Education loans set to become more attractive

           The Ministry is planning to subsidize the interest rates on educational loans and intends to bring in down to as low as 4%. For the same, the Ministry is working on a refinance scheme.

         This would involve, setting up of a Special Purpose Vehicle (SPV) to refinance banks for giving educational loans at a rate of interest below the PLR. National Education Finance Corporate (NEFC) will have to be set up to refinance the banks.

        Impact: Banks have been witnessing defaults and non-payments on educational loans. This may change. Banks are set benefit on two counts- defaults should reduce because of low rate of interest charged to the borrower and even in case of defaults; banks will be able to cut their losses by virtue of subsidy provided by the government.

       It is intended that the rate of interest charged will be based on parent's income.

      *Parents with income less than Rs 4.5 lakhs p.a. will be charged 4%

      *Parents with income more than Rs 4.5 lakhs p.a. and requiring a loan of less than Rs 12 lakhs will get it at 7%
       *For loan amounts above Rs 12 lakhs, interest will be charged at 9%
          Impact: The highest rate of interest to be charged under the proposed structure i.e. 9% is lower than the lowest rate currently charged by banks, which is in the range of 10%-12% in most instances. This will certainly prove to be beneficial to students across the board.

       Repayment period: The ministry intends to increase the loan repayment period to 6-12 years from the current 5-7 years.

      Impact: This will reduce the pressure on the borrower by giving him/her greater amount of time for re-payment.

        The interest cost for the moratorium period will be paid by the government - So if the loan is for a period of 7 years, the interest for the first two years (study period) and one year moratorium (holiday period to find a job) will be paid by the government and for the balance 5 years, interest and principal will be paid by the borrower.

       Impact: Typically interest rate on the education loan starts accumulating as soon as the course is over. Since interest during the moratorium period will be paid by the government, EMI for the borrower is set to fall. This will reduce pressure on his/her cash flows.

         This is a proposal which has been submitted to the Planning Commission and has been discussed with them too.

        The Planning Commission is currently looking into the proposal of setting up a National Education Finance Corporation (NEFC) to refinance banks. Based on the feedback received, the ministry will prepare a formal note which will be submitted to the Cabinet for approval.

         If this proposal is approved by the Cabinet, educational loans will certainly be accessible to more number of students. 'Financial issues' will hopefully not deprive a student from pursuing higher education.

Pension arrears for pre-2006 PBORs would soon be disbursed.

         The Defence Minister Shri AK Antony has called for early disbursal of revised pension and arrears to Ex-Servicemen. Inaugurating the Controllers’ Conference of the Defence Accounts Department here today, Shri Antony asked the Defence Finance officials to expedite and further streamline the pension system for the Armed Forces personnel.

       “Even now, I am getting a lot of complaints from people that they are not getting pensions… Considering the past, things have improved, but even then complaints are there still… So you must take all steps possible so that they get their dues at the earliest,” Shri Antony said.

       Commending the Defence Accounts Department for facilitating the procurement of weapons and systems, Shri Antony noted that the capital expenditure, utilised last year, has been an all-time record. He called for transparent, timely and judicious use of Defence Expenditure. He said that the Government has tried to infuse more transparency in the huge Defence outlay, which is over Rs. 1.52 lakh crores for the current financial year.

       “Defence expenditure and procurement issues are complex and time-consuming and have a direct bearing on our national security. We have tried to infuse more transparency and efficiency into our procedures and systems. It is my firm belief that expenditure of public money must have an appropriate system of checks and balances”, he said.

        In his address to the gathering, the Minister of State for Defence Dr. MM Pallam Raju said that the Defence Pension Adalats have become an effective mechanism for grievance redressal on the ground. He hoped that the pension arrears for pre-2006 PBORs would soon be disbursed. Dr. Pallam Raju said that the Principal Controller of Defence Accounts (PCDA) would soon roll out the e-ticketing system for air travel. The PCDA Rail Booking System for e-ticketing would be introduced in another 200 Armed Forces units by next month and all units would be covered by the yearend, added Smt Nita Kapoor, Controller General of Defence Accounts (CGDA). The Secretary Defence Finance, Smt Indu Liberhan stressed the need for continuing institutionalized interaction between the Defence Finance and the three Services. The Comptroller and Auditor General of India Shri Vinod Rai said that since Defence Finance relates to a sensitive national security concern, the keyword for its success is the outcome and not simple accounting.

         The Chief of the Army Staff General VK Singh and Scientific Advisor to the Defence Minister Dr. VK Saraswat were among the dignitaries present at the inauguration of the three-day biennial conference.


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