Wednesday, May 5, 2010

Govt plans to reduce education loans interest rate to 4%

The government is thinking on proposal for providing education loans at interest rates as low as 4%. For this government is working on its refinance scheme and has plans to extend the repayment period for those who want to become doctors, engineers, fashion designers and IT professionals.



To implement this scheme there is a need of setting up of special purpose vehicle to refinance banks for giving education loans below prime lending rates. At present banks charge between 10% and 12% on education loan. The ministry of human resources development (HRD), which has drafted the plan, is also in favor of extending loan repayment periods from 5-7 years to 6-12 years, informed the government officials.



HRD minister Kapil Sibal told ET, “In the next one month, the entire concept will be crystallized.” Mr Sibal stated the ministry has already discussed the proposal with the Planning Commission on Tuesday. “They have appreciated the idea and asked us to submit a formal note,” he said.

Planning Commission official has confirmed this and told ET the panel is working on the proposal for the setting up of up a new National Education Finance Corporation (NEFC) to refinance banks on this count. As per the feedback, the ministry will be preparing a formal note for the approval of the Cabinet.



NEFC will be set up with an initial equity capital of Rs 5,500 crore. The ministry is proposed to provide Rs 3,000 crore to the company every year so that it reaches to Rs 35,500 crore by 2020, the plan panel official said.

The 4% interest rate will be charged from those students whose parents’ income will be less than Rs 4.5 lakh per annum.



While for students whose parents’ income is above this mark take an education loan of less than Rs 12 lakh the interest rate will be 7%. Then for loans above Rs 12 lakh will be charged at 9%, an anonymous official of the plan panel informed. On March 5 Mr Sibal had told the Parliament that his ministry has plans of setting up of NEFC to refinance education loans besides providing funds for educational infrastructure and expansion of educational institutions.


“When... every child has free access to loan why will he need to sell the family silver to enter into an educational institution?” he had said then. In 2009 demand for higher and technical education loan is expected to grow from Rs 7,948 crore to Rs 159,566 crore by 2020, shows an assessment by Educational Consultants India (EdCIL) said, an arm of the HRD ministry offering consultancy services for human resource development.