more demand

for education loan by students from public and private banks in India. India's higher education sector

needs an additional eight million seats over the next three years in order to sustain economic growth.

Table 2 shows the state-wise Number of Education Loan Applications Received/Sanctioned and Amount

of Loan Sanctioned by Public Sector Banks in India (2006-2007 to 2008-2009).

Table 1 : Institutions of Higher Education and their Intake Capacity

Capacity Indicator 1950 1991 2004 2006 2009

No. of university level

institutions 25 177 320 367 467

No. of college 700 7346 16885 18064 25951

No. of teachers

(thousands)

15 272 457 488 588

No. of students enrolled

( millions)

0.1 4.9 9.95 11.2 13.6

(Source: http://www.ugc.ac.in/pub/stategies/HEIstategies.pdf)


Table 2 : State-wise education loan sanctioned by Public Sector Banks in India (2006 to2009)

States/UTs

2006-07 2007-08 2008-09

Applications

Received

Applications

Sanctioned

Amount

Sanctioned

(Rs. in

Crore)

Applications

Received

Applications

Sanctioned

Amount

Sanctioned

(Rs. in

Crore)

Applications

Received

Applications

Sanctioned

Amount

Sanctioned

(Rs. in

Crore)

Andaman &

Nicobar

61 50 1.28 62 56 1.69 128 120 3.24

Andhra

Pradesh

34991 33159 912.01 35247 32779 985.27 40226 37035 1329.65

Arunachal

Pradesh 64 57 1.60 67 63 1.73 170 163 4.51

Assam 1613 1452 40.12 2336 2193 62.58 3022 2827 86.73

Bihar 6575 5324 115.61 9071 8624 213.75 14133 13330 305.18

Chandigarh 2052 1933 99.83 1998 1800 83.29 2566 2373 71.91

Chhattisgarh 2213 2087 49.92 2482 2333 59.11 3682 3435 100.74

Dadar,

Nager 23 16 2.75 28 23 0.95 56 42 1.43

Daman, Diu 6 6 0.50 25 22 0.89 21 18 0.9

Delhi 7883 7360 291.19 9023 8213 329.25 10508 9250 301.36

Goa 942 813 25.90 714 664 23.27 904 740 27.45

Gujarat 9127 8527 427.59 8588 8194 421.9 11089 9380 474.67

Haryana 4067 3785 165.15 5862 5196 218.65 9948 9481 245.98

Himachal

Pradesh 1735 1590 43.46 2358 2055 56.77 3709 3539 75.08

Jharkhand 4645 4098 111.10 7392 6857 177.46 9151 8349 236.97

Jammu &

Kashmir 941 845 30.66 1028 975 28.06 1567 1512 35.41

Karnataka 27224 25131 362.04 28361 25344 490.8 33099 30170 590.01

Kerala 25421 23857 376.90 32041 27802 544 44574 38748 636.74

Lakshdweep 2 2 0.04 7 7 0.11 3 3 0.07

Madhya

Pradesh 7890 7343 154.84 10928 10337 229.02 15277 14339 341.26

Maharashtra 21582 20412 583.78 21688 20797 702.44 29785 26061 909.81

Manipur 125 118 4.07 166 159 6.02 125 119 4.39

Meghalaya 239 186 5.61 188 170 4.53 398 363 12.41

Mizoram 74 69 2.62 83 78 2.95 184 174 7.6

Nagaland 55 53 1.62 80 77 2.16 95 91 2.76

Orrisa 7859 7272 166.88 10497 9917 250.21 14169 13103 354.48

Puducherry 1863 1620 29.16 2078 1913 26.09 2520 2301 50.34

Punjab 7271 6811 367.19 8082 6376 370.96 8968 8424 340.51

Rajasthan 5795 5416 129.89 5306 5116 143.95 8903 8509 218.8

Sikkim 307 285 6.56 186 180 3.79 91 76 2.28

Tamil Nadu 66339 61413 937.87 87811 81392 1350.39 102868 97596 1747.79


Tripura 260 243 7.20 242 228 6.13 288 270 7.18

Uttar

Pradesh 17733 16561 429.00 21528 20555 588.66 32160 30581 739.53

Uttarkhand 4489 4205 109.17 4490 4204 129.57 7012 6746 140.44

West Bengal 11672 10807 252.90 10863 10191 283.07 13780 12746 373.57

India 283138 262906 6246.02 330906 304890 7799.47 425179 392014 9781.18

(Source : Lok Sabha Unstarred Question No. 275, dated on 03.07.2009)

Issues associated with student loan schemes: If India has to become a developed nation by 2020,

more number of youth should go for higher and professional education. Keeping this in mind only, the

Government of India has evolved friendly schemes to benefit the industrious and needy students. Some

of the main issues associated with student loan scheme operating in India are given below:

• Very Complex Process: Getting an Education Loan is a difficult process for the students. A

number of formalities need to be fulfilled in the initial stage. In case educational institutes have

not tied up with any of the bank offering education loan, the entire process becomes more

complex.

