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

Loans for Learning

Study now pay later scheme could replace college reservations

The government’s Rs 4,000 crore megascheme — to which the Planning Commission is now putting the final touches — to subsidise education loans for students from families earning Rs 2.5 lakh a year or less, is a welcome sign of fresh thinking in official quarters on human resources issues. It’s a much better way of improving access to college education than the current approach of caste-based reservation quotas. According to the scheme the government will take over interest repayment on education loans for the ‘moratorium’ period, or the time in between when the student borrows the money, and when he starts work and therefore is in a position to repay the loan. The scheme is open for professional and technical courses at undergraduate or postgraduate levels.
One of its great advantages is that it replaces caste with income as the criterion for receiving support from the government. The arbitrariness of using community-based standards for measuring individual disempowerment has been exposed in Rajasthan’s caste riots, where the Gujjars are threatening turmoil because they have not been deemed worthy of receiving scheduled tribe (ST) benefits. The rival Meenas, who enjoy ST status, are on the other hand happy with the verdict of the Chopra committee that threw out Gujjar claims, as it does not expose them to competition from Gujjars. In this game, a win for one community amounts to a loss for another. That’s a recipe for clash between communities and political instability. Incomebased criteria, on the other hand, are better targeted and no cause for political gripes to anybody.
The other advantage of government subsidies for student loans is that it doesn’t devalue merit in the same way that caste-based reservations do. It still devolves on the student to find admission to the college courses of his choice on merit; admission standards will not be specially relaxed for him. This is particularly important when the Indian economy is facing a skills crunch and the employability of graduates who possess formal degrees is turning into a major issue. The scheme should serve to tap talent that cannot be developed currently because of the modest family background of students. If administered well, it should increase opportunities for youth and help plug the skills gap that prevents the Indian economy from firing on all cylinders.
It is being hoped that the scheme will check the brain drain from the country, whereby Indian students spend more than three billion dollars abroad every year in search of quality education. That will, however, require further measures in deregulating education and allowing excellence to thrive.

Settled right

UNLIKE THE TRADITIONAL INDIAN PRACTICE, STUDENTS TODAY ARE TAKING ON THE RESPONSIBILITY OF FUNDING THEIR OWN HIGHER EDUCATION
It's payback time of a different kind for these youngsters- young, ambitious students who move abroad for their higher studies, funded by educational loans, they are expected to pay back over a stipluated period of time, once they are employed,without passing the burden on to their parents. And the number of such students is only rising.
Take the example of BCom graduate, Arindam Saha. His cost to pursue an MSc in Management at the University of Central England was 8,000 pounds.To fund the same, he took a loan of Rs 6 lakh at an interest rate of 11.5 per cent.
”The bank gave me a up to seven years to repay the loan. You are expected to start repaying the amount a year after completing the course, or once you start earning,” elaborates Saha. Currently employed with an inte r n a t i o n a l n e w s agency,Saha repays Rs 12,000 a month, and hopes to clear his loan in five years.
Loan notwithstanding, Saha is one of many students who prefer studying abroad as the MBA programme in India is often a two-year course, (as opposed to one year in England), in addition to the valuable exposure that comes with studying abroad.
While Saha went abroad soon after completing his BSc, Harsha Vellal completed a year of work experience before leaving for foreign shores.
Following a BSc in Computer Science, Harsha worked for a year before enrolling for an MBA in Marketing at the University of Liverpool. The course fee alone stood at Rs 11 lakh, for which he took a loan to pay the entire amount. Before leaving the UK,Harsha also completed a course in interior design, and has since,established an interior design business in India. ”I'm still repaying my loan. I was given seven years for repayment, of which I have completed two years,”he says.There are others who have worked longer and saved part of the fee amount before going for higher studies in foreign universities.
Aravind Krishna did his BE, worked with Infosys and decided to then add an MBA to his portfolio. He did an 18-month MBA at NTU, Singapore and was able to fund his education by himself. On the other hand, his classmate, Gaurav Sharma, a chemistry honours student, began a 16-month MBA at NTU, Singapore after working at a pharmaceutical firm.While he paid for a part of the course fee with his savings, the availed of an educational loan of Rs 10 lakhs to finance the remaining costs. Although he was given 10 years to repay the loan,“I've already returned my entire loan amount,'”he asserts.
Evidently, a common thread tying all the above cases is the student’s pride stemming from funding his or her education, as opposed to passing the buck of funding their higher studies on to their parents.