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Govt mulls instalment-free education loan
Posted Date: 04 Sep 2007 Resource Type: Articles/Knowledge Sharing Category: General
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Posted By: Niyaz Member Level: Gold
Rating:  Points: 7
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You could soon finance your higher studies through an education loan and yet get away without paying instalments.
If a proposal floated by the Planning Commission is accepted, students can avail of a loan write-off by serving for a while in a government agency. So, a doctor who finances his graduation with the help of a loan can seek a waiver by working in a government hospital for a specified period.
And, it is not just highly skilled workers who can seek a write-off, even a simple graduate can avoid the instalments by teaching in a government institution.
Unlike a lot of proposals floated by the plan panel, it is unlikely to die down without a noise since it is one of the agenda items for the full Planning Commission meeting to be chaired by Prime Minister Manmohan Singh on Tuesday.
The note on education circulated for the meeting has sought a nod for the commission to finalise the scheme in consultation with the finance and human resources development ministries.
While the details are yet to be finalised, the idea is not just to check brain drain from the country but also ensure that the government could lay its hands on some well-qualified students who have been moving to greener pastures in the private sector in the hope of earning large salaries.
According to the broad contours worked out by the Planning Commission, the government would set up a National Student Loan Guarantee Corporation which will provide a guarantee to students of certified institutions who avail of a bank loan. The move is expected to enable banks to lend more freely since they insist on a collateral at present fearing default.
Officials indicated that the scheme would be designed in a way to enable individuals to work in sectors where the government was facing large shortages. For instance, it has to recruit a large number of teachers to meet the demands for increasing the number of seats in educational institutions partly to meet the demands arising from quotas for backward classes as also to fill up vacancies.
Shortage of doctors, medical staff and scientists is also crippling government agencies. For individuals, particularly those from less affluent sections of society, the move could come as an incentive to pursue higher education without having to worry too much about finances.
In recent years, a large number of students, especially those pursuing MBA courses or going abroad for higher studies, have been borrowing from banks.
According to latest data released by Reserve Bank of India, there was a 51% rise in education loans from Rs 9,962 crore at the end of March 2006 to over Rs 15,000 crore at the end of March this year.
Tax sops too have played a role and with the government allowing parents to avail of tax benefits, there could be a further spike this year. Earlier, tax sops were available only if the student borrowed and paid the loan himself on completing his education.
Officials, however, said that there were a lot of loose ends to be tied up, including the mechanism for loan waiver from a private or a foreign bank. In addition, the finance ministry would be required to work out a new mechanism for tax treatment. The existing scheme for educational loan, devised in consultation with RBI and Indian Banks Association, covers all type of courses including professional courses in schools and colleges in India and abroad.
Under the scheme, banks provide loan 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 and for loans above Rs 4 lakh, the interest rate will not exceed PLR plus 1%.
The loans are to be repaid over a period of five to seven years with provision of grace period of one year after completion of study.
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