Cabinet okays full interest subsidy for poor students

NEW DELHI: More than a year after it was first mooted, the Cabinet on Thursday approved a scheme to provide full interest subsidy for students from economically weaker sections pursuing technical and professional courses. The interest subsidy will be applicable for the moratorium period ��� the duration of the course of study and an additional period of one year or six months after getting a job, whichever is earlier. The scheme will be operationalised from the current academic session, i.e., 2009-10.

The government���s subsidy liability will be based on the prime lending rate. At present, PLR is between 12.75% and 13.25%. It is estimated that over 5-lakh students will avail of this scheme.

Students from families with earning less than Rs 4.5 lakh per annum will be eligible for this scheme. Only those enrolled in recognised professional courses can avail of this scheme. This would include education institutes established by Act of Parliament, institutes recognised by relevant statutory bodies, IIMs and other institutions set up by the central government.

The interest-subsidy scheme can be availed by students only once, i.e., either for their undergraduate or graduate course. Students enrolled in a combined undergraduate-graduate programme too can take advantage of this subsidy. Students who discontinue their study, for reasons other than medical, will not be eligible for the subsidy. There will be a tag or marker on the degree of the students availing this scheme, which would indicate their repayment liabilities.

The interest-subsidy scheme will be linked with the existing education loan scheme, currently offered by banks. For loans administered by the ministry of minority affairs and the ministry of social justice and empowerment through their corporations, the interest payable for beneficiaries will be provided directly to the respective corporations.

To assess the benefit accruing from this scheme to SCs, STs, minority and disabled students, the government has proposed evolving a monitoring mechanism. Both the system of implementing the scheme and monitoring mechanism will be finalised in consultation with Canara Bank, which is servicing the scheme. An MoU will be signed with the bank for the purpose. As compensation, Canara Bank will receive 1% of total annual expenditure involved for the scheme.

The proposal was first considered by the Expenditure Finance Committee in April 2008. After changes suggested, the proposal was considered by the Cabinet Committee on Economic Affairs in September 2008, when it was referred for further discussion and consultation to a committee of secretaries, which finalised the proposal in May 2009.

Earlier, the HRD ministry had proposed that economically backward students would have access to loans at the rate of 4%. As in the final proposal, the difference in interest rates will be borne by the government. A budget of Rs 3,250 crore was set aside for this purpose in the Eleventh Plan period. The proposal was subsequently changed to make it a 100% interest subsidy during the moratorium period.