• Low efficiency: The loan recovery ratio and the extent to which the loan is repaid in full remain

low in case of education loan. There is a dire need to improve efficiency of loan schemes

especially loan recovery so as to make funding more secure for the banks.

• Student Bankruptcy: when a student defaults the bank imposes higher rates of interest and

penalties. Even if a student goes bankrupt, his loan won't be forgiven. While framing student

loan policies, Govt. authorities left this major issue unaddressed.

• Difficult to track students after they pass out: Bank managers show reluctance while

sanctioning new loans for education purpose due to shortage of funds. In certain cases

unemployment or even underemployment may be the reasons for nonpayment by students. In

addition to this other candidate specific reasons are also there due to which students fail to

cooperate with the banks. These could be the frequent changing of jobs and shifting of place of

employment and hence residence.

• No exclusive branch: All banks need to set up an exclusive branch or department to focus on

education loan to capable and needy students. Education loans being a part of priority sector

lending programs of banks, has social targets like affordability, accessibility, expansion and

equity of higher education. So public sector banks especially, need to adopt more focused

approach towards education loan programs.

• Lack of awareness: There is inadequate awareness about the education loan schemes among

the students and their parents. They are not well versed with the modalities of getting loan, the

repayment procedure, interest rate methodology etc.


• No loan development bank: There is no such centralized agency which can coordinate the

student loan related efforts and activates of various banks in India. This reduces the efficiency

of education loan programs. The prime motto of such a bank should be to provide parents and

their wards with the financial and informational resource for continuing HE.

• Lack of expertise: Banks do not possess sufficient expertise in handling various issues and

activities relating to student loan collection and recovery. Banks also lack efficiency in

following up with the students on expiry of moratorium period in order to collect interest

payments or principal amount.

• Rising Defaults: Education debt is turning into NPA for many public sector banks especially.

In the under-4 lacs category, loans are sanctioned without any collateral. It leads to sharp rise in

default rates on such loans. Similarly, default rate also remains high in case of education credit

for studies in abroad due to large amount and long period of loan.

• Complex Higher Education Sector: Tuition fees and other college charges keep on rising,

making it difficult for the banks to standardize student loan products. Education institutes’

accreditation and its validity, validity of the courses being run, employability of buddy

graduates and rating of the course are some of the key issues faced by banks while approving

student loans.

• Seasonal demand of education loan: Student finance is a seasonal business when volumes are

clustered in just a short 2-3 months period. Banks generally receive large number of education

loan applications during the admission period only. Their approval gets delayed because of

shortage of time for processing Moreover, bank branches at local levels do not possess all the

necessary information relating to student loans. Broad guidelines in this context always come

from head offices of the concerned banks. This further delays the loan approval process.

• Lack of customized education loan products: At present banks do not offer student loan

products to suit to the specific requirements of the individual student borrowers. Loan products

essentially remain the same for all students and courses irrespective of the type of course and

the financial status of student borrower. Sometimes students do not get adequate amount of loan

from banks.

• High Cost of Servicing Bad Loans: Sometimes, Students do not take education loan seriously

resulting in bad debts for banks. Banks have to take much pain in terms of efforts, time and cost

to service and collect interest or loan amount.


Table 3 : Students’ Attitude towards Education Loans for Professional Courses

Author Category Factors

Baum and O’Malley (1998)

TERI (1998)

Oosterbeek and Broek (2009)

Borrowing

Decision

• The primary reason for increased student loan

borrowing is, that more credit is available

• Information influences the decision to take up loan

• Borrowing decision is influenced by factors such as

a good starting salary, a job’s income potential, and

job security etc.

