The Hindu : National : Loan subsidy for students below “creamy layer”

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Thursday, Oct 11, 2007
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Loan subsidy for students below “creamy layer”

Anita Joshua

NEW DELHI: The Union Human Resource Development (HRD) Ministry will soon be approaching the Cabinet Committee on Economic Affairs with a proposal to offer loan subsidies to students below the “creamy layer” in a bid to ensure access for all to professional education.

As per estimates, this subsidy will cost the exchequer Rs. 3,250 crore over the XI Five Year Plan. All students hailing from families with an annual income below Rs. 2.5 lakh will be eligible for the loan subsidy irrespective of whether they hail from the general category or the reserved categories.

The interest rate on education loans now runs into double digits; upwards of 12 per cent for amounts up to Rs. 4 lakh and it increases as the loan amount goes up. The Ministry proposes to allow students to avail themselves of loans at around 4 per cent irrespective of the market rate. The difference will be subsidised from the Ministry’s budget.

This facility will be allowed only to students seeking admission to professional courses offered by recognised institutions; both government and private. This is in keeping with the National Common Minimum Programme promise that the United Progressive Alliance Government “will ensure that nobody is denied professional education because he or she is poor.”

Students will have to begin repaying the loan only after one year of completion of the course or on getting a job; whichever is earlier. The pay back schedule can be worked out as per the paying capacity of the borrower, although Ministry officials said details were yet to be finalised with banks.

The government will facilitate the loans by standing guarantor so that the students will not have to provide any collateral. Apart from the high rate of interest attached to education loans, the need to provide collateral has been cited by students as another irritant. The Ministry’s position is that it is necessary to move to a system where banks will lend freely to students who have got admission to certified institutions against a loan guarantee given by the government.

The Ministry is also working on a proposal to set up a National Student Loan Guarantee Corporation to facilitate university financing via the students. The Prime Minister’s Office is also understood to have evinced an interest in this scheme.

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