Tuesday, May 18, 2010

Education Loans May Get Cheaper

Higher education system in India is third largest in the world after China and United States. The government is now taking initiatives to promote higher education in India by bringing down the interest rates on education loan.

1. In an attempt to take the education of the poor to a higher level, government is planning to provide them education loans at 4% interest rate. This initiative is brought in to uplift the higher education of students from weaker sections of the society. The discussions between HRD Ministry and Planning Commission are still on as the proposal is in its preliminary stage.

Banks will provide this loan while a proposed funding corporation for higher education will re-finance the banks to help them compensate the loss. The mandate and functioning of the proposed NHEFC (National Higher Education Finance Corporation) is now being worked out.

2. In another effort to bring down the interest rates on education loans, government is working on a tax saving deposit scheme to fund cheaper loans. It has been trying to reduce interest rates to encourage higher quality education among students.

Investments in deposits under the proposed First Education Savings Scheme (FESS) will be eligible for tax exemption just like in public provident fund or life insurance premium. Savings under the scheme will be collected by commercial banks and transferred to the proposed NEFC for refinancing educational loans at cheaper rates. Banks will then transfer deposits under the scheme every month and get a commission for their services. NEFC will be set up with an initial equity capital and it will then raise funds through public deposits, domestic borrowings, grants, donations and bonds and debenture.

It is going to get easier to study at a higher level as soon as these proposals are passed and implemented by the Ministry.


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