• Career plans/choices get affected because of student

loans

• Higher loan limits are likely to influence students'

decision making, with some choosing to work less,

attend a higher cost institution, live in more

expensive housing or seek less help from parents

• Financial circumstances of the borrowers such as

earnings, other expenses, and, if married, their

spouse’s educational debt, must be examined along

with loan repayment requirements

• Students with good earnings prospects and/or a high

discount rate borrow more often, as do students who

are prepared to take risks

• Borrowing decisions are heavily influenced by debt

aversion

Baum and O’Malley (1998)

Pedalino, Marilyn et al. (1991)

Life after

loan

• Student debt had interfered with major life choices

• Some of the borrowers reported that due to student

debt they had delayed certain activities (e.g., buying

homes, buying cars, getting married, having

children, moving out their parents’ home)

• Debt level has little impact on consumption patterns

for goods and services

Baum and O’Malley (1998) Loan Burden • Borrowers who borrowed large amounts but make

lower than average salaries report the greatest levels

of burden


• Borrowers whose debt levels are high enough to

make even their relatively high starting salaries

appear inadequate also feel greater burden

• Art and music students were having high debt-to-

income ratios, students in business and engineering,

in contrast, seem to have less difficulty with

repayment

• Loan counseling prepares students to repay their

loans

• Students with higher debt levels are more likely

than others to perceive their debts as burdensome

Baum and O’Malley (1998) Benefits of

Study Loan

• Loans played a critical role in allowing them to

continue their educations after high school

• Student found education loans to be very important

in allowing them to attend the school of their choice

• Investment students made in their education through

borrowing was worth it for personal growth

• Benefits of having a student loan outweighed the

drawbacks

DATABASE AND METHODOLOGY

This research is based on primary data. The primary data was collected from the students with the

help of a questionnaire. The questionnaire was developed based on strong literature support in

consultation with students, academicians and bank managers in the field of HE finance. The respondents

were selected on the basis of data collected from various banks and professional education institutes

operating in Punjab state of India. The unit of analysis was the students pursuing professional courses in

the principal cities of Punjab and Chandigarh. The reasons for selecting this state of India are; better

educational infrastructure and more and more banks offering student loans. The pre-pilot and pilot survey

was done to improve the questionnaire. Later on, large scale survey was carried out at various

professional institutes by randomly selecting respondents based on data available from banks and

institutes. The questionnaires were distributed among students after having telephonic discussions with

them and later on, followed for further information and their response. A total of 360 questionnaires were

sent with receipt of 248 completely filled responses (Pass out=50, studying=198) yielding a response rate

of 69%. Total of 198 filled questionnaires comprised; 90 responses from. B.Tech students, 68 responses

from MBA students, 20 responses from Medical students and 20 responses from Law students The


technique of factor analysis using principal component analysis with varimax rotation was applied to

classify the students’ attitude towards HE loan for professional courses. The technique of confirmatory

factor analysis was applied to test the students’ attitude towards education loans. This research intends to

prove the research framework (Fig. I) by developing and testing hypotheses as follows:

H1: Students’ attitude towards HE loan is affected by constraints on decision making to borrow

During discussion with the students it was observed that decision to borrow is affected by various

constraints. In many cases it was seen that insufficient financial support was the typical hindrance in the

way of getting good professional education. However, students understand the benefits of professional

education and this lead to:

H2: Students possess positive attitude towards study loan

Contrary to past myths that students afraid of availing HE loans, discussions with student borrowers

reveal that they understand the benefits of HE loan and possess positive attitude towards the same.

However, they are worried about their placements in good organizations/high rated companies. Hence, it

leads to:

H3: Students’ attitude towards study loans is affected by perception of life after loan

Discussions with the students revealed that they possess good vision for life after completing their

course of study. Most of them want to live a fulfilling life. They view the things in positive perspective

and look at the potential loan related problems as financial and social challenges. Hence, it leads to:

H4: Students’ attitude is affected by decision making skills to borrow

During survey it was found that students don’t blindly avail HE loan but they make all calculations

using information available online. They compare loan policies of various banks along with the interest

rates charged. All these calculations help them in better decision making. Also, they understand the pros

and cons of availing or not availing the loan. Hence it leads to:

H5: They understand the relationship between loan burden and its benefits

Finally, discussion with student borrowers led to the conclusion that the forecasting regarding their

future helps them to understand the relationship between loan burden and its benefits.

