Last year the Indian government came up with many proposals for modifications in the existing education loan system. These proposals are helping students seek education loans on better terms.

Education has become a costly affair in the present time. The need for making education affordable to all is increasingly gaining priority in the government's checklist of prime concerns. It is in this context the new proposals introduced by the government of India in 2011 are benefitting Indian students avail of education loans.

While one scheme focussed on granting education loans at rates as low as 4 per cent another came up with slashing interest payment during moratorium period and still another focused on offering tax concession on education loans for all streams of study including vocational courses.

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1. Rate of interest

The HRD ministry had proposed a while back that the rate of interest charged to different borrowers would depend on the income level of their parents.

The interest rate was chalked out in a way that students whose parents have an annual income of less than Rs 4.5 lakh would be granted loans at a rate lower than that charged to those whose parents' income is more than the Rs 4.5 lakh threshold but the loan amount sought is less than Rs 12 lakh.

Loans amounting to more than Rs 12 lakh would be charged a higher level of interest than the rest.

2. Interest on moratorium

Normally a moratorium period of one year is given to students after which their repayment period begins.

The proposal from the government ideated 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.

This would come as a major benefit to students and they would be able to save a fairly big amount of money.

3. Repayment period

The HRD ministry had also suggested extending the loan repayment period from the existing period of 5 to 7 years to 6 to 12 years.

As of now, the maximum loan repayment period offered by most banks for an education loan is 7 years. While some lenders do form an exception by providing a repayment period of 10 years depending on the sum of money borrowed.

An extended loan period would lessen the pressure on the borrower both in terms of cash outflow and time span.

4. Tax concession

Presently, the government offers an extension to tax concession on education loans. Previously, tax concession was confined only to loans taken for graduate and postgraduate courses in streams like medicine, engineering, management and postgraduate courses in applied sciences or pure sciences, including mathematics and statistics.

But now, tax concession has been extended to all streams of study including vocational courses.

The basic idea behind extending tax concession to all streams has been to enable students from all economic walks of life to reap the benefits of the scheme.

The scheme would also be applicable for parents who have taken the loan for a child whom they have legally adopted.

Current rates of interest charged by banks for education loans:

Up to Rs 4 lakh

For loans up to Rs 4 lakh, Canara Bank offers an interest of 13.75 per cent (in terms of base rate). Syndicate Bank however offers 13 per cent interest for the same loan amount.

Rs 4 lakh to Rs 7.5 lakh

For loans in this range, Canara Bank offers an interest of 14.75 per cent based on base rate.

Above Rs 7.5 lakh

In this category Canara Bank charges the interest of 12.75 per cent while Syndicate Bank offers 13.5 per cent.