Weaker section students to get loan at four per cent

Updated on: Wednesday, June 16, 2010

Students from weaker economic backgrounds can now hope to get education loans at interest rates as low as four per cent per annum, with the government considering an institutional mechanism for ensuring affordable
access.

The conference of State Education Ministers on Friday will discuss among other things the setting up of a National Education Finance Corporation (NEFC) as institutional mechanism to help students and institutions get low interest
loans.

The government is considering a provision to provide loans at a rate of four per cent per annum to students with annual parental income of less than Rs 4.5 lakhs, according to the agenda circulated by the HRD Ministry for the meeting.

For students whose parental income is more than Rs 4.5 lakhs, the loan is expected to be available at seven per cent per annum provided the loan amount is less than Rs 12 lakhs.

It will also come with a provision of repayment in over six to 12 years with an option of back-loading interest with lower rates in initial years and higher in later years. The move is aimed at encouraging more students to avail the benefits of banking facilities and achieve a higher enrolment in higher studies.

At present, the percentage of students seeking education loans for higher studies is estimated to be a dismal nine per cent, and a basic reason for this is that students
belonging to low income families face difficulties in accessing bank credit because of their inability to provide adequate collateral security.

Banks had given Rs 35,000 crore in education loans last year. The government has set a target to increase the amount in education loans to Rs 122,838 crores in 2017 and Rs 1,66,541 crores in 2020. This would help increase the enrolment ratio from present 12 per cent to 30 per cent by 2020.

The proposed financial corporation will be a NABARD-like institution in higher education and will raise debt by issue or sale of bonds for augmenting resource from
the market and will finance creation of universities.

The proposed body will raise 42 per cent of its debt by issuing bonds and debentures, 20 per cent through deposits, 14 per cent through equity, reserves and surplus. The NEFC would also attempt to nurture philanthropic tradition by directly supporting at concessional rates of interest establishment of any educational institution that has at least 25 per cent of its project cost raised through donations or contributions from a large number of citizens or agencies.

Weaker section students to get loan at four per cent

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