Scale Development

The twenty nine items/statements were selected for HE loan based on strong literature support in

consultation with students, academicians and bank managers. Pre-pilot and pilot survey was done to

improve the questionnaire. Based on survey comments many items were added and deleted yielding the

effective student loan issues to 27. These items were rated on seven-point Likert scale on two time

horizons to measure the variability in the recorded responses. Later on improved questionnaire was

subjected to large scale survey.


Scale Refinement

The questionnaire so developed was tested through pre-pilot and pilot survey. Later on large survey

was done. The improved questionnaire responses were subjected to rigorous statistical analysis as

follows:

Table 4 : Scale Statistics, Corrected Item-To-Total Correlation, and Communality for Students’

Attitude towards Education Loan for Professional Courses

Code Item Mean SD Scale mean if item deleted

Scale variance if item deleted

Corrected item-total correlation

Communality

Initial Extraction

A1 Student satisfaction 3.8065 1.3716 126.1089 749.7654 .8750 1.000 .973

A2 Borrow again 3.8105 1.3618 126.1048 750.4100 .8726 1.000 .983

A3 Recommendations to borrow

3.8145 1.3550 126.1008 750.6659 .8737 1.000 .980

A4 Loan from same bank 3.8185 1.3510 126.0968 751.8368 .8599 1.000 .972

A5 Information sharing 3.8226 1.3501 126.0927 752.9509 .8449 1.000 .947

B1 Convenient life 2.1532 .6975 127.7621 787.7934 .7430 1.000 .965

B2 Feel at par 3.2056 .8161 126.7097 788.5712 .6139 1.000 .745

B3 Loan for growth 4.1452 .7220 125.7702 787.6271 .7211 1.000 .927

B4 Better career plans 5.1371 .7402 124.7782 787.5012 .7058 1.000 .847

B5 Works Part-time 6.1371 .7671 123.7782 788.4729 .6572 1.000 .861

B6 Dependence on other funds

5.1532 .7370 124.7621 789.9715 .6483 1.000 .806

C1 Feel financially constrained

5.6129 1.5726 124.3024 746.3333 .7980 1.000 .940

C2 Unpleasant loan payments

5.6290 1.5427 124.2863 745.7193 .8222 1.000 .972

C3 More responsible 5.6210 1.5329 124.2944 746.4677 .8185 1.000 .942

C4 Delayed car buying 5.6371 1.5236 124.2782 747.0842 .8161 1.000 .973

C5 Delayed house buying 5.6371 1.5156 124.2782 748.3555 .8046 1.000 .945

C6 Delayed children 5.6452 1.5148 124.2702 749.6636 .7886 1.000 .935

C7 Loan burden 5.6613 1.5212 124.2540 748.4980 .7997 1.000 .948

C8 Delayed marriage 5.7097 1.4991 124.2056 750.0426 .7926 1.000 .917

D1 Economic help 3.4758 1.7237 126.4395 745.1866 .7355 1.000 .978

D2 Satisfies education needs

4.5081 1.7332 125.4073 748.4691 .6949 1.000 .939

D3 Timely availability 5.2944 1.5264 124.6210 746.7788 .8183 1.000 .952

D4 Good course 5.2984 1.5137 124.6169 748.1239 .8086 1.000 .940

D5 Sufficient loan 5.9677 .8765 123.9476 784.1713 .6607 1.000 .749

D6 Helps in continuing education

5.3669 1.4863 124.5484 749.6090 .8055 1.000 .955

D7 Good college 4.5121 1.7308 125.4032 747.0918 .7111 1.000 .956

D8 No negative effect 5.3347 1.5234 124.5806 747.3133 .8133 1.000 .951

Statistics for Scale: Scale reliability (Alpha) =0.9748, N of cases =248,Mean=129.9153, Variance=817.3734, Std Dev=28.5897, N of Variables=27

Item Means: Mean=4.8117, Minimum=2.1532, Maximum=6.1371, Range=3.9839, Max/Min=2.8502, Variance=1.0364

Item Variances: Mean=1.857, Minimum=0.4865,Maximum=3.00, Range=2.5174, Max/Min=6.1741,Variance=0.6839

Item and scale reliability: Reliability analysis was performed to retain and delete the scale items

for the purpose of developing a reliability scale. Here, scale reliability (Cronbach’s Alpha), communality,

item-to-total and inter-item correlation was applied. The items with low correlation were subject to


deletion. The corrected-to-total correlation range from, 0.875 to 0.6139 and communality range from

0.745 to 0.983, and Cronbach’s Alpha=0.9748. Here, it is pertinent to mention that communality ≥0.5,

Cronbach’s alpha ≥0.7, item-to-total correlation ≥0.5 and inter-item correlation ≥0.3 is good enough for

doing research in social sciences (hair et al., 2009). In this phase all the requirements were met for

conducting factor analysis as shown in Table 5 & 6.

