Good news for middle class students can take loan easily

A plan of Rs 4,000-crore has been worked out which 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. This will help the modest middle class homes to bear the financing cost needed for professional courses as it will become cheaper for these students.

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 formulated 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 take the benefit of this 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. This scheme will free students from education loan rates being changed during their study period and by the time they start earning.

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 will cost the government a total of about Rs 4,000 crore for the 11th Plan period. The government, is planning to implement the scheme from the 2008 academic session, also wants to restrict the waiver benefit to one loan per student.

But this scheme is not for PG courses. If you plan to borrow to complete your graduation, don't expect a similar helping hand from the government.

Bankers see a positive side of this. Bankers are a view point of this 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.