Institutional Funding for Higher and Vocational Education

Literacy and skills development for enhancing employability have been thrust areas of Rotary and clubs have been substantially contributing through programmes such as loan, scholarship, career guidance/counseling and ­Bhavishya Yaan to support economically-challenged students to excel in education.

Rotary clubs need to create awareness about the initiatives taken by Government in recent years and act as catalysts for the student community to benefit from the schemes extended by various agencies.

One such initiative of our Government has been facilitating affordable institutional funding for higher education and vocational courses that broadly comprises of:

• Advising banks in India in 2001 to implement the Model Education Loan Scheme developed by Indian Banks Association (IBA) for Higher Education (post HSC level);
• Launching of Central Interest Subsidy Scheme in 2010 linked to the above loan schemes of banks where
  100 percent interest charged by the bank is subsidised by Ministry of HRD, Government of India for students hailing from economically weaker sections (defined as those families having gross annual income of up to ₹4.5 lakhs) during the moratorium period (course period plus one year or six months after getting employment).
• Advising banks in India to implement the Model Education Loan Scheme for vocational courses developed by IBA in May 2012.

All major banks in India have since launched these loan schemes for students and the Central Interest Subsidy Scheme is operational with a public sector bank acting as nodal bank on behalf of Ministry of HRD and IBA as coordinating agency. However, awareness about these loan schemes and the interest subsidy scheme has remained at levels lower than expected.

In terms of the loan schemes and guidance given to banks:

• The banks are advised to assess the loan applications based on the student’s future earning potential and not on the basis of the current family income;
• Banks have to extend repayment holiday (moratorium) for principal and interest for the course period and one year or six months after getting employment, whichever is earlier;
• Repayment of principal and accumulated interest (simple interest) begins after the repayment holiday and can extend up to 10 years for loans up to ₹7.5 lakhs;
• Banks cannot insist on third party security/guarantee for loans up to ₹4 lakhs — only parent signs as co-borrower;
• Banks cannot charge processing fees or prepayment fees for education loans.

Rotary clubs can play a vital role in this area. Clubs can create awareness amongst people by making presentations at schools for students/parents, giving key information on loans/subsidy scheme; set up help-desks to assist students/parents in applying for loans/subsidy, and liaison with banks and; tie-up with banks for promoting their loan schemes amongst the communities where the clubs are associated.

Salient features of Education Loan Scheme for Higher Education (after HSC level):

• Amount of Finance: ₹10 lakhs for study in India and ₹20 lakhs for study abroad
• Margin Contribution from student/parent: NIL for loans up to ₹4 lakhs. For loans of more than ₹4 lakhs, margin of 5 percent for study in India and 15 percent for study abroad
• Security/Guarantee: No security or third party guarantee to be insisted upon for loans up to ₹4 lakhs. For loans between ₹4 lakhs and ₹7.5 lakhs, suitable third-party guarantee to be provided.  For loans above ₹7.5 lakhs, collateral security of the value acceptable to the bank.
• Rate of Interest: As per bank’s policy (Interest payable on Education Loans is currently exempt from Income Tax u/s 80E)
• Repayment Holiday: No repayment to be made by student/parent during the moratorium period; payment of interest during the repayment holiday is optional for student/parent. Interest to be accumulated on simple basis and added to principal amount for calculation of EMI post-repayment holiday.
• Repayment Period: May extend up to 10 years (after repayment holiday) for loans up to ₹7.5 lakhs and up to 15 years for loans above ₹7.5 lakhs.
• Interest Subsidy:  Students availing loans for study in India and whose aggregate family annual income is less than ₹4.5 lakhs are eligible for interest subsidy equivalent to 100 percent of interest charged by the bank during the moratorium period of the loan. ­Lending bank is required to obtain the interest subsidy from Government of India upon the student/parent furnishing income certificate from notified authority in their respective States.

Salient features of Education Loan Scheme for Vocational Education:

• Amount of loan ranging from ₹10,000 to ₹1,50,000
• Margin contribution by student/parent : NIL
• Repayment Holiday: For course duration of up to one year, 6 months from completion of course and for course duration of above one year, 12 months from completion of course.
• Repayment Period ranging from 2 to 7 years after the repayment holiday
• Interest Subsidy Scheme not applicable for this loan scheme.

For further details, please visit www.rcbw.org/files/­education loans schemes of banks of india.pdf and www.rcbw.org/files/vocational ­education loans schemes of banks of india.pdf.

Rtn. Aslam Merchant
RC Bombay West
 RI District 3140