The Government is taking some serious steps to make education accessible to all irrespective of one's financial capability. The Government is planning to pay the interest for the duration for which the student is under the academic program and for which he has taken the loan.
"Between joining a course and its completion is the moratorium period, during which the student will not have to pay the interest...this is a proposal that the government is considering. This would significantly bring down their EMIs," a senior banker having clue to the issue said.
The subsidised interest rates as proposed by the Government will also benefit the banks who have been having serious problems regarding the increased numbre of defaults in this segment of loans. So far public sector banks have given Rs 32,000-crore education loans to 16,98,601 students.
Banks had been apprehensive about the RBI recapitulating them to provide collateral free education loans for smaller amounts. Banks had foregone the directive set by the apex bank that collaterals should not be sought for education loans for small amounts because they were facing stress in this category of loans.
A moratorium period of one year is given to students after which they start paying back their loan. The new proposal from the government says that if the total loan amount is taken for seven years of which two years are the academic period and one year moratorium period then government would be bearing interest for these three years.
The finance minister had announced in the last budget that the government will provide interest rate subsidy for students from families in the lower income group. The interest holiday will be given only to students whose parents jointly earn a gross income of Rs 4.5 lakh or less. The income of parents will have to certified by state and central government officials.
The Govt. also raised tax concession on the interest charged on education loans which would be extended to all streams of study.The interest rate subsidy would be for technical and professional courses and would cost the Govt. around Rs 500-1,000 crore a year.