However, the scheme will not apply to students belonging to Andhra Pradesh and other states.
The announcement came after an all-party meeting convened by Telangana chief minister K Chandrasekhara Rao on Monday to discuss the issue.
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Students eligible for fee reimbursement would be identified on the basis of their income and nativity certificates submitted in the past, said Telangana education minister Jagadish Reddy. The minister directed the government officials to prepare a detailed report identifying who belongs to Telangana and Andhra Pradesh.
The meeting also made it clear the reimbursements and scholarships of the students of Andhra Pradesh will have to be borne by the respective state.
Fee reimbursement and scholarships are likely to result in a financial spend of Rs 2,500 crore for the Telangana government in the academic year 2014-15. This was Rs 2,091 crore for 1.43 million students in 2013-14.
The new state would follow the same criteria, which existed in the united state for extending the scheme, said Reddy.
The scheme was implemented by the previous governments with a cap of Rs 200,000 in the annual income of parents of SC/ST students. It is Rs 100,000 for backward classes, minorities, physically handicapped and the economically backward class students.
While students securing a rank below 10,000 in the common entrance test Eamcet were fully reimbursed, only Rs 35,000 was paid for others.
According to some estimates, there are around 40,000 Andhra students studying in Telangana while around 18,000 Telangana students are studying in Andhra Pradesh.
The decision relieves the new state of pending dues worth Rs 1,200 crore in terms of reimbursements and scholarships. The united state had paid Rs 4,500 crore as fee reimbursements in 2013-14.
Meanwhile, Andhra Pradesh finance minister Yanamala Ramakrishnudu said Andhra Pradesh students had no reason to fear as the government was aware of facts and would act in favour of their interests.