INDIA: Loan subsidy scheme fails students

India's much-touted education loan guarantee scheme seems to have failed in the first year of implementation. Flooded by complaints from students and yet to receive claims from banks, a worried education ministry has asked the finance ministry to intervene, government sources said.

The Education Ministry has received numerous complaints from students that banks are not assisting them in accessing the scheme.

And no bank implementing the loan subsidy programme has sought any government reimbursement yet, triggering fears that the scheme may have failed students.

Earlier this year, Education Minister Kapil Sibal said the scheme would reduce the burden of education loans on poorer families. It was a policy aimed at increasing the proportion of young people in higher education and at improving access for lower income families.

Sibal's ministry agreed to pay a full-interest subsidy on loans from banks to economically disadvantaged students. Interest payable by the student for the length of the course plus one year, or six months after getting a job - whichever is earlier - would be borne by the state.

The ministry set aside five billion rupees (US$106.6 million) in the 2010-11 budget for education loan interest subsidies.

Banks are expected to seek reimbursements for interest subsidies through the education ministry at the end of each half-year or end of the academic year.

The education ministry has written to the finance ministry, asking it to urge banks to submit claims as early as possible. "The scheme is effective from the academic year 2009-10 and this ministry has not received any claim from the member scheduled banks so far," the letter said.

It followed a series of letters to over 150 member banks of the Indian Banks Association implementing the scheme, asking them to put in place all mechanisms to help students.

But the letters to banks have not stopped a flow of complaints from students, parents and even MPs, occasionally, on behalf of constituents, informing the education ministry that banks are not assisting students.

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I am very dissatisfied by this lazy approach of bank activity. What a foolish game these people are playing.

Hemant Joshi