Education loan subsidy still a far cry for many

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CHENNAI: An eight-year-old scheme where the interest on education loans taken by poor students is completely subsidised for the study period is not being properly implemented by public sector banks, government records show. In many cases, banks are forcing students to pay the interest despite being eligible for the subsidy. This is one of the reasons for many education loans turning into Non-Performing Assets (NPAs), say activists.

Under the 2009-launched Central Sector Interest Subsidy Scheme (CSIS), the Centre enabled interest subsidy for students with annual family income below Rs4.5 lakh. This is for loans under the Indian Banks Association (IBA) model scheme for professional/technical education. The interest charged to the loan accounts till the end of the moratorium period, the course period plus one year, will have to be claimed by the bank from the Union ministry of human resource development(MHRD).

Tamil Nadu and Kerala lead the country with the maximum education loans as well as CSIS beneficiaries, according to a government report. Around 40% of all education loans are covered by CSIS scheme, a document shows.

A portal is opened every year and individual banks are responsible for claiming the eligible subsidy correctly within the time-schedule. MHRD reimburses it through Canara Bank, the nodal institution.

Internal government documents show banks fail to apply for subsidies in time and don’t guide students/parents. Awareness about the scheme, despite being in public domain, is low, officials said. From 2009 to 2014, banks failed to claim the interest subsidy for numerous accounts, transferring the burden on to students. In 2013-14, MHRD released only 25% of the subsidy against the total claims made. As of July this year, MHRD is yet to release funds for 2015-16, the document shows.

Many banks are also wrongly claiming subsidy for ineligible accounts and re-funding it to the government, documents show. During 2009-14, banks claimed subsidy for loans given for foreign education as well, which is not covered under CSIS.

Adding the interest rate during the moratorium period increases the outstanding amount by 45%, the government report shows. A student in Tamil Nadu said jobs were hard to come by and the additional interest was like a ticking time-bomb.

Education Loan Task Force convener K Srinivasan said banks should upload all details of CSIS beneficiaries and behave in a transparent manner.

An MHRD official directed queries to Canara Bank, while the bank and TN’s state level bankers committee (SLBC) did not respond to a questionnaire.