Table 5 : Correlation for students’ attitude towards education loan for professional courses

A1 A2 A3 A4 A5 B1 B2 B3 B4 B5 B6 C1 C2 C3 C4 C5 C6 C7 C8 D1 D2 D3 D4 D5 D6 D7 D8

A1 1.00

A2 .990 1.0

A3 .980 .984 1.0

A4 .962 .969 .970 1.0

A5 .937 .948 .954 .952 1.0

B1 .759 .751 .733 .738 .708 1.0

B2 .607 .589 .602 .548 .581 .805 1.0

B3 .740 .732 .715 .720 .691 .960 .780 1.0

B4 .708 .701 .683 .689 .660 .900 .731 .872 1.0

B5 .664 .657 .640 .645 .618 .906 .737 .878 .822 1.0

B6 .626 .634 .633 .654 .642 .868 .701 .841 .785 .793 1.0 .

C1 .727 .705 .700 .670 .650 .549 .469 .513 .526 .474 .429 1.0

C2 .731 .712 .711 .684 .668 .557 .476 .521 .534 .481 .449 .98 1.0

C3 .727 .712 .715 .692 .679 .547 .467 .511 .524 .471 .453 .95 .96 1.0

C4 .710 .698 .705 .686 .677 .525 .448 .490 .504 .452 .446 .95 .96 .953 1.0

C5 .691 .683 .693 .678 .673 .535 .457 .500 .514 .461 .470 .92 .95 .930 .953 1.0

C6 .668 .664 .678 .667 .666 .504 .429 .469 .484 .432 .455 .94 .93 .922 .947 .93 1.0

C7 .686 .686 .704 .697 .700 .515 .438 .480 .494 .442 .480 .91 .94 .927 .956 .97 .953 1.0

C8 .658 .665 .683 .676 .679 .492 .469 .458 .474 .422 .458 .89 .92 .907 .936 .92 .931 .951 1.0

D1 .556 .553 .544 .531 .513 .495 .391 .501 .482 .450 .420 .38 .40 .409 .393 .39 .363 .352 .35 1.0

D2 .512 .516 .507 .494 .476 .444 .404 .452 .435 .404 .373 .34 .37 .371 .355 .34 .325 .314 .38 .96 1.0

D3 .679 .675 .667 .652 .633 .589 .471 .589 .566 .529 .500 .47 .49 .496 .480 .46 .446 .442 .44 .92 .92 1.0

D4 .660 .660 .655 .644 .628 .562 .448 .564 .541 .505 .489 .46 .48 .489 .476 .46 .449 .448 .44 .95 .91 .94 1.0

D5 .453 .446 .452 .436 .413 .286 .230 .283 .306 .266 .221 .50 .53 .521 .531 .51 .491 .490 .49 .74 .72 .77 .70 1.0

D6 .645 .659 .661 .658 .650 .543 .468 .546 .524 .488 .499 .42 .43 .461 .454 .44 .441 .447 .49 .94 .94 .93 .94 .70 1.0 .

D7 .507 .521 .529 .533 .533 .455 .355 .462 .444 .413 .446 .31 .34 .365 .364 .36 .365 .369 .37 .96 .92 .92 .93 .71 .95 1.00

D8 .649 .661 .668 .669 .665 .538 .426 .541 .519 .484 .509 .43 .46 .479 .476 .47 .471 .481 .48 .94 .90 .93 .93 .71 .95 .965 1.0

Factor Analysis for students’ attitude for higher education loan

The maximum scale score would be 189 if all the 27 items were rated as 7. However, the mean score

(Table 4) of 129.9153 indicates that 69% of the items indicated in the questionnaire support their

applicability in students’ attitude towards HE loan. The factor analysis was done with principal

component analysis using varimax rotation. The value for Kaiser-Meyer-Olkin(KMO) Measure of

Sampling.

Adequacy was 0.956, Cronbach’s Alpha for factors range from 0.9928 to 0.9826, the factor loadings

range from 0.9928 to 0.9644, the vales for Bartlett’s Test of Sphericity were: Chi-square=15967.935,

degree of freedom=351, and level of significance(p)=0.000. Here, it is pertinent to mention that


KMO≥0.7, Cronbach’s Alpha≥0.7, p≥0.05, and factor loading≥0.5 is good for the validity of factor

analysis results (Hair et al., 2009). The results for factor analysis are shown in Table 6.

