Cheaper education loans on the cards

  • Mahua Venkatesh, Hindustan Times, New Delhi
  • Updated: Feb 20, 2015 23:20 IST

If you are planning to apply for a higher education course but worried about funds, there could be help at hand.

The government is examining a proposal to make education loans cheaper through an “interest subvention” scheme—a kind of subsidy system through which the government directly pays to banks enabling them to charge lower rates from student loan borrowers, especially from a particular income group.

Loans below a certain threshold could be made eligible under the scheme. Besides, students belonging from low income families will be given preference for availing such loans, sources told HT.

Finance minister Arun Jaitley could make an announcement about the scheme in the forthcoming budget.

At present, banks, on an average, charge 12.88% for an education loan, compared to 12.17% charged on car loans.

As on March 31, 2014, outstanding education loans given out by Indian banks stood at `60,071 crore. Over the last few years, banks have become wary of giving out education loans beyond a certain size citing high risk of default as these are “clean loans” without any asset-backed collateral.

The Indian Banks Association (IBA), an industry body of banks, recommended the setting up of a “guarantee fund”— a corpus that lenders can dip into to keep their books healthy in times of rising bank loan defaults.

“Education loan is critical and students must be able to avail loans to pursue higher studies... but to ensure that non-performing assets (bad loans) do not mount, there is a need to create a guarantee fund for education loans below `4 lakh,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India, told HT.

The issue is also likely to be brought up in the review meeting that Jaitley is set to hold with public sector bank chiefs on March 5.

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