Budget 2009: A mixed bag for students

Taking the HRD minister, Kapil Sibal's vision forward of revolutionising the education system (primarily school level), in India, finance minister, Pranab Mukherjee has laid emphasis on the cause of higher education. FM has announced an increase of Rs 2,000 crore in plan expenditure to Rs 9,596 crore besides other sops especially for students from weaker section of the society.

But is this really going to help?

Will it really make an impact on the future of students yearning for higher education?

Or is it that government continues to pay lip service to the cause of making higher education more accessible to Indian citizens through easier availability of education loans?

Or is it a public relations exercise, which may not have any significant effect on improving access to higher education.

Let's analyse what students have in store for them:

The government clearly knows that in education loans it is not the cost of the loans but availability of such loans without requirement of any collateral or a high-income guarantor that is holding back the access. World over this gap is filled by the governments funding or guaranteeing loans that are normally given by commercial lenders. The FFSAP (Federally Funded Student Aid Program) of the US government, for example, ensures that every student who gets admission in any recognised course is able to get a loan though it is not necessarily cheap.

But most borrowers do not mind paying commercial rates of interest as long as they do not have to pay anything during the course period and repayment begins after the course is over. Since government does not want to commit the kind of funds that such a programme will require, it has come up with this idea of subsidising the entire interest cost during the course period for students from the economically weaker sections.

This is of course helpful for a handful of economically weaker section students who manage to get these loans from banks, as it will reduce their liability when they actually start paying the loan back after the course is complete.

It will unfortunately be of no assistance to the vast multitude of poor students who are unable to get the loan in the first place. The finance minister in his speech has indicated that about 5 lakh students will benefit from this scheme. The number of economically weaker students who are able/eligible to get an education loan from banks is unlikely to be anywhere remotely near this figure. Clearly the government needs to commit substantial funds to make higher education accessible to the aam aadmi.

On the tax deduction relating to interest paid on education loans the definition of higher education has been changed to provide the deduction that will be allowed for interest paid on loan taken to pursue any course after SSC or equivalent.

Currently only loans taken for full-time graduate courses in engineering, medicine, management or postgraduate courses in applied sciences or pure sciences were eligible for this deduction. This is an excellent amendment as it substantially extends the scope of this deduction. Of course to be eligible for the deduction the loan needs to be taken only from a 'bank' (including Housing Development Finance Corporation Limited) or 'approved charitable institution'.

The issue is that banks are willing to provide loans only for a limited number of courses. Therefore to encourage private sector players such as NBFCs to provide education loans the requirement that the loan be taken only from a bank should also be extended to include NBFCs or other bodies/individuals to make this deduction more meaningful.