Table 6 : Scale reliability and factor analysis results for students’ attitude towards education

loan for professional courses

Code Item Component

Loan

Burden (F1)

Benefits of study loan (F2)

Life after loan (F3)

Borrowing decision (F4)

C4 Delayed car buying .923

C2 Unpleasant loan payment .916

C6 Delayed children option .910

C7 Loan burden .909

C5 Delayed house buying .907

C1 Feel financially constrained .903

C8 Delayed marriage .895

C3 More responsible .895

D1 Economic help .946

D7 Helping in selecting good college .942

D2 Fulfills educational needs .937

D6 Helps in continuing HE .888

D8 No negative effect on academic performance

.881

D4 Selection of good course .876

D3 Timely availability .875

D5 Sufficient amt. of loan .752

B1 Convenient life .880

B3 Loan for growth .864

B5 Works Part-time .860

B6 Dependence on other funds .824

B4 Better career plans .819

B2 Feel at par with other students .798

A4 Loan from same bank .717

A5 Information sharing .713

A2 Borrow again .709

A3 Recommendations to borrow .708

A1 Student satisfaction .689

Scale 0.9928 0.9644 0.9920 0.9826

% variance 63.551 14.958 10.179 3.893

Cumulative % Variance

63.551 78.509 88.687 92.581

Eigen value 17.159 4.039 2.748 1.051

Kaiser-Meyer-Olkin Measure of Sampling Adequacy(KMO)=0.956

Bartlett's Test of Sphericity: Chi-Square=15967.935, Df=351, Significance level=0.00


EXPLANATION OF FACTOR ANALYSIS RESULTS

Loan burden (f1): This was the most important factor covering eight items-feels financially

constrained, finds loan payments unpleasant, feels more responsible, delayed car buying, delayed house

buying, delayed children option, feels loan burden of paying installment, and delayed marriage. This

category explains the 63.551% of variance with Eigen value of 17.159. The factor loadings range from

0.923 to 0.895 with Cronbach’s Alpha of 0.9928. The items covered are in consonance with the studies

quoted in Table 3.

Benefits of study loan (f2): This was the second important category covering eight items-economic

help for attending college, fulfills educational needs, timely availability, getting into good course,

sufficient loan amount helps in continuing HE, help for good college selection, and no negative effect on

academic performance. It explains 14.958% of variance with Eigen value of 4.039 and Cronbach’s Alpha

of 0.9644. The factor loadings range from 0.946 to 0.752. The items covered here are also in consonance

with the studies quoted in Table 3.

Life after loan (f3): This was the third important category with 10.179% of variance, 2.748 Eigen

value and Cronbach’s Alpha of 0.9920. The factor loadings range from 0.880 to 0.798. The six items

covered-life became convenient life, feels at par with other students, loan for personal growth, better

career plans, works part-time, and depends on funds other than loan. The studies are in consonance with

studies quoted in Table 3.

Borrowing decision (f4): This was the fourth important category covering five items-satisfied with

decision to take loan, borrow again, recommend others to borrow, take loan from the same bank, and no

hesitation in sharing information about loan. These items with Eigen value of 1.051 explain 3.893% of

variance with loading range from 0.717 to 0.689 and Cronbach’s Alpha of 0.9826. The items covered

here are also in consonance with studies quoted in Table 3.

Confirmatory Factor Model for students’ attitude towards education loan for professional

courses and other student loan related issues

The research framework is shown in Figure 1. Twenty seven items/statements were selected for

student attitude for HE loan. These items were rated on seven point Likert scale. The proposed

confirmatory structural model was tested using AMOS 4.0 version. The results for proposed

confirmatory model are shown in Figure 1.

CONFIRMATORY MODEL RESULTS

The confirmatory model loadings are shown in Figure 1. The results of Figure 1 has; RMR=0.056,

NFI=0.86, RFI=0.84, IFI=0.90, TLI=0.90, CFI=0.90. Here, it is pertinent to mention that values for fit

indices: NFI, RFI, IFI, TLI, and CFI ≥ 0.8


RMR value≤0.05 and chi-square level of significance ≥0.05 is good enough for structural validity of

the model (Hair et al., 2009). All the loading are significant and the effect estimates are shown in

Table 7.

