Preparing your child for education loan
This is perhaps the first time your child is taking a loan. Heres how
you can guide her to use it wisely
KIRAN TELANG
You've wisely earmarked certain investments for your child's
education. For some reason, though, a shortfall looms. Perhaps the
cost of the course selected by your child is more than what you
planned. Or s/ he wishes to go abroad for higher studies. And you were
unprepared for that. An education loan can bridge the gap.
In their eagerness to embark on a career, children may not grasp the
significance of taking loans – or of repaying them. Its perhaps the
first time they face a loan officer – and the first ever situation of
negotiating a loan.
This, therefore, calls for greater parent participation.
But first, heres the lowdown on education loans.
A primer
Education loans are available for studies beyond the plus- 2 or higher
secondary school. They can be availed of by a student with parents/
guardians as co- applicants, or by a parent for a child. Various banks
and financial institutions provide loans for education, both in India
and abroad. Though each institution has its own set of rules, they are
fairly standardised across the board.
The limit for education in India is ₹ 10 lakh and ₹ 20 Lakh for
education abroad. Interest rates on the loan vary from 9 to 14 per
cent per annum. Of the cost of the education 15 per cent is to be
provided by you; the balance can be funded by a loan if the total cost
of education crosses ₹ 4 lakh. If you intend to take a larger loan
amount, you may have to provide third- party guarantees or additional
collateral.
Such loans generally cover costs of admission, tuition, boarding and
books; for studies abroad, travel cost is included. Payments are made
directly to the college every year. Of course, good academic
performance constitutes one of the terms and conditions in order to
continue to be eligible for the loan. Progress reports need to be
submitted regularly during the period of the loan. Details of such
terms and conditions are available on websites of banks and financial
institutions.
Courses that usually get preference
Generally medical, engineering and MBA courses figure higher on the
list of approvals for loans. While for banks, education loans are
considered part of priority- sector lending. they have to ensure that
such loans do not turn into non- performing assets (NPAs).
In the last few years the number of education loans becoming NPAs has
risen, primarily because of the unfavourable economic environment.
One of the factors for the provision of loans is the repayment
capacity of an applicant. It is usually easier, therefore, to secure
loans for courses which have a greater chance of employment and income
generation. The repayment capacity of a parent taking on a loan for a
child will be taken into consideration.
The reason is that there is the greater likelihood that the parent
already has loans to his/ her name like a home loan or a vehicle loan.
This naturally affects repayment capacity and reflects in an
application for an education loan.
What parents should take cognizance of
Parents are advised to have open discussions with their children about
money and taking loans. Both affordability and willingness to fund a
child's higher education should be openly discussed.
Parents should consider several aspects before they sign for
educational loans for their children. The primary one is their own
preparedness for retirement. A retirement corpus should not be touched
in order to fund any other goals. In such cases, a student taking an
education loan would be a far better idea. S/ He can start repaying
the loan once s/ he starts earning. Most banks provide a pause period
for re- payments. Repayments are generally due on securing a job or
six months from completing a course, whichever is earlier.
If you actually begin paying off the interest component during the
course period, you will get one per cent on the interest rate. If a
person is unable to secure employment on completing a course, the
parent will have to start repaying the loan. So parents have to
prepare for the worst case and judge how such payments will affect
their own finances.
Of course, a student will start life – and a career – with the burden
of debt. S/ He will have up to eight years to repay the loan in full.
Naturally, that will affect her/ his own financial goals. For them,
the prime responsibility would be to pay off the student loans as
quickly as possible so as to free up cash flow towards their own
financial goals.
The person who has taken the loan ( parent/ child) will be eligible
for tax benefits under Section 80E of the Income Tax Act, 1961. This
offers deduction of the interest amount from your income, the benefit
only applicable on the interest.
This tax benefit comes over and above the benefits available under
Section 80C. However, tax benefit should not be the primary reason for
taking a loan; and instead should be looked on as a byeproduct of
fulfilling a need.
The author is a Certified Financial Planner FURTHER YOUR CHILDS CAREER SMARTLY
[1]Education loan can bridge the funding gap for your childs further
studies, so use it judiciously [1]Parents will need to sign up as co-
guarantors or put up additional collateral for higher loan amounts
[1]Theres a moratorium on interest repayment till the course is over,
but paying early helps reduce costs [1]Tax breaks are available on
interest payments, but that should not form the basis for taking a
loan
Proxy advisories: Promises and perils
PRATIP KAR
Globally, the main business of proxy advisors is to advise or make
recommendations to the institutional investors on the resolutions put
to vote at shareholder meetings and even execute votes on
institutional proxies. Research and governance ratings are only their
ancillary activities.
The business grew in the US and UK in the past 25 years, and its
driver was the rapid institutionalisation of the securities market,
consciously pushed by regulatory policies. The number of such firms
increased in the two continents in the 1990s and even more in the
2000s.
Problems in the business began to surface gradually when issuers also
became the consumers of the proxy advisors and started to avail of
their consultancy services.
The proxy advisors began to advise the issuers even on matters on
which they also advised the institutional investors. The conflict of
interest was apparent, but conflicts of interest often make good
business — in the short run. Over the longer term, it sullies
reputations.
In both the US and the UK, concerns surfaced about the proxy advisory
business. The US Securities Exchange Commission put out for public
comment a Concept Release on the US proxy system; the US Government
Accountability Office sent a report to the Congress on issues related
to proxy advisory firms and the European Securities Market Authority
published a Discussion Paper on the proxy advisory industry for policy
considerations.
