Full interest subsidy on loans to poor students

In a significant move that would benefit over 500,000 students in pursuing higher education in technical and professional streams, the government today decided to provide full interest subsidy on education loans taken by poor students whose parental income is under Rs 4.5 lakh per annum.

A meeting of the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Manmohan Singh, gave its nod to the scheme to enable students from economically weaker sections to continue any approved course in recognised technical and professional institutions in the country.

Home Minister P Chidambaram said the number of loans as on March 31, 2009 were 1.6 million, while the total outstanding amount was Rs 24,000 crore.

The scheme, to be applicable from the ongoing academic year, would provide full interest subsidy during the period of moratorium on loans taken by students from scheduled banks. The moratorium period begins from the launch of a course till one year after the course ends or six months after the student gets a job, whichever is earlier. The interest during this period would be borne by the government.

After this moratorium period is over, the interest on the outstanding loan would have to be paid by the student borrower.

Chidambaram said the interest subsidy would be available to students only once, either for the first undergraduate degree course or the post-graduate degree and diploma courses. The interest subsidy scheme, formulated by the Indian Banks Association, would, however, be admissible for combined undergraduate and post-graduate courses. However, the benefit would not be available for those students who discontinue the course mid-stream due to any reason, except on medical grounds.

The modalities for implementation and monitoring mechanism would be finalised in consultation with Canara Bank, which has taken a lead role, the home minister said. A memorandum of understanding would be signed with the bank.