No collateral for student loans

To encourage poor students pursue higher education, the government had done away with the requirement of any collateral or security for sanction of student loans up to Rs 7.5 lakh, Finance Minister P Chidambaram told the Rajya Sabha on Tuesday.

Responding to supplementaries during the Question Hour, he said only signatures of the student and his or her father would suffice.

He said the United Progressive Alliance government was interested in giving more and more education loans and necessary instructions had been given to banks in this regard.

In a reply to the main question, he said credit was being provided by banks in different states under various self-employment schemes which proved to be quite successful.

Earlier, the government had said that students pursuing professional courses could now get loans up to Rs 4 lakh at concessional rates, following a directive from the government that banks should step up education loans.

In the Budget, Finance Minister P Chidambaram proposed modification of the earlier scheme to enable students to get education loans up to Rs 4 lakh at prime lending rates (10-11 per cent) without any collateral for professional courses, such as the ones at the Indian Institutes of Technology, the Indian Institutes of Management, and the government medical colleges.

"Accordingly, the Indian Banks Association has come up with revised norms and banks have started giving loans under the new scheme from July 23," N S Sisodia, secretary for the financial sector, said.

Sisodia said the education loans were now "sufficiently attractive" and banks would readily extend loans to deserving candidates under the modified norms. Referring to the growing demand from students, Sisodia said education loans almost doubled to Rs 1,994.88 crore in 2002-03 after giving loans to 141,000 students.

About 88,614 students took loans totalling Rs 1,032.74 crore in 2001-02 as against 44,694 students getting Rs 667.60 crore in 2000-01.

The earlier education loans scheme did not provide for waiver of collateral beyond Rs 4 lakh.

This was restricting students belonging to poor families to afford such education loans.

But the new guidelines provide for collateral in the form of satisfactory third party guarantee for loans ranging between Rs 4 lakh and Rs 7.5 lakh.

With modification of the guideline, Sisodia said students going for professional courses will now be eligible for loans up to Rs 4 lakh (the maximum needed for getting educated at IITs, IIMs and medical colleges) without collateral.