Govt Plans To Cut Interest Rates On Education Loans

The government is working on a refinance scheme to offer education loans at interest

rates as low as 4 percent, and plans to extend the repayment period for those who aspire to become doctors, engineers, fashion designers and IT professionals.

The scheme envisages the setting up of a special purpose vehicle to refinance banks for giving education loans below prime lending rates. Currently, interest rate for education loan varies between 10 percent and 12 percent. The ministry of human resource development (HRD), which has drawn up the plan, also wants to extend loan repayment periods from 5-7 years to 6-12 years, according to government officials.

In the next one month, the entire concept will be crystallised, HRD minister Kapil Sibal told ET.

Mr Sibal said the ministry has already discussed the proposal with the Planning Commission on Tuesday. They have appreciated the idea and asked us to submit a formal note, he said.

Confirming this, a Planning Commission official told ET the panel was looking into the proposal to set up a new National Education Finance Corporation (NEFC) to refinance banks on this count. Based on the feedback, the ministry will prepare a formal note for the approval of the Cabinet.

NEFC is to be set up with an initial equity capital of Rs 5,500 crore. The ministry has proposed to infuse Rs 3,000 crore in the company every year so that it reaches to Rs 35,500 crore by 2020, the plan panel official said.

Income, loan criteria for education loan

An interest rate of 4 percent will be charged from those students whose parental income will be less than Rs 4.5 lac per annum.

This will be 7 percent for those with parental income above this mark but wanting an education loan of less than Rs 12 lac. Loans above Rs 12 lac will be charged at 9 percent, the plan panel official said on condition of anonymity.

Mr Sibal had told Parliament on March 5 that his ministry is planning to set up NEFC to refinance education loans besides funding educational infrastructure and expansion of educational institutions.

When... every child has free access to loan why will he need to sell the family silver to enter into an educational institution? he had said then. The demand for higher and technical education loan will grow from Rs 7,948 crore in 2009 to Rs 159,566 crore by 2020, shows an assessment by Educational Consultants India (EdCIL) said, an arm of the HRD ministry offering consultancy services for human resource development.

by: Dealfor Loans

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