The regulators are seriously reviewing the performance of proxy
advisors and considering regulating them.
The Indian securities market is far from being institutional in
character, certainly not to the degree of the markets in the US and
Europe are; and the necessary preconditions for the take- off and
drive to maturity of this business are clearly missing. Whether early
and growing media exposure, which proffers an impression of solidity
and great promise for the business, will convert to a well grounded
reality, or be what Daniel Kahneman would call " an illusion of
validity", remains to be seen.
Let us consider the share of institutional investors in the securities
markets in the two continents. In the US, for example, the share of
the institutional investors grew from about 7 or 8 per cent of market
capitalisation in 1950 to the current level of 66 per cent for the
NYSE and around 70 per cent for the NASDAQ markets. The position has
been no different in the UK and rest of Europe. Contrast this with the
Indian market. A recent study conducted by Bala N Balasubramanian and
Anand Ramaswamy of IIM- A, on a sample of 189 companies which have
been part of the Nifty and NSE CNX 100 for some time between 2001 and
2011, concludes that " concentrated ownership and control is the
predominant shareholding pattern" in India.
The conscious regulatory push towards the growth of proxy advisors in
the US perhaps came from the 1988 amendment to the Employee Retirement
Income Security Act of 1974, requiring " pension plan fiduciaries to
consider plan beneficiaries' best interests when voting stock held by
the plan". Changes proposed by the US Securities Exchange Commission
in 2003 gave it a further boost, as the managers had to appoint proxy
advisors to demonstrate that they were "taking their voting
responsibilities seriously".
Besides, over time the proxy voting process grew in complexity,
necessitating the involvement of a number of third party participants
and making the chain of accountability more complex, the process less
transparent. Such complexities grew in the UK as well as in the
European Union. The growing dependency on proxy advisors and the
successes of a few firms gradually turned the business into an
oligopoly on the dominant firm model.
The three major current concerns about the business are: conflict of
interest; giving voting recommendations without adequate
accountability and oversight for informational accuracy; and the
misalignment of voting power and economic interest — as the proxy
advisory firms, which control or significantly influence institutional
shareholder voting, did not have any economic stake in the issuers.
The evils of the first have already been discussed. The second impairs
the judgment of the informed shareholders; and the third gives rise to
the classical agency problem.
These problems and perils have lessons for the nascent proxy advisory
business in India. First, to avoid a common pitfall — the overwhelming
urge to make a mark too facilely. The second, there should be a
readiness to subject themselves to the same levels of governance
standards and transparency demanded from their clients and from market
participants. For this the proxy advisors must be prepared to:
[1]Publicly disclose the list of all actual clients as well as the
advice given to them on shareholder matters and demonstrate that these
advices are free of any conflict of interest; [1]Refrain from
consulting for issuers on matters which are put to shareholder vote
and simultaneously advising institutional clients on the same matters
or providing ratings to the same issuers; [1]Publicly disclose the
structure of their businesses, the composition of their boards and key
management personnel; and [1]Publicly disclose their full financial
results with business segmentation.
In a market in which the principal growth drivers for the business are
weak, these voluntary disclosures complemented by mature and
dependable advice may help establish the credibility of the business.
Otherwise the business would have to be prepared to be regulated by
Sebi in the same manner as the credit rating agencies.
The author was formerly executive director of Sebi and is currently
consultant to the World Bank. pratipkar21@ gmail. com
The three major concerns about proxy advisors are: conflict of
interest; giving voting recommendations without adequate
accountability; and the misalignment of voting power and economic
interest
Source Business line
NEW DELHI, NOV. 9:
Apollo Tyres has not breached the buyout agreement with Cooper Tire, a
US court has held.
The Delaware Chancery Court said that Apollo has used "reasonable best
efforts" to negotiate with United Steelworkers (USW), which represents
Cooper's employees, and that, contrary to Cooper's claims, "nothing in
Apollo's conduct indicates buyer's remorse."
Apollo's $2.5-billion merger deal has been facing stiff resistance
from the American firm's employees in Findlay, Ohio, and Texarkana,
Arkansas. On October 4, Cooper had filed a complaint before the
Delaware court to push for completion of the merger, alleging that the
Indian firm was trying to delay an agreement with USW.
In a statement on Saturday, Apollo said it continued to believe in the
merits of the combination and was committed to finding a 'sensible'
way forward.
However, Cooper Tire, in a statement, said it was disappointed with
the court's decision. "Cooper is assessing its options with respect to
this decision and awaits the Court's ruling on other open matters in
this case," it said. "There is a further ruling to be made. I do not
have a date for that. The case has not concluded," said spokesperson
Anne Roman.
The company was hoping Judge Sam Glasscock would order Apollo to
accept a labour agreement that Cooper had negotiated and then order
that the buyout deal be closed on its original terms. When the two
companies announced the deal in June, they had expected it to close by
October 4.
Cooper had alleged that by delaying resolution of the dispute with
USW, Apollo was in breach of the merger agreement. The Ohio-based
company also maintained that the situation with USW and the joint
venture partner and union in China were risks that Apollo assumed
under the merger agreement. Earlier this week, Cooper said it had
reached tentative agreements with USW to help it close the deal with
Apollo.
ronendrasingh.s@thehindu.co.in
(This article was published on November 9, 2013)
Keywords: Apollo Tyres, Cooper Tire, Delaware Chancery Court, United
Steelworkers (USW), ompletion of the merger
--
CS A Rengarajan
9381011200
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