Loans for students at a concession

Students pursuing professional courses can now get loans up to Rs 4 lakh (Rs 400,000) at concessional rates, following a directive from the government that banks should step up education loans.

In the Budget for 2004-05, Finance Minister P Chidambaram proposed modification of the earlier scheme to enable students to get education loans up to Rs 4 lakh at prime lending rates (10-11 per cent) without any collateral for professional courses, such as the ones at Indian Institutes of Technology, Indian Institutes of Management, and government medical colleges.

"Accordingly, Indian Banks Association has come up with revised norms and banks have started giving loans under the new scheme from July 23," N S Sisodia, secretary for the financial sector, said.

Loans above Rs 4 lakh and up to Rs 7.5 lakh (Rs 750,000) would, however, need a collateral in the form of satisfactory third-party guarantee and attract an interest rate which is one per cent higher than the PLR.

For loans above Rs 7.5 lakh, a student has to furnish collateral of suitable value or co-obligation of parents or guardians along with the assignment of his/her future income for payment of installments.

The earlier Education Loan Scheme of 2001, drawn up by Indian Bank Association and approved by the Reserve Bank of India, allowed banks to extend loans up to Rs 7.5 lakh for professional studies within India and Rs 15 lakh (Rs 1.5 million) for abroad, backed by adequate collaterals.

Sisodia said the education loans are now "sufficiently attractive" and banks would readily extend loans to deserving candidates under the modified norms.

Referring to the growing demand from students, Sisodia said education loans almost doubled to Rs 1,994.88 crore (Rs 19.948 billion) in 2002-03 after giving loans to 141,000 students.

About 88,614 students took loans totalling Rs 1,032.74 crore (Rs 10.327 billion) in 2001-02 as against 44,694 students getting Rs 667.60 crore (Rs 6.676 billion) in 2000-01.

The earlier education loans scheme did not provide for waiver of collaterals beyond Rs 4 lakh.

This was restricting students belonging to poor families to afford such education loans.

But the new guidelines provide for collateral in the form of satisfactory third party guarantee for loans ranging between Rs 4 lakh and Rs 7.5 lakh.

With modification of the guideline, Sisodia said students going for professional courses will now be eligible for loans up to Rs 4 lakh (the maximum needed for getting educated at IITs, IIMs and medical colleges) without collateral.