New Delhi: The government is likely to introduce its revamped education loan scheme before the start of the festive season, two people aware of the matter said.
The scheme's details are being finalised by the education department in collaboration with the finance ministry, with an anticipated rollout by October, the people mentioned above said.
Finance minister Nirmala Sitharaman announced the new scheme offering loans of up to ₹10 lakh for 100,000 students to pursue higher education in the annual Budget presented in July.
The new scheme will provide a maximum collateral-free loan of ₹7.5 lakh to each student, who can further secure an additional ₹2.5 lakh through the normal route.
The entire loan repayment will benefit from a 3% annual interest rate subvention, meaning the loan will have a lower interest rate.
At present, anyone availing higher education loans of up to ₹7.5 lakh do not require any collateral, while loans above ₹7.5 lakh till the ₹10 lakh ceiling for such loans need a third-party guarantee. Under the new system, the student will have to give a collateral only for the amount that is over and above ₹7.5 lakh.
The existing scheme offers interest subsidy, which is given during the moratorium period, i.e., the loan period plus one year on education loans taken from scheduled banks. The interest subsidy is credited directly to the loan account of the student.
Under interest subsidy, the government pays some of the interest accrued. Under interest subvention the loan will have a lower interest rate for the borrower.
In the new education loan scheme, the benefit of revamped education loans will not be provided to students belonging to families that have availed of any government scheme as the centre wants to target the economically weaker sections and first-time beneficiaries with this scheme, the first person mentioned above said.
"Several issues are still being worked on. For instance, earlier, education loans could be taken only by children of households where parental income was under ₹4.5 lakh annually," the first person said.
"A decision on whether to increase the household income limit for availing the loan will be taken soon," the person added.
"Under the revamped scheme, it is yet to be decided whether interest subvention will be applicable for the tenure of the loan, or only during the first few years or for a shorter duration. These things are being worked out," the second person added.
Both people mentioned above spoke under the condition of anonymity. They added that these details would be worked out over the next couple of months.
Meanwhile, the Department of Financial Services has alerted banks to extend collateral-free loans to students after the finalisation of the scheme.
A credit guarantee fund, which is already operational under the previous loan scheme would continue under the new scheme as well with additional Central support to offer comfort to banks disbursing collateral-free loans up to ₹7.5 lakh to students, both people mentioned above said.
The education department will reimburse banks for offering loans to students bearing lower rates of interest than the market rates, they added.
Spokespersons of the Finance Ministry and Department of Education didn't respond to emailed queries.
"The Union Budget 2024 demonstrates a strong commitment to advancing education by allocating ₹1.20 lakh crore for education, employment, and skill development," said Syed Sultan Ahmed, Founder and Chief Learner, LXL Ideas.
"The introduction of the e-voucher scheme, which provides loans of up to ₹10 lakh for students will significantly help those facing financial barriers to higher education," Ahmed added.
