In a significant step towards making it easier for banks to give loans to needy students, the Government may soon stand as the guarantor for them. This will help ensure that needy students are not refused an education loan for want of a security or collateral.

The guarantee is going to be a key change in the new students’ education loan scheme being prepared by the UPA government. A meeting on this will be held in the Prime Minister’s Office (PMO) tomorrow, chaired by the PM’s Principal Secretary, T K A Nair. Sources told The Indian Express that the initiative for a “Central government-funded loan guarantee mechanism” was first proposed by the planning panel.

“This (the loan-guarantee) mechanism will cover 75 per cent of the total amount, in case of a default by students taking bank loans,” a source told the Express.

The facility will be available to all students who are enrolled in any central government-funded university or institution and other state government-funded or private institutions, which conform to certain quality standards.

Some in the government are of the view that the increasing use of credit cards by young students and professionals will allow the government to differentiate between genuine students who can pay and those who cannot. “For those who can’t, there will be an arrangement to write off the loans,” the official said.

Loans to students are currently regulated by the preceding NDA government’s education loan scheme of 2001. In this, although there is no need for giving security for loans of up to Rs 4 lakh, many students are refused the money. For loans above Rs 4 lakh, a collateral or co-obligation of parents is demanded.