Higher study loans set to get cheaper

Getting finance for expensive 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 their studies 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.
Now, under a mega scheme being finalised by the Planning Commission, the Prime Minister’s Office and the HRD ministry, the government will take over the interest burden for the moratorium period, estimated at about 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 to students engaged in professional and technical courses at the under-graduate or post-graduate levels.
Broadly, this means those coming from families with a monthly income of Rs 20,000 will get an interest waiver.

1 cheap loan per student: Govt


New Delhi: The new education loan scheme that the government has planned will cost it 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 postgraduate course.
Bankers said that the move would also encourage many banks 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 although the government has repeatedly maintained that the practice is virtually non-existent now.
The idea is not just to check brain drain from the country but also ensure that the government taps talented students who cannot otherwise afford professional studies because of the high fees.
According to government estimates, there are approximately 50 lakh students in professional courses of which about five lakh students come from families within the income range of Rs 2.5 lakh per year.
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 the Reserve Bank of India, there was a 51% rise in education loans—from Rs 9,962 crore at the end of March 2006 to more than Rs 15,000 crore at the end of March this year.
Tax sops have also 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 the RBI and the Indian Banks Association, covers all kinds 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 during a period of five to seven years with the provision of a grace period of one year after completion of study.



With cheaper loans, the Centre is trying to check brain drain and tap talented students who wouldn’t have been able to afford high fees