Education Loans To Get Cheaper As Govt Offers Subsidised Interest

Education loans will become cheaper with the government planning to pay the interest

for the duration of the academic programme, for which the student has taken the loan.

Between joining a course and its completion is the moratorium period, during which the student will not have to pay the interest...this is a proposal that the government is considering. This would significantly bring down their EMIs, said a senior banker familiar with the discussions.

The proposed interest rate subsidy from the government will also benefit banks which have been complaining of defaults and non-payments on education loans. It is estimated that around 2-3% of education loans have turned sticky. So far public sector banks have given Rs 32,000-crore education loans to 16,98,601 students.

Typically, a student starts paying his equated monthly instalment (EMI) a year after completing his studies. One year moratorium is aimed at giving students time to search a job.

Under the proposal considered by the government, if the education loan is for seven years, which includes two years of study and a moratorium of one year, the interest cost for the first three years would be borne by government while the student has to pay principal and interest component for the remaining four years.

In the last Budget, the finance minister had announced that the government will provide interest rate subsidy for students from families in the lower income group. The interest holiday will be given only to students whose parents jointly earn a gross income of Rs 4.5 lakh or less. The income of parents will have to certified by state and central government officials. Most interestingly, the proposed subsidy would be with retrospective effect. Thus all students (where parents gross income is less than Rs 4.5 lakh) and who had borrowed last year would benefit from this.

The interest rate subsidy would be for technical and professional courses offered by institutes in India. Sources say this could cover around 80% of the loan taken by student and may cost the government Rs 500-1,000 crore a year. The government is also thinking of capping the loan amount at Rs 10 lakh.

The government had appointed Canara Bank as the nodal bank for this scheme. All other PSU banks providing education loans to students will have to make a claim to Canara Bank, which will be the governments agent for distributing the subsidy money. As of now, states like Karnataka and Maharashtra provide interest subsidy on education loans.

Banks have also asked the central government to guarantee education loans, at least for loans which are below Rs 4 lakh. Students availing of education loans up to Rs 4 lakh do not have to provide any security or guarantee. However, the government has directed state-owned banks not to reject any education loan without a good reason. Since loans below Rs 4 lakh are perceived riskier, banks have sought a government guarantee.

by: Dealfor Loans

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