Financing higher education and education loans in India: interstate differentials and determinants

Abstract

An attempt is made here to examine financing of higher education across states using interest subsidy as a case of reference. Hence, we make an analysis of the relative shares of interest subsidies in student loans, enrolment, etc. The paper uses various published and unpublished secondary sources to answer these questions. Using the pooled OLS regression across 23 states for the period from 2008–2009 to 2012–2013, the present paper attempts to explore the question whether government expenditure on higher education and student loan is substitutes or complements. Also the present paper attempts to estimate the magnitude of influence of state income on government expenditure on higher education. Other factors such as institutional access, secondary school enrolment rate, share of young population and region are included as explanatory variables in the models. The interstate disparity can be understood better if we examine the enabling environment to access interest subsidy. In other words, we raise certain basic questions such as: How is higher education distributed across states? How this distribution has evolved overtime?

Appendix: Interest Subsidy Scheme to Education Loans to Economically Weaker Sections

Realizing the scheme’s insensitivity to low-income students, Government of India in its Union Budget 2009–2010, after a decade of loan’s operation, introduced a supplementary scheme to provide interest subsidy during the period of moratorium. The Department of Higher Education, Ministry of Human Resource Development, Government of India, has launched this interest subsidy scheme with the main purpose of helping economically weaker sections. Canara Bank is Nodal Bank designated by MHRD to administer interest subsidy to scheduled commercial banks. The interest moratorium is attributed to be identified beneficiary loan accounts during each year. The details of the interest subsidy scheme include the following:

• Students belonging to economically weaker sections with annual gross parental/family income from all sources with an upper limit of Rs. 4.50 lakhs.

• Certificate to this effect issued by authorized officers of state government is to be submitted. The state governments designate district- and block-level revenue officials to vet the papers that applicants furnish as a proof of family income.

• Only for educational loans availed from scheduled banks for pursuing any of the approved courses after Class XII in technical and professional streams from recognized institutes in India.

• Full interest subsidy is available for the period of moratorium, i.e. course period plus 1 year or 6 months after getting the job, whichever is earlier. Interest on outstanding loan amount to be paid by student;

• Interest subsidy is available to the eligible students only once, either for the first undergraduate degree course or the postgraduate degrees/diplomas. Interest subsidy is admissible for combined undergraduate and postgraduate courses;

• Interest subsidy is not available either for those students who discontinue or for those who are expelled from the institutions on disciplinary or academic grounds but available for discontinuation due to medical grounds.

• Scheme is applicable for the loan amount availed from 01 April 2009 to 31 March 2010 (academic year 2009–2010).

• Those students who availed this interest subsidy will get 1% concession in interest rates as per the design of the IBA scheme on education loans (for details www.mhrd.nic.in) (Table 9).

  Table 9 Region and States