Soft loans in works for Sainik School students

As India grapples with a shortage of officers in the armed forces, the government is exploring the feasibility of providing soft education loans to Sainik School students, a move expected to bring more aspirants into the fold of this premier institution that seeks to groom students for induction into the officer cadre of Indian armed forces.

Initial discussions have taken place between officials from the defence and finance ministries to figure out the contours of such soft loans, including tenure and interest rates, said officials aware of the developments.

"We have also asked banks to submit their views. If a consensus is reached, then these loans can be offered for longer tenures, say from sixth grade onwards, and at a lower rate," said an official, requesting anonymity.

Another official said that such soft loans will encourage more students to join Sainik Schools and provide support to deserving candidates.

Bankers, however, are not convinced by the idea of a differential interest rate for school students. "Already, various state governments offer scholarship programmes for such institutions," said a bank executive, adding that such long-term loans and an additional moratorium period may not be feasible.

At present, under the IBA Model Educational Loan Scheme, students availing of loan facilities of up to ₹ 7.5 lakh do not need to furnish any security, and irrespective of the loan amount, banks can only charge simple interest during the study period and up to the commencement of repayment.

The government has approved the initiative of setting up 100 new Sainik Schools in partnership with NGOs, private schools, or state governments in a graded manner, starting from the sixth grade. Last month, defence minister Rajnath Singh approved the setting up of 23 new Sainik Schools in partnership mode.

In a statement, the ministry of defence noted that the objective behind Prime Minister Narendra Modi's vision of setting up 100 new Sainik Schools is to provide quality education to the students in tune with the national education policy and give them better career opportunities, including in the armed forces.

As per the latest RBI data, outstanding bank loans to the education sector increased 17% year-on-year to ₹96,847 crore in 2022-23. A report by ratings agency Crisil said the prepayment rate for education loans is high within four-six years of loan disbursement on average, which comes from the salaries of the students after they get employed.