In the absence of an authority to issue income certificates, students from several states are finding it difficult to get interest subsidy on education loans offered by the union government. This has also hampered banks from disbursing loans to needy students

Nearly a year after the central government finalised a scheme to provide interest subsidy on education loans for students from the economically weaker sections, many states and union territories have still not designated the income certificate issuing authority.

Canara Bank is the nodal bank for member banks of the Indian Banks' Association (IBA) to claim reimbursement of the interest amount. The scheme was planned and the details worked out by the Ministry of Human Resource Development over a year ago. But according to data on the Canara Bank website, as many as 28 states and union territories are yet to designate the income certificate issuing authority.

According to the ministry, under the scheme formulated by the IBA, full interest subsidy will be provided during the period of moratorium on education loan for students from families with an annual income of less than Rs4.5 lakh.

The ministry said recently, "Under the scheme, proof of income is required to be certified by authorities to be designated by the state governments. Accordingly, the ministry has written to all chief secretaries of states/union territories to intimate the designated authority/authorities (at the district/sub-district/block, etc levels) to the district level consultative committee (DLCC), so that banking authorities at the branch level where students apply for the loans, would be aware of the same. The eligible students may get the details of designated authorities from the concerned branch of the bank where they have availed of the loan."

Several banks have been trying to help students avail of the scheme, but their efforts have been hampered as students have not been able to find the authority that will issue an income certificate.

"We have already sent the claims to the nodal banks. But many of the states are yet to designate the income certificate issuing authority," said a senior official at a public sector bank that has its headquarters in Mumbai.

An Indian Bank official, who requested anonymity, told Moneylife that, "We have received and credited claims of more than 50,000 students. We forwarded these claims on the interest subsidy on education loans to Canara Bank for 2009-10. But a few states are yet to identify the authority to issue income certificate."

Students have complained they cannot identify the authority. One such complaint on the www.conumercourt.in reads: "I had taken education loan for my son studying in BITS Pilani, Hyderabad Campus. When the Central government decided to give interest subsidy for EWS, I applied for the same. However, the SBI authorities asked me to get an income certificate signed by MRO (tehsildar). On approaching my tehsildar, he said that there is no go which authorises me to sign income certificate. I had shown the memo issued by principal secretary to government to all collectors, but the MRO insists that he will not sign the income certificate and the SBI are not willing to accept my application. I am caught between the devil and deep sea (state and central governments)."

Meanwhile, the ministry has announced that 20 July 2011 is the last date to submit certificates to their respective branches, so that interest could be credited with interest due on the loans taken during the academic year 2009-10 onwards.

The current scheme on education loans also allows a deduction under section 80E of the Income-Tax Act for interest paid on the loan.