DISCUSSION OF RESULTS

The results in Fig. 1 indicate the loadings for the students’ attitude towards education loan for

professional courses. The loading for loan burden (f1) has range from 1.00 to 0.92. All the loadings are

significant. The loading for feel financially constrained was set to 1.00. It is due to the facts that this

factor is the most important for the loan burden construct. The next maximum loading is for feeling more

responsible after taking loan (1.0). The other items have loadings; delayed car buying (0.97), delayed

house buying (0.98), delayed children option (0.96), feels loan burden (0.95), delayed marriage (0.96)

and unpleasant loan payments (0.92). All the loadings in this category of challenges are significant

indicating their contribution for loan burden construct of student attitude towards education loan.

The loading for benefits of study loan (f2) has range from 1.00 to 0.38. The maximum loading was

set for provision of economic help via loan (1.0). It is due to the fact that economic considerations are

most important for benefits of HE loan. The next maximum loading is for helping in selecting good

educational institute (0.99). It shows that students always select good professional institutes for bright

future. The loadings for the other items; satisfies educational needs (0.98), timely availability (0.87),

helps in good course selection (0.86), sufficient loan amount (0.38), helps in continuing education (0.85),

and no negative effect on academic performance of students (0.87), show their importance for this

category of challenges. Here, it is observed that loading for whether the loan amount is sufficient is low

as compared to other items. The reason for low loading is that the students expect to avail HE at still very

low costs.

The loading for life after loan (f3) has range from 1.0 to 0.92. Here, the items have loadings;

convenient life (1.0), feel at par (0.95), loan for personal growth (1.0), better career plans (0.96), part-

time working (1.0), and dependence on other funds (0.92). The maximum loading for convenient life,

loan for personal growth, and part-time working speaks about the vision of the students to enjoy life after

completing HE and by settling down professionally. All other loadings also indicate their significance for

this category relating to students’ attitude.

.


Figure 1 : Confirmatory model for students’ attitude towards higher education loans

1

1

1

1

.38

1

.92

.99

.92

1.00

1.00

1.00

.96

1.06

r4

1.69

r5

11

Student Attitude

.19

r2

.09

r1

1.74

r3

.87

1

.41

1

1.00

.95

.96

.85

.86.97

.98

.96

.95

.98

.87

.95 1

1

1

1.00

.98

1.00

.85

1.00

1

.97

1.00

1.00

.88

-.07

e4

e3

e2

F4

Student satisfaction

.02

e5

1

Borrow again

.01

1

Recommendations to borrow

.051

Loan from same bank

.10

1

Information sharing

.17

e1

1

F3

Convenient life

.00

e6

Feel at par

.23

e7

Personal growth

.04

e8

Better career plans

.10

e9

Works Part-time

.10

e10

Dependence on other funds

.13

e11

1

1

1

1

1

1


Table 7 : Effect estimates for students’ attitude for study loan

Fig.I

Student

attitude f1 f4 f3 f2 Remarks

Total

Effect

f1 0.854 0.000 0.000 0.000 0.000 Chi-square=2449.505,

RMR=0.056, Level of

significance=0.00, NFI=0.86,

RFI=0.84, IFI=0.90, TLI=0.90,

CFI=0.90

Hypothesis: H1, H2, H3, H4, and

H5 are supported

f4 1.000 0.000 0.000 0.000 0.000

f3 0.409 0.000 0.000 0.000 0.000

f2 0.880 -0.069 0.000 0.000 0.000

Direct

effect

f1 0.854 0.000 0.000 0.000 0.000

f4 1.000 0.000 0.000 0.000 0.000

f3 0.409 0.000 0.000 0.000 0.000

f2 0.880 -0.069 0.000 0.000 0.000

Indirect

Effect

f1 0.000 0.000 0.000 0.000 0.000

f4 0.000 0.000 0.000 0.000 0.000

f3 0.000 0.000 0.000 0.000 0.000

f2 -0.059 0.000 0.000 0.000 0.000

The loading for borrowing decisions (f4) ranges from 1.00 to 0.95. The maximum loading (1.0) is

set to student satisfaction from HE loan decision. It is due to the fact that students derive satisfaction

after availing this financial aid. The satisfied student shall be borrowing again for the remaining years of

professional education. Hence, the loading for borrowing again is also loaded to 1.0. The loading of other

items is like this i.e. no hesitation in sharing information about loans with classmates (0.95), taking loan

again from the same bank, if needed (0.97), and recommending to others to borrow (0.98).

