Students from weaker economic backgrounds can now hope to get education loans at interest rates as low as four per cent per annum, with the government considering an institutional mechanism for ensuring affordable access.

The conference of State Education Ministers on Friday will discuss

among other things the setting up of a National Education Finance

Corporation (NEFC) as institutional mechanism to help students and

institutions get low interest loans.

The government is considering a provision to provide loans at a

rate of four per cent per annum to students with annual parental

income of less than Rs 4.5 lakhs, according to the agenda circulated

by the HRD Ministry for the meeting.

For students whose parental income is more than Rs 4.5 lakhs, the

loan is expected to be available at seven per cent per annum provided

the loan amount is less than Rs 12 lakhs.

It will also come with a provision of repayment in over six to 12

years with an option of back-loading interest with lower rates in

initial years and higher in later years.

The move is aimed at encouraging more students to avail the benefits

of banking facilities and achieve a higher enrolment in higher studies.

At present, the percentage of students seeking education loans for

higher studies is estimated to be a dismal nine per cent, and a basic

reason for this is that students belonging to low income families

face difficulties in accessing bank credit because of their inability

to provide adequate collateral security.

Banks had given Rs 35,000 crore in education loans last year. The

government has set a target to increase the amount in education loans

to Rs 122,838 crores in 2017 and Rs 1,66,541 crores in 2020. This

would help increase the enrolment ratio from present 12 per cent

to 30 per cent by 2020.

The proposed financial corporation will be a NABARD-like institution

in higher education and will raise debt by issue or sale of bonds

for augmenting resource from the market and will finance creation

of universities.

The proposed body will raise 42 per cent of its debt by issuing

bonds and debentures, 20 per cent through deposits, 14 per cent through

equity, reserves and surplus.

The NEFC would also attempt to nurture philanthropic tradition by

directly supporting at concessional rates of interest establishment

of any educational institution that has at least 25 per cent of its

project cost raised through donations or contributions from a large

number of citizens or agencies.