New Delhi: Education loan will now come at a reduced interest burden for the growing middle class of India. Government of India is working on a plan, which will take over the interest burden of education loans during the 'moratorium' period. This scheme is actively pursued by the Planning Commission, the Prime Minister's Office (PMO) and the Ministry of Human Resource Development (MHRD) and is expected to be implemented from the 2008 academic session.

Students do not pay monthly installments for their education loans in India during their course or till they attained a job. This period is called the moratorium period. The total interest component for this period is added to the principal once the repayment begins. Now, the Government has stepped in to bear this interest burden during the moratorium period.

This scheme will be available to more than five lakh students from middle-class families earning less than 2.5 lakhs per annum or less. Education loans will be available for professional and technical courses at both the under graduate and post graduate level like engineering, medicine, management, architecture or other such courses recognized by the Medical Council of India, University Grants Commission (UGC) or All India Council for Technical Education, among others.

This scheme will cost the Government around Rs. 650 crore per year or a total of Rs. 4000 crore for the entire 11th financial plan period. Students coming from families having a monthly income of around Rs. 20,000 will find this scheme very helpful. The only catch is that the Government wants to restrict this scheme to one loan per student. This effectively means that if a student has taken this benefit in a loan at graduate level he can't avail the benefit for a post-graduate level education loan.

The education loan segment in India is witnessing a boom with a larger number of students applying for professional courses both in India and abroad. The practice of a collateral being attached with education loans is slowly on the decline and bankers are now lending on the basis of the merits of the course and its future prospects. This step by the Government of India will provide a vital boost to this segment and infuse more confidence in bankers as they won't have to worry about the interest on their education loans during the moratorium period.