The total effect of confirmatory model (Table 7) shows contribution of each of the four groups to

students’ attitude formation regarding education loans. The values are like this: loan burden (0.854),

borrowing decision (1.0), life after loan (0.409) and benefits of study loan (0.880) All of them

contributes towards framing students’ attitude for education loan for professional courses. Also, benefits

of study loan have total effect of -0.069 for loan burden. These effects prove the hypothesis stated in this

research. Taken together all the items helped to map the student attitude towards education loan for

professional courses.

Practically, the performance of any student loan scheme depends on the loan repayment collection

mechanism and its efficiency. Collection mechanisms may be of two types i.e. self-collection and agency

collection. Under self-collection mechanism the organizations on their own operate the loan schemes and

also take care of repayment collections. While in case of agency collection, the task of collection and

follow-up is outsourced to a specialist agency. Other possible options with the banks w.r.t. repayment

collections can be; involving national level agencies like income tax administration and social security


department. In case of income contingent loans the tax authorities can be involved in collection

mechanism because information on individual income is required to the banks as well as to the tax

authorities. More importantly there is need to set up a student loan development bank to coordinate the

education credit related efforts of various banks.

SUGGESTIONS

Some suggestions came up during discussions with students and the bank officials. These

recommendations can play a significant role in addressing the various issues associated with student loan

schemes operating in India:

Customized Education Loan Products: Banks should innovate and provide education loan

products to suit to the individual requirements of student borrowers. This will definitely add to the

satisfaction level of students who are taking education loans.

Separate student loan department: Banks should have a separate department to deal with student

loan applications and requests so as to meet the seasonal demand of education loans efficiently.

Moreover, this separate unit can better concentrate on potential borrowers and designing of creative

offerings for students.

Making loan procedure less cumbersome: At present loan procedures adopted by banks are very

complex requiring many formalities to be completed by the applicants. However other private student

loan agencies like Credila Financial Services understand well the needs of the students and counsel them.

Hence banks need to reduce the formalities and paper work requirements relating to student loan

approvals.

Student loan development bank: To provide financial assistance at discounted/subsidized rate to

all the other banks who are offering education loans, there is dire need to set up a student loan

development bank at national level. This bank should also take the responsibility of coordinating the

lending efforts of all the banks offering education credit.

Loan serving agency: This agency will ensure hassle free education loans to the student borrowers.

This agency should make efforts to reduce student loan defaults by maintaining better relationships with

student borrowers and educational institutes. It should also be held responsible for designing innovative

and customized products for potential loan seekers.

Expertise in collecting and recovery mechanism: In the absence of loan serving agency, both

public and private sector banks in order to improve collections and recovery, should came up with a

distress alleviation measure to help students who do not get better paying jobs. The relaxation to such

students can be in the form of extending the moratorium period to two years or more. Moreover the

expert services can be taken from an independent agency which is better equipped to handle issues

relating to collection and recovery of interest/ loan amount from students.


Proper advertisement of loan schemes for students: There should be proper promotional activities

in order to spread awareness about education loan schemes among students and their parents. Banks can

hold advertisement campaigns for the public on Saturdays or Sundays.

System to track students after they graduate: After passing out from educational institutes,

students remain reluctant in repaying their education debt. The banks should have well developed system

to keep track record of students’ residence, job placement, area or location of job, current pay package

etc. This would minimize default risk to some extent if not altogether.

LIMITATIONS AND FUTURE RESEARCH

It is difficult to say that the student loan scheme operating in India is the ideal one. It is not flawless;

some major issues associated with current student loan scheme need to be addressed immediately so as to

render maximum service to the student borrowers. Despite the statistical sophistication of confirmatory

technique applied on data collected through survey, this paper is more concerned about students’ attitude

towards education loan and the various problems faced by them while trying to avail it from different

banks. Future research can further explore into students’ attitude and perceptions towards HE Finance by

taking into consideration the students’ financial background, the type of professional courses they are

pursuing and rural/urban divide. Also student borrowers’ stress level can be related to the income of their

family and the type of professional course they are into. During the survey it was found that urban

students are more aware of HE Finance Schemes as compared to rural students.

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Documents

STUDENTS’ ATTITUDE TOWARDS EDUCATION LOANS FOR