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Soon, cheaper education loans, Government Readying Rs 4,000-Crore Scheme To Absorb Interest Burden
By parul118, Section Education
Getting finance for costly professional courses is set to become cheaper for students from modest middle class homes. A Rs 4,000 crore plan is in the works that will enable the government to take over the interest burden on education loans during the "moratorium period" -- the time when students are pursuing academics and have not yet begun earning.
As things stand, education loans come with a clause that allows students not to pay interest during their academic life. The interest for this period is added to the principal and payments begin once the student starts working. But now, according to a mega scheme being finalised by the Planning Commission, the Prime Minister's Office and the ministry for human resource development, the government will take over the interest burden for the moratorium period estimated at around Rs 650 crore a year, assuming that five lakh students from families earning Rs 2.5 lakh a year or less avail of the loans. To qualify for the scheme, the student's household income must not exceed Rs 2.5 lakh per annum. It will be open for professional and technical courses at the under-graduate or post-graduate levels. Broadly, this means students from middle class families (with monthly income of around Rs 20,000) would get an interest waiver while they pursue courses like medical, en gineering, dental, architecture, management or other such courses recognized by the Medical Council of India, University Grants Commission or All India Council for Technical Education, among others. Click on "Full Story" for more...
The scheme is expected to cost the government Rs 4,000 crore for the 11th Plan period. The government, which intends to implement the scheme from the 2008 academic session, also wants to restrict the waiver benefit to one loan per student. So, if you borrow to complete your graduation, don't expect a similar helping hand for a PG course.
Bankers said that the move would also encourage many of them to lend more freely. In the absence of any clarity on when a borrower starts working, bankers often shy away from extending education loans. Some of them even insist on collaterals though the government has repeatedly maintained that the practice is virtually non-existent now. In recent years, a large number of students, especially those pursuing MBA courses in India or going abroad for higher studies, have borrowed from banks. According to latest data released by Reserve Bank of India, there was a 51% rise in education loans, from Rs 9,962 crore at the end of March 2006 to over Rs 15,000 crore at the end of March this. Tax sops too have played a role in accelerating loans and with the government allowing parents to avail of benefits, there could be a further spike in the coming year. Earlier, tax sops were available only if the student borrowed and paid the loan individually on completing his education. The existing scheme for educational loans, devised in consultation with RBI and Indian Banks Association, covers all type of courses, including professional courses, in schools and colleges in India and abroad. Under the scheme, banks provide a loan of up to Rs 7.5 lakh for studies in India and up to Rs 15 lakh for studies abroad. For loans up to Rs 4 lakh, no collateral or margin is required and the interest rate is not to exceed the PLR while for loans above Rs 4 lakh, the interest rate will not exceed PLR plus 1%. The loans are to be repaid over a period of five to seven years with provision of grace period of one year after completion of study.
Source: Times Of India, Dec-19-2007
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