Partial write-off on education loans, 900,000 students to benefit

Government to pay interest outstanding up to December 31, 2013; scheme to cost about Rs 2,600 crore

The interim Budget has given some 900,000 students a reason to cheer with the finance minister announcing a moratorium period for education loans. The government will pay the outstanding interest amount on all education loans taken up to March 31, 2009 but which remain unpaid by December 31, 2013. The borrower will have to pay the interest for the period after January 1, 2014.

This scheme will benefit the student borrowers to the tune of Rs 2,600 crore. “I intend to provide the funds in the current financial year itself. Accordingly, a sum of Rs 2,600 crore will be transferred to Canara Bank, the designated Central Scheme for Interest Subsidy (CSIS) banker. Details of the scheme will be announced shortly,” the finance minister said in his speech.

The move would benefit students from the economically weaker sections of society, industry officials say. Several students had faced difficulties in repaying their education loans because of lack of jobs due to the economic slump in 2009, explains the chairman of a public sector bank.

“Recessionary conditions had made it challenging for students to repay the debt since many of them were jobless,” says an official. “They had expressed their concerns to us on several occasions. This is a welcome move by the finance minister which addresses their difficulties,” he adds.

Former finance minister Pranab Mukherjee, in the Budget of 2009-10, had introduced CSIS in respect to education loans disbursed after April 1, 2009. Under the scheme, the government had taken over the burden of interest for the duration of the period of study and a little after that.

The aim of Mukherjee’s proposal was to facilitate access to higher education for  students from economically weaker sections. A scheme to provide them full interest subsidy during the period of moratorium was proposed. This was to cover loans taken by such students from scheduled banks to pursue any of the approved courses of study in technical and professional streams from recognised institutions in India.  

Chidambaram explained that he noticed a sense of discrimination among students who had borrowed before March 31, 2009 and had struggled to pay interest during the period of study and continued to service the loans afterwards. “I think they deserve some relief,” he said.

At the end of December 2013, public sector banks had 25,70,254 student loan accounts and an outstanding amount of Rs 57,700 crore.