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Student loan subsidy comes under scanner - Centre's four-state logic contested

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By Basant Kumar Mohanty
  • Published 24.01.15

New Delhi, Jan. 23: The finance ministry has received a proposal to cut a UPA-introduced subsidy that allowed poor students to access interest-free bank loans for professional and technical education, government sources have told The Telegraph.

The proposal came from Smriti Irani's human resource development ministry, which wants the students to pay more than 50 per cent of the interest as a first step before eventually stopping the subsidy, they said.

The finance ministry's department of financial services is yet to take a decision, they added.

Apart from the Narendra Modi government being generally less subsidy-friendly than its predecessor, the move has apparently been prompted by a specific discovery.

It's been found that nearly three-fourths of the scheme's beneficiaries are concentrated in four states: Andhra Pradesh, Karnataka, Maharashtra and Tamil Nadu.

"The government, therefore, feels the scheme is not reaching all the eligible students," a source said.

However, the Indian Institute of Management, Bangalore, tasked in May to study the regional imbalance, is yet to hand in its report.

A year ago, this newspaper had pointed out that the beneficiary figures referred not to students hailing from these states but to those studying there.

So, these southern states' figures would have been boosted partly by the large number of outside students who enrol in the region's array of professional colleges with loans from local banks.

One other reason, analysts had said, was that awareness about the education loan scheme was higher in the south.

A former Mumbai University vice-chancellor, B.L. Mungekar, said that reducing the subsidy was "unacceptable".

"The government should instead increase the funds to ensure that all eligible students get the interest waiver," he said.

Mungekar added that let alone the poor, even middle-class students struggled to pursue technical education in private institutions because of the high fees.

Students whose parents earn less than Rs 4.5 lakh a year are eligible for the scheme, introduced by the UPA from the academic year 2009-10.

They are also allowed a moratorium on repaying the principal for the course period plus one year or six months after getting a job, whichever is earlier.

Since the government pays the interest on their behalf, students get the benefit subject to funds availability. Thousands of eligible students who apply are disappointed every year because the funds have run out.

The Planning Commission had raised several objections to the way the scheme was being implemented and asked the government to probe the skewed regional distribution of beneficiaries.

Till last year, the scheme had benefited about 18 lakh poor students. The amounts sanctioned for the scheme were Rs 203.28 crore in 2010-11, Rs 697 crore in 2011-12, Rs 800 crore in 2012-13, Rs 1,000 crore in 2013-14, and Rs 1,581 crore in 2014-15.

Apart from the regional imbalance, one reason for the proposal is the overall economic situation, an official said. The finance ministry this month shaved Rs 3,900 crore off this financial year's higher education budget of Rs 16,900 crore.

One programme the cut will affect is the Rashtriya Uchchatar Shiksha Abhiyan, meant for the development of higher education.

Another to suffer would be the proposed Credit Guarantee Authority, envisaged to compensate banks for a portion of the sums defaulted by student borrowers so that the banks don't cut down on education loans. A sum of Rs 500 crore had been earmarked for this.