education loan gets cheaper

Financing costly professional courses is set to become cheaper for students from modest middle class homes. A Rs 4,000-crore plan is in the works that will enable the government to take over the interest burden on education loans during the 'moratorium period' — the time when students are pursuing academics and have not yet begun earning. As things stand, education loans come with a clause that allows students not to pay interest during their academic life. The interest for this period is added to the principal and payments begin once the student starts working. But now, according to a mega scheme being finalised by the Planning Commission, the Prime Minister's Office and the ministry for human resource development, the government will take over the interest burden for the moratorium period — estimated at around Rs 650 crore a year, assuming that five lakh students from families earning Rs 2.5 lakh a year or less avail of the loans. To qualify for the scheme, the student's household income must not exceed Rs 2.5 lakh per annum. The scheme will be open for professional and technical courses at the undergraduate or postgraduate levels. Broadly, this means students from families with monthly income of around Rs 20,000 or less would get an interest waiver while they pursue medicine, engineering, architecture, management or other such courses recognized by the Medical Council of India, University Grants Commission or All India Council for Technical Education, among others. The scheme is expected to cost the government a total of about Rs 4,000 crore for the 11th Plan period. The government, which intends to implement the scheme from the 2008 academic session, also wants to restrict the waiver benefit to one loan per student. In other words, if you borrow to complete your graduation, don't expect a similar helping hand from the government for a PG course. Bankers said that the move would also encourage many of them to lend more freely. In the absence of any clarity on when a borrower starts working, bankers often shy away from extending education loans. Some of them even insist on collateral though the government has repeatedly maintained that the practice is virtually non-existent now.