Govt to give surety for education loan

mangaloretoday.com

NEW DELHI: Nov 7, 2013:  The Centre on Thursday approved the much-delayed education credit guarantee fund to support higher education and skill training by providing surety to banks against loans given to students.

 

The Union Cabinet, chaired by Prime Minister Manmohan Singh, cleared establishment of the Credit Guarantee Funds for Education Loans, Skill Development and National Credit Guarantee Trustee Company (NCGTC), sources told Deccan Herald.  The government will set up an education fund and the NCGTC will manage it. The credit guarantee fund will cover education loans up to Rs 7.5 lakh without any collateral  and third-party guarantee. 

“The credit guarantee fund will take care of default concerns of the bankers. It will guarantee up to 75 per cent of the education loan amount,” sources said.

The plan to set up the education credit guarantee fund was initially mooted in 2012 by the UPA government to ease pressure on the banks lending money to students seeking to pursue higher education .

As bankers perceive education loan as a high-risk product,  there was a pressure on the government to set up the credit guarantee scheme to address the issue. As of March 2013, there were 25.09 lakh education loan accounts with a total outstanding sum of Rs 53,520 crore.  Over 5 per cent of the outstanding student loans turned bad, up from 2 per cent in 2008.

Once the credit guarantee scheme takes off, the Ministry of Human Resources Development is likely to discontinue its existing interest subvention scheme and transfer the corpus to the NCGTC. At present, the HRD Ministry spends nearly Rs 1,000 crore every year on providing interest relief to students whose annual family income is less than Rs 6 lakh. This relief is provided during loan moratorium or duration of the course, plus one year.

The government already has credit guarantee funds for micro, small, medium scale enterprises and low-cost housing to promote credit flow to these sectors.