Bank’s Discriminating Policy against Students of University of Georgia
A major part of Georgia’s leading commercial banks issues students loans with different terms, but with the almost same interest rates.
It is interesting whether Georgian students find the interest rates and terms affordable. Today’s article covers Bank Republic’s students loan terms. The product’s terms for BA students are as follows:
-Currency: GEL, USD;
-Maximum Amount of Loan: 10 000 GEL or the same amount in USD;
-Annual interest rate: from 19%;
-Annual Effective Interest Rate: 25%;
-Maximum maturity period: 12 months;
-Bottom incomes requirement for a borrower: 200 GE:;
-Bottom total incomes for two co-borrowers: 400 GEL;
Interest rates draw the major interest among the above components. We will discuss concrete samples to clarify whether the annual effective interest rate genuinely starts from 25% as it is reported on the Bank Republic’s official website. If students take a 2500 GEL loan with a 12 month maturity period and with a 19% interest rate, they will have to pay 247 GEL a month. The bank assures the effective annual interest rate starts from 25% and this is partly true, because if we use the NBG’s effective interest rate calculator, the annual effective interest rate will make up 52.51%. This signifies the bank does not cheat assuring the annual effective interest rates start from 25%. At the same time, the bank does not specify the top verge of the interest rate above 25%.
The analysis shows the effective interest rate is not favourable in reality. As to the nominal interest rate (19%), we should refer to the European samples to make sure whether the 19% interest rate is adequate for Georgian students from the standpoint of their living conditions. For example, in the United Kingdom students loans are not issued for making direct commercial profits and the interest rates depend on the inflation level so as students return the same amount of the loan they have borrowed for education fee payments. Moreover, commercial banks issue loans for covering expenditures on library, laboratory, books and computers. Students are to start repaying the debt in six months after the university graduation. This period is called as a grace period and the loan is covered from a 5 to 10 year period, while our Bank Republic issues loans with a grace period to only those students who have enrolled in the MA level studies abroad.
According to the Georgian Ministry of Education and Sciences, a total of 51 accredited universities operate in Georgia, and Bank Republic issues students loans to students of only 10 ones. It is unclear why Bank Republic does not issue loans to students of other universities?!
It is interesting what interest rates work in the United Kingdom. From 1990 to 2014 an averaged interest rate on students loans makes up 3.8% and this is very low yield compared to the Georgian reality.
These pretences do not refer to only Bank Republic. This is the result of the ugly system that was formed after a rush move to the market economy and grating maximum of freedom to commercial banks.
The reader will make conclusion whether the bank products designed for students can be genuinely called as a students loan with preferential terms and whether the annual interest rate of 52.51% can be genuinely